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The Valuation of Management Control Systems in Start-Up Companies: International Field-Based Evidence

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  • Antonio Davila
  • George Foster
  • Ning Jia

Abstract

The question of whether management control systems (MCSs) adopted by start-up companies are valuable is examined. We investigate an international sample of start-ups, including their detailed MCS adoptions and financing histories. We find that higher MCS intensity, which is measured as the number of systems adopted at year-end immediately prior to the financing round, has a positive impact on company value. We also find that equity financiers value MCS more than do debt financiers. The valuation implication is more pronounced for start-up companies operating in highly competitive environments and with higher growth. We also document a positive relation between change in MCS intensity and change in firm value. Additional analyses show that higher company valuation is found for companies that align their MCS choices with their strategic positioning. In particular, systems that implement strategy are perceived to be more important and valuable than others. Overall, our paper provides new evidence for the debate concerning the merits of formal control in start-up companies.

Suggested Citation

  • Antonio Davila & George Foster & Ning Jia, 2015. "The Valuation of Management Control Systems in Start-Up Companies: International Field-Based Evidence," European Accounting Review, Taylor & Francis Journals, vol. 24(2), pages 207-239, June.
    • Handle: RePEc:taf:euract:v:24:y:2015:i:2:p:207-239
    DOI: 10.1080/09638180.2014.965720
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    Cited by:

    1. Romina Gómez-Prado & Aldo Alvarez-Risco & Berdy Briggitte Cuya-Velásquez & Marián Arias-Meza & Nilda Campos-Dávalos & Luis Juarez-Rojas & Maria de las Mercedes Anderson-Seminario & Shyla Del-Aguila-Ar, 2022. "Product Innovation, Market Intelligence and Pricing Capability as a Competitive Advantage in the International Performance of Startups: Case of Peru," Sustainability, MDPI, vol. 14(17), pages 1-21, August.
    2. Simone Aresu & Luigi Rombi & Andrea Cardia, 2019. "Management accounting systems in venture capital-backed start-up companies," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2019(3), pages 35-58.
    3. Franco Cescon & Luca Grassetti, 2021. "Financial control and business strategy in start-up companies: An empirical analysis," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2021(suppl. 2), pages 189-214.
    4. Carmona, Salvador & Ezzamel, Mahmoud, 2016. "Accounting and lived experience in the gendered workplace," Accounting, Organizations and Society, Elsevier, vol. 49(C), pages 1-8.
    5. Andreas Köhn, 2018. "The determinants of startup valuation in the venture capital context: a systematic review and avenues for future research," Management Review Quarterly, Springer, vol. 68(1), pages 3-36, February.
    6. Samagaio, António & Crespo, Nuno Fernandes & Rodrigues, Ricardo, 2018. "Management control systems in high-tech start-ups: An empirical investigation," Journal of Business Research, Elsevier, vol. 89(C), pages 351-360.
    7. Giulia Cattafi & Giovanna Mariani & Francesco Pistolesi & Domenico Nicol?, 2023. "Cheating in the evaluation. An expedient to estimate the impact of intangibles on the enterprise value of the high-growth start-ups," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2023(3), pages 193-218.
    8. Jacobo Gomez-Conde & Ernesto Lopez-Valeiras & Fabricia Silva Rosa & Rogério João Lunkes, 2023. "The effect of management control systems in managing the unknown: Does the market appreciate the breadth of vision?," Review of Managerial Science, Springer, vol. 17(8), pages 2769-2795, November.

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