How do Managers use Management Control Systems in Response to Shareholder Activism?

• Published in: The European accounting review 2024-01, Vol.33 (1), p.105-132
• Main Authors: Anzilago, Marcielle, Gomez-Conde, Jacobo, Lunkes, Rogerio J.
• Format: Article
• Language: English
• Subjects: Activism; Analyst recommendation; Control systems; Diagnostic use; Interactive use; Management control systems; Shareholder activism; Stockholders
• ISSN: 0963-8180; 1468-4497
• DOI: 10.1080/09638180.2022.2063152

We study how managers interactively use management control systems (MCS) in response to shareholder activism in a context of performance declines. We predict that broad-scope MCS design is a key factor that helps explain variation in the level of interactive use. In addition, we argue that the extent to which diagnostic use of MCS alleviates shareholder pressures depends on analysts' recommendations. We empirically test our hypotheses with survey and archival data. Data on shareholder activism is hand-collected. The results provide support for our predictions, suggesting that managers use MCS interactively to assuage shareholder activism in the context of performance declines. This effect is less pronounced for managers equipped with broad-scope information from their MCS. Our findings indicate that in a setting of favorable analysts' recommendations, managers use MCS diagnostically instead of interactively to cope with shareholder activism. Overall, the findings may help inform our understanding of how firms manage shareholder activism from a management control perspective.