Management Control Systems in SMEs: The Role of Cost Control in Working Capital Management

Small and medium-sized enterprises (SMEs) are considered the backbone of modern economy. Still, little is known about management control (MC) practices in SMEs. The scarce evidence shows that cost control is one of the most important MC practices in SMEs. We however lack a deeper understanding of how cost control is relevant as part of the management control system in SMEs to efficiently manage working capital. Addressing working capital management as a specific control problem in SMEs for business continuity, we examine the interdependency between cost control and measure diversity, and interactive use of budgets and performance measures, respectively. We further theorize and test how organizational growth and size affect the interdependency of cost control and measure diversity. Our analyses are based on matched archival and survey data collected from 223 SMEs. This study contributes to the literature on design choices of MC practices in the underdeveloped realm of SMEs.