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The Effectiveness of Management Control in Small Firms: Perspectives from Resource Dependence Theory

Authors


Address correspondence to: U. Voss, Business & Economics, RWTH Aachen University, Aachen 52072, Germany. E-mail: voss@win.rwth-aachen.de.

Abstract

In the present study, the authors explore how small firms' human resource management (HRM) systems influence the effectiveness of their formal and informal management controls. Coinvestigations of broader control systems and HRM in small and medium-sized enterprises (SMEs) are significantly lacking in the existing literature. A better understanding of the links between control and HRM will lead to better prescriptions regarding how control relates to performance in small firms. To address this gap, the authors develop a theoretical model based on Green and Welsh's seminal application of resource dependence theory to management control and test its propositions using structural equation modeling on a sample of 317 SMEs. The empirical findings suggest that control has a stronger effect on SME performance if the firm emphasizes HRM. Managers should employ a portfolio consisting of both formal and informal controls. The paper closes with discussions of its implications for theory and managerial practice, highlighting limitations and potential future research avenues.

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