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Abstract

Strategic management accounting (SMA) supports managers in decision-making and activity control to accomplish both short- and long-term objectives. This study, based on the Upper Echelons Theory (UET), investigates how the CFO’s psychological trait—the propensity to take managerial risks, affects the decision to choose prospector strategy and uses SMA information. The main objective of this study is to find out what factors influence the behavior using SMA information. This study also takes into account the internal locus of control “s moderating role effect in some relationships. The CFOs of Vietnamese major manufacturers are investigated. The results have shown that: (1) the lower of the historical performance, the more likely CFOs are to choose the prospector strategy, the more CFOs have managerial risk-taking propensity, the more SMA information usage behavior increases; (2) the more CFOs have managerial risk-taking propensity, the more likely they are to choose the prospector strategy, and the behavior of using SMA information also increases; (3) the CFOs” internal locus of control (ILOC) trait plays a moderator role in increasing their SMA information usage behavior and prospector strategy selection trend. This study adds to accounting expertise by highlighting the significance of SMA information for decision-making, the CFO’s management risk-taking propensity, and helping top managers develop an effective SMA system.

Plain Language Summary

Low historical financial performance and managerial risk-taking propensity impact the utilization of strategic management accounting information in Vietnamese manufacturing

Strategic management accounting is an innovative management accounting tool that has been proving its usefulness when supporting upper managers in making strategic decisions. This study used UET as the foundation theory to establish and test the relationships between low historical financial performance—managerial risk taking propensity—the choice of prospector strategy—using SMA information. In addition, this study also examines the moderator role of the internal locus of control in some relationships. This study surveyed 218 CFOs in medium and large manufacturing enterprises in Vietnam, all relationships were statistically significant. The results of this study have shown that low historical financial performance is an antecedence factor which affecting on the managerial risk-taking propensity in management of CFOs, as well as affecting the choice of a risky strategy such as prospector strategy. And it all affects the use of SMA information. This result implies that the designers of the SMA system need to pay attention to the organization’s own factors such as the past financial performance, as well as the strategic characteristics that the organization is pursuing, and especially the SMA system must fit with the psychological personality of the upper managers (CFOs). In order to create the appropriateness in the operation process of the organization toward improving the efficiency of Vietnamese manufacturing enterprises

Keywords

historical financial performance managerial risk-taking propensity strategic management accounting

Introduction

Innovation in management accounting occurs when a company uses a new management accounting method or tool for the first time (Burritt et al., 2019; Damanpour, 1991). We are interested in the techniques and processes that have been created over the past 20 years with reference to management accounting innovation (Cadez & Guilding, 2008; Nik Abdullah, 2020; Thien & Hung, 2023), and this study specifically focuses on SMA practices.

In order to build and support the business’s strategy, managers who work with SMA must learn about a company’s operations, manage expenses and evaluate them against those of rivals, analyze customer profitability, and gather both financial and non-financial data (Roslender & Hart, 2010). Numerous studies that have examined SMA have come to the conclusion that both the company’s internal environment (such as strategy, size, and decentralization) and the outside world (such as PEU) have an impact on the use of SMA information (Cadez & Guilding, 2008; Liem, 2021; Pavlatos & Kostakis, 2015; Thien & Hung, 2023; Turner et al., 2017). However, there are still very few studies looking at the antecedent factors that influence SMA practices, particularly other aspects of the internal environment of the firm and the personalities of the managers. Prior to now, research has mostly focused on advancing our understanding of the factors that influence corporate risk taking and performance, with little attention paid to managerial risk taking by individuals like CFOs. Although the propensity of CFOs to take risks throughout the decision-making process has been researched in the strategic management sector (Wangrow et al., 2015), the accounting field has yet to fully explore this psychological trait of CFOs.

Another element that may affect the need for an organization to implement innovative management accounting is its past performance (Mone et al., 1998). In the general management literature (Mone et al., 1998) and under the pressure of strong technological development (Dong et al., 2022; Yin & Yu, 2022), businesses that have performed particularly poorly over the prior period will have a relatively high, and possibly urgent, need to reform their systems. According to Almatarneh et al. (2022), management accounting plays a crucial role in the 21st century in integrating different information sources and elucidating the relationship between implementation strategies and their respective results. Other researchers have shown that low performance has a favorable impact on managers’ willingness to take risks (Bromiley, 1991) and that low-performing organizations are more likely to make hazardous structural innovations (Bolton, 1993). Nik Abdullah et al. (2022) indicate that there are several key similarities between SMA and the literature on accounting and strategy in close relationships among organizations. It is clear from the aforementioned literature that historical performance, the CFO’s managerial risk-taking trend, the choice of strategy, and using SMA information are all related. But this issue has not received much attention in previous studies. At present, modern economic operations make extensive use of SMA information, which increases economic efficiency, hastens the development of the economic structure, and has emerged as a key accounting tool. Therefore, it is crucial to investigate how manufacturers utilize SMA information. In the study of SMA information, the impact of the organization’s historical performance, the strategy chosen by upper manager, and the CFO’s psychological characteristics cannot be ignored, and it is worth our while to study them.

This study sets out and addresses two main objectives, which are to examine the direct effects between the research variables and the moderator effects in the research model which the direct effects between the variables are low historical performance, managerial risk-taking propensity, prospector strategy and using SMA information. In particular, studies of management accounting have not taken into account the ILOC described by Hambrick and Finkelstein (1987), which moderates the link between the psychological state of top executives and the organization’s strategy/complex administrative system (Bagherpour Velashani & Moradi, 2022; Liem, 2021; Plöckinger et al., 2016; Wangrow et al., 2015). The behavior of upper managers will be moderated by their ILOC, which will then have an impact on the entire organization (Hambrick & Mason, 1984).

Hambrick and Mason (1984) established the Upper Echelons Theory (UET), which was later expanded and reinforced by Hambrick and Finkelstein (1987) and Hambrick (2007). However, recently, this background theory has begun to be used to build research models in the field of design but is still very limited in use (Liem, 2021; Liu & Ji, 2022; Zor et al., 2019).

The researcher is still unconcerned with the connection between upper managers’ psychological traits, strategy choice, and using SMA information in transitional economies like Vietnam. This is the first study in which the authors use the same research methodology for analysis to evaluate the correlations between historical financial performance, managerial risk-taking propensity, the use of SMA information, and the choice of prospector strategy. A fundamental paradigm shift and a mentality that thrives on chaos are also necessary because, as Viet Nam moves from a centrally planned to a market-based economy, fundamental managerial assumptions, rules, and decision-making are changing. (Justin Tan & Litsschert, 1994, p. 3). SMA practice will assist in having the necessary knowledge to make decisions, particularly while implementing a strategy. Selecting the right Vietnamese companies to look at how widely SMA information is used and practiced is crucial. The findings of our study imply that using SMA information can improve organizational performance, so firms in the Anglo-American block (for instance, Australia, the United Kingdom, and the United States) that seek to start a business in a transitioning economy like Vietnam.

Literature Review and Hypothesis Development

Upper Echelon Theory (UET)

UET was first presented by Hambrick and Mason (1984) and quickly gained popularity because it examined how factors like demographics and psychology affected the decisions made by upper managers (Figure 1—UET model). More specifically, there are two categories of attributes that can be used to describe upper managers: observable traits and psychological traits. Age, work tenure, educational and professional experience, socioeconomic origin, and financial position are examples of observable features (Hambrick & Mason, 1984). According to Moussa et al. (2023), psychological aspects include a set of beliefs, ideas, and personality traits of the executive. Strategic choices and administrative complexity systems (SMA can be seen as an administrative complexity system) will be affected by the personalities of upper managers.

Figure 1.

Upper Echelons Theory conceptual model (Adjusted from Hambrick and Mason, 1984, p. 198 and Hiebl, 2014, p. 225).

Based on UET, this study investigates how the CFO’s managerial risk-taking propensity, prospector strategy choice, and use of SMA information are affected by historical financial performance. Hambrick (2007) updated UET to moderate the relationship between psychological traits and the organization’s control system or strategy. However, the moderator role has not been taken seriously in the studies.

A complex administrative system such as SMA contributes to effectively supporting CFOs in performing their task of operating a manufacturing business as well as implementing the chosen prospecting strategy. Stemming from the highly superior nature of the SMA, the information obtained from the SMA can be seen as a tool to implement the strategy of CFOs. This study adds to the body of knowledge by demonstrating the connection between management risk-taking tendencies and CFOs’ utilization of SMA information in the context of the Vietnamese economy. In particular, the more manufacturing companies working in a market that is undergoing fast change and subject to many conditions, like Vietnam, the more valuable SMA information becomes to them.

Recently, many studies have also relied on UET for accounting-related academic studies. Some studies have selected antecedent factors that are external characteristics of the organization: the dynamic environment’s impact on the characteristics of upper managers is: age, education, etc. and administrative complexity or choice of strategy are: management accounting system, cost management system, and cost leadership strategy (Liem, 2021; Liem & Hien, 2020a; Pavlatos & Kostakis, 2018). In the same direction as the combination of such research variables, in this study, with organizational characteristics, we choose internal organizational characteristics: historical performance; the characteristics of upper managers are: managerial risk-taking propensity; internal locus of control; the strategy is: prospector strategy; and the administrative complexity is: SMA.

Historical Financial Performance

Mone et al. (1998) gave the first description of organizational decline as a drop in the organization’s basic resources. Studies have shown that a drop in these resources often includes things like a loss of market share, a drop in finances, a drop in product demand and sales. Naranjo-Gil et al. (2009) say that the acceptance of new management accounting tools could be affected by how well they have worked in the past. In this study, we look at how the group has been losing money and how that has changed over time. Based on a lot of research on general management (Lant et al., 1992; Mone et al., 1998), organizations that have done very poorly in the past will need to change their risk management processes and risk strategy decisions quickly. According to empirical literature, managers are more willing to take risks and implement innovations in companies that are experiencing performance downturns (DasGupta, 2022; Liem, 2021; Liem & Hien, 2020a).

Prospector Strategy

Organizational strategies were categorized by Miles et al. (1978) into four groups: defender, prospector, analyzers, and reactors. Prospector-type firms stand out for their energy in looking for new market prospects, as well as their desire and aptitude to create new products and innovative solutions to meet consumer expectations (Maury, 2022). Prospectors that exhibit these traits are quick to adapt to new situations and discover new products and markets. Organizations engaged in prospector strategy initiatives tend to increase organizational performance and successfully utilize information technology. Companies like these are the pioneers in their industry, constantly innovating and responding swiftly to market shifts (Kalkan et al., 2011). When analyzing each strategic trait, Miles et al. (1978) determined that the prospector strategy posed the greatest risk because it required a significant amount of corporate resources and had the potential for financial loss if the business lacked adequate control and supervision.

Strategic Management Accounting

SMA is an element of management accounting that analyzes both internal and external information that is not monetary in nature (Drury, 2013). Managers lacked the tools necessary to keep an eye on customers and rivals as a result of the lack of information provided by traditional management accounting methods (Guilding et al., 2000), which led to the development of SMA. Simmonds used the term “strategic management accounting” for the first time in 1982. Simmonds (1982) defined SMA as providing and analyzing managerial accounting information about a company and its competitors so that it can be used to make and track business strategy (p. 26), suggesting a connection between strategy and SMA, which places more emphasis on the enterprise’s external environment (such as competitors and competitive position) (Roslender & Hart, 2010; Simmonds, 1982; Thien & Hung, 2023).

Managerial Risk-Taking Propensity

A person’s risk propensity can be defined as their current propensity either toward taking risks or staying away from them (Sitkin & Weingart, 1995; Ul Abdin et al., 2022). A person’s decision-making situations and actions are significantly impacted by their propensity for taking risks, according to Lopes (1987). Risk-taking is not gambling since people can still manage their risks even when they make risky choices (March & Shapira, 1987). To put it another way, decision-makers take risks but must prefer winning to losing (Shapira, 1986). Because before introducing new goods or services to the market, an executive cannot be certain that they will satisfy client demands or be profitable, risk is a key component of business (Tang & Tang, 2007).

Internal Locus of Control

According to Hambrick and Finkelstein (1987), management discretion, which refers to the extent of administrators’ influence, is the range of managerial options available to a decision-maker (such as a senior manager) in a particular circumstance. According to UET, the correlation between higher managers’ demographic traits and their selection of strategy and outcomes is moderated by management discretion. According to Hambrick and Finkelstein (1987), managerial discretion is determined by three variables: (1) human variables, (2) organizational variables, and (3) environmental variables. Individual elements that have an impact on management discretion stand out as being especially subtle (Wangrow et al., 2015). Managers have a personality trait known as locus of control that is connected to the individual level and may have an impact on management discretion (Hambrick & Finkelstein, 1987; Wangrow et al., 2015). The externals and the internals are the two components of LOC. People with ILOC personalities often think positively and try to act to achieve the goals they set (Lefcourt, 1982).

Hypothesis Development

The Impact of Low Historical Financial Performance on Choosing Prospector Strategy

In contrast to performance that met or surpassed objectives, Lant et al. (1992) discovered that performance below aspirations led to riskier and more creative decisions. Bowman (1984) proposed that managers of failing enterprises take on greater risk. Additionally, a number of studies (Hsu, 2011; Malek Akhlagh et al., 2013) indicate that the prospector strategy is more frequently used in larger innovation-oriented firms. According to Miles et al. (1978), the prospector strategy is the most risky while assessing each strategic feature.

H1: With low historical financial performance, CFOs will choose the prospector strategy.

The Impact of Historical Financial Performance on Managerial Risk-Taking Propensity

Bowman (1984) suggests that managers of failing enterprises take on greater risk. He backed up his argument with a content analysis of stockholder annual reports from underperforming companies. Low financial performance encourages businesses to take more risks (Bromiley, 1991). In addition, underperformance in comparison to expectations results in higher risk taking by upper managers in larger organizations (Audia & Greve, 2006; Greve, 2011). Additionally, in reaction to poor performance, managers could take more risks (Gaba & Joseph, 2013).

H2: CFOs will be more likely to take managerial risk in companies with low historical financial performance.

The Impact of Low Historical Performance on Using Strategic Management Accounting Information

Greve (2003) and Hundley et al. (1996) provided evidence of higher R&D intensity in businesses that were experiencing declining profitability. Similar to this, Zajac and Kraatz (1993) demonstrated that administrative changes in the higher education sector were related to resource constraint and financial distress. Since underperformance is often linked to a lack of relevant management information offered by regular management accounting, it is expected that low performance will drive more creative approaches to management accounting (Johnson & Kaplan, 1987). In the past few years, Pavlatos and Kostakis (2015) studied hotels and came to the conclusion that poor operational performance in hotels has an impact on using SMA information.

H3: CFOs at companies with historically underwhelming financial performance will use SMA data more extensively.

The Impact of Managerial Risk-Taking Propensity on Choosing Prospector Strategy

Upper managers’ risk-taking propensity psychology makes them particularly well-suited to high-risk strategies. A prospector approach has risky qualities because it necessitates the creation of new products and market entry while being heavily influenced by unstable environments and methods of implementation (Miles et al., 1978). Risk-taking behaviors should be positively correlated with innovative activities, and the execution of creative ideas should be encouraged to produce high levels of variety in the organization’s results (March, 2010). That is why a manager’s willingness to take risks promotes the ability to employ potentially harmful and novel strategies.

H4: Managerial risk-taking propensity has a positive impact on choosing prospector strategy.

The Influence of Managerial Risk-Taking Propensity on Using Strategic Management Accounting Information

CFOs require a decision-supporting tool in order to control risks (Liem & Hien, 2020a). In strategic decision-making, upper managers view a variety of information differently (Finkelstein & Hambrick, 1990). This is particularly true for people who make high-risk strategic decisions (Jensen & Zajac, 2004). According to Tillmann’s (2003) argument, SMA information aids in making strategic decisions. Drury (2013) claims that it offers information on the industry’s competition (specifically, the costs of competitors), information on strategic positioning, and information on creating a competitive advantage through value chain analysis. Using SMA information in this context is critical for evaluating risk (including risk gathering, reporting of risk, and risk assessment), reducing management decision-making uncertainty, and helping risk management activities.

H5: The CFO’s management risk-taking propensity will have a beneficial influence on SMA information.

The Impact of Prospector Strategy on Using Strategic Management Accounting Information

SMA information includes benchmarking, integrated performance evaluation, competition accounting, strategic pricing, and decision-making to provide a more external, long-term, forward-looking, and strategic perspective (Cadez & Guilding, 2008). Along with competition accounting, attribute accounting and strategic costing, it also incorporates customer accounting. According to most research (Liem, 2021; Naranjo-Gil et al., 2009; Pavlatos & Kostakis, 2015), more sophisticated management accounting (i.e., SMA) is necessary for more proactive and complex strategies (i.e., prospector strategy). For instance, measurements that concentrate on these performance factors need to be included in the organization’s SMA system if the organization’s strategy places a high priority on customer happiness, new product development, and adaptability (Baines & Langfield-Smith, 2003).

H6: Companies that use a prospector approach and their CFOs will use SMA more widely.

The Moderator Role of the CFO’s Internal Locus of Control

According to UET, ILOC moderates the relationship between top management traits and organizational strategy (Hambrick & Finkelstein, 1987). In order to manage emotional tiredness, reduce depersonalization, and increase professionalism, upper managers need higher ILOC (Miller & Friesen, 1982) in order to be better at dealing with complex and unstable situations. Performance degradation will be minimized as a result (Sirén et al., 2018). Additionally, due to their different leadership styles, CFOs are more adept at persuasion and have greater confidence in their ability to change the environment (Boone et al., 1996). Because prospector strategy is risky, Wangrow et al. (2015) found that the more managerial discretion, the more a firm has in choosing and pursuing prospector strategy.

H7a: When the CFO has a greater ILOC, the effect of the CFO’s managerial risk-taking propensity on the prospector strategy choice will be higher.

The CFO requires a method to monitor the execution of the chosen strategy so that they can take prompt corrective action if the task is not completed as expected. This system must, however, also fit their personalities. Information relevance is something that CFOs with ILOC are more likely to be aware of (Lefcourt, 1982). According to Otley et al. (1995), SMA is the best technology for integrating various activities related to strategy development, carrying out those integrated activities, and establishing clear responsibility. SMA may also be able to combine and integrate information from various areas of a business (Collier, 2015). The link between management risk-taking propensity and the utility of SMA information is positively impacted by ILOC’s moderating influence.

H7b: When the CFO has a greater ILOC, the influence of the CFO’s managerial risk-taking propensity on using SMA information will be higher.

The proposed research model is as follows (see Figure 2). From theory and practice arising in the socio-economic conditions of Vietnam. We proceed to define the research problem (the research gap), then determine the research objective and the process of literature review (UET has been identified as the fundamental theory to develop the model). Finally, the research model and hypothesis development are constructed and established. Many previous studies have taken a similar approach (Liem, 2021; Liem & Hien, 2020a, 2020b; Pavlatos & Kostakis, 2018).

Figure 2.

Proposed model of research.

Research Method

Variable Measurement

Using Kraiczy et al.’s (2015) research to gage the managerial risk-taking propensity of the CFOs. The behavior of using SMA information was created by Pavlatos and Kostakis (2018). On the previously indicated scale, respondents were asked to identify how much they used SMA information (Table 1). Based on research by Segev (1987), prospector strategy measurement was developed. The ILOC scale was created by Hsiao et al. (2016). Based on studies by Pavlatos and Kostakis (2018), Jaworski and Kohli (1993), and Calantone et al. (2002), historical financial performance measurement has been modified to fit the Vietnamese context. Therefore, the aforementioned metrics are more comparable within the same business. These studies analyze historical financial performance with organizations from many different industries while still ensuring good comparability.

Table 1.

Scale Items of Variables.

Strategic management accounting(Pavlatos & Kostakis, 2018 ) (level of practiceof SMA, from 1 = no extent to 5 = great extent)• SMA1. Attribute costing• SMA2. Value analysis• SMA3. Customer profitability analysis• SMA4. Benchmarking• SMA5. Competitor cost assessment• SMA6. Competitor performance appraisal• SMA7. Strategic pricing• SMA8. Brand valuation

Managerial risk-taking propensity (Kraiczy et al., 2015)(1 = strongly disagree, 5 = strongly agree).• RT1. I support placing a heavy focus on selling tried-and-true goods and services.• RT2. I have a strong preference toward low-risk endeavors that have predictable and average return rates.• RT3. I think it’s best to investigate cautiously and incrementally because of the nature of the setting.• RT4. I typically take a “wait and see” approach to ambiguous decision-making to avoid making costly mistakes.

Historical financial performance: (Calantone et al., 2002;Jaworski & Kohli, 1993; Pavlatos & Kostakis, 2018) (1 = much higher, 5 = much lower in financial performance than close competitors in the same industry for the period from 2019 to 2021)• HPER1. Return on Equity—ROE.• HPER2. Earnings per share—EPS.• HPER3. Return on Investment—ROI.• HPER4. Return on Sales—ROS.Internal locus of control (Hsiao et al., 2016)(1 = strongly disagree; 5 = strongly agree)• ILOC1. I try to live proactively most of the time.• ILOC2. I think the outcome is determined by the extent of my engagement.• ILOC3. I think I can change my life if I try.

Prospector strategy (Segev, 1987) (5 = the trait suits my firm extremely well, 1 = not at all).• PR1. Firm product domains change periodically.• PR2. The company sells a wide range of products.• PR3. The company is the leader in creativity in its field.• PR4. The firm’s believes in being “first-in” in the industry in development of new products.• PR5.0 Early environmental chances are quickly seized by the firm.• PR6. The firm’s “first-in” product development efforts are not always profitable.• PR7. The company doesn’t have a strong market position in every place where it does business.• PR8. The firm’s actions often lead to a new round of competitive activity in the industry.

Sample Collection

The CFOs of manufacturing companies operating in Vietnam under the 2014 Enterprise Law, with three types of ownership (state, private, and foreign), will be the study’s population. In using and practicing a complicated administrative system like SMA, respondents have the most significant and influential function (Hambrick & Mason, 1984; Hiebl, 2014; Pavlatos & Kostakis, 2018). SMA is not appropriate to be designed in small manufacturing enterprises, hence it is rejected (Nguyen et al., 2017). For sample collection, we employed two methods: (1) Google Survey Form: the questionnaire was sent to 1,350 respondents in manufacturing enterprises based on the author’s convenient relationship. More than 1,866 CFOs of manufacturing companies who provided personal email addresses were received for the survey (data was gathered via corporate websites, entrepreneurs clubs, and the Entrepreneur Association).

Online and direct surveying were used for this investigation. By including required questions in an online survey, it is possible to limit the number of missing values. Respondents can only move on to the subsequent question after completing the one they are now answering. There are therefore no missing values in any of the provided responses in this type of survey. Direct surveys will omit questions with missing values. Finally, 525 questionnaires were received in total. There are seven feedback items missing. So, 218 questionnaires were used after small firms were eliminated (see Table 2 below).

Table 2.

Firm and Respondent Demographics.

Gender	Freq.	%	CEO’s age	Freq.	%
Pre-undergraduates	7.0	3.0	18–29	20.0	9.0
Graduates	76.0	35.0	30–49	76.0	35.0
Post-graduates	135.0	62.0	50–64	92.0	42.0
Total	218	100	>64	30.0	14.0
CEO’s education background	Freq.	%	Total	218	100
Male	142.0	65.0	Region	Freq.	%
Female	76.0	35.0	South	148	68.0
Total	218	100	Central	24	11.0
Type of manufacturing	Freq.	%	North	46	21.0
Textiles, leather, and shoes	83	38.0	Total	218	100
Plastic, packaging	37	17.0	Tenure	Freq.	%
Mechanical machines	20	9.0	1–5 years	33.0	15.0
Pharmaceutical	17	8.0	6–10 years	70.0	32.0
Process the wood	26	12.0	11–15 years	50.0	23.0
Food production	13	6.0	15–20 years	43.0	20.0
Other production	22	10.0	>20 years	22.0	10.0
Total	218	100	Total	218	100

Only 35% of CFOs in the final sample are female, which is less than half the percentage of male CFOs in the survey sample (65% male, 35% female). More than 80% of the respondents had a tenure of more than 6 years, which suggests that they have the necessary expertise to adequately represent their companies. The sample consists of 97% graduates and post-graduates and 3% fewer undergraduates. It demonstrates that most CFOs have graduate degrees in their backgrounds. The respondents are 51 years old on average. The manufacturing sectors that make up a significant share of the final sample are textiles, leather, and shoes (38%).

Results

For fundamental statistical analysis, SPSS24 is employed. Path analysis is the main application of partial least squares structural equation modeling (PLS-SEM). According to Hair et al. (2017), the analytical approach involves a two-step process, which includes the assessment of the measurement model and the evaluation of the structural model.

Measurement Model

The Harman’s single-factor test was employed as a means of evaluating the presence of common method bias. In order to determine five components, an un-rotated factor analysis was conducted on all measurement constructs. The cumulative variation of the five components amounts to 62.5%. The initial component constitutes merely 42.56% of the aggregate. Consequently, the analysis finds that the cumulative variance errors of the entire model, amounting to 50%, do not pose a substantial concern (Podsakoff et al., 2003).

To examine the dependability of a scale, one uses internal reliability, which is measured by Cronbach’s alpha, composite reliability (Hair et al., 2017), and rho_A (Dijkstra & Henseler, 2015). Internal reliability can also be measured by composite reliability (Hair et al., 2017). Convergent validity is assessed using the average variance extracted (AVE) and outer loading of observed variables. According to Hair et al. (2017)‘s research, an outer loading and AVE that are both greater than 0.7 are considered acceptable. A bootstrap analysis is carried out 2,000 times (Hair et al., 2017), so that a determination can be made regarding the statistical significance of the data.

Table 3 shows that the scales have Cronbach’s alpha and rho_A values over .5. Because of this, the scales can be used (Hair et al., 2017; Nunnally & Bernstein, 1994). When the AVE value range of the scales is greater than 0.5 and the outer loading of the measured variables is more than 0.7 (Figure 3), the scale has reached its convergence value.

Table 3.

Scale Accuracy Analyses.

	Cronbach’s alpha	rho_A	Compositereliability	Average varianceextracted (AVE)
HPER_	.868	0.872	0.909	0.715
PRO_	.895	0.895	0.916	0.577
RT_	.802	0.806	0.871	0.627
SMA_	.909	0.909	0.927	0.613

Figure 3.

The results of a PLS-SEM analysis of the theoretical model.

The scale’s discriminant validity is assessed using factor cross-loading, the Fornell-Larker criterion, and the HTMT ratio (Heterotrait-Monotrait ratio). Results demonstrate that its structure has a much higher cross-loading coefficient than others. The Fornell-Larcker criterion shows that each structure’s square root of AVE exceeds the correlation coefficient (Table 4). The scale’s discriminant value is ensured by HTMT (Table 5)’s value below 0.9.

Table 4.

Fornell-Larcker Criterion.

	HPER_	PRO_	RT_	SMA_
HPER_	0.846
PRO_	0.579	0.759
RT_	0.498	0.541	0.792
SMA_	0.607	0.894	0.589	0.783

Table 5.

Heterotrait-Monotrait Ratio (HTMT).

	HPER_	PRO_	RT_
HPER_
PRO_	0.651
RT_	0.591	0.634
SMA_	0.678	0.842	0.684

When we run bootstrap 2,000 times, it shows that HTMT values from 2.5% to 97.5% do not include 1. So, the differentiating number is reached on the measuring scale. Bootstrap.

Structural Model

According to Hair et al. (2017), The variance-inflating factor (VIF) is employed as a means of evaluating the presence of multi-collinearity among independent variables. Each of the three research models has one dependent variable, due to the large number of dependent variables. The remaining scales do not seem to exhibit multi-collinearity because their VIF is less than two.

The ability of the independent variables to predict outcomes is commonly measured using the coefficient of determination (R²). Results in Table 6 indicate that managerial risk-taking propensity has a weak R² value (.248); prospector strategy has an R² value that may be considered to have a sufficient degree of prediction (.420); and SMA practice variable has the strongest R² value (.822) (Hair et al., 2017).

Table 6.

The Results of Testing Hypotheses.

Examined relationships	Coefficient	Sample mean	t-Value	p-Value	Supported hypothesis
H1: HPER_ → PRO_	0.411	0.407	5.301	.000	Support
H2: HPER_ → RT_	0.498	0.496	7.213	.000	Support
H3: HPER_ → SMA_	0.101	0.100	2.996	.003	Support
H4: RT_ → PRO_	0.337	0.341	3.551	.000	Support
H5: RT_ → SMA_	0.122	0.126	2.828	.005	Support
H6: PRO_ → SMA_	0.770	0.765	17.031	.000	Support
R² Managerial risk-taking propensity = 0.248		Q² Managerial risk-taking propensity = 0.162
R² Prospector strategy = 0.420		Q² Prospector strategy = 0.235
R² SMA practice = 0.822		Q² SMA practice = 0.462

Predictive relevance (Q²) measures outside-group prediction power. Table 6 also indicates that the model can forecast since the dependent variables’Q² values are larger than zero (Hair et al., 2017).

As suggested by Hair et al. (2017), this study used the bootstrap method 2,000 times to look at how statistically important the regression values were. The results in Table 6 show that the connections between the theory model’s hypotheses (H1 through H6) are statistically significant with more than 99% certainty.

The main objective of this study is to investigate the moderating effects of the internal locus of control. The reliability of the measurement concepts related to internal locus of control has been determined through an analysis of the measurement model of moderating variables. The results indicate that the Cronbach’s alpha coefficient is .866, the Composite Reliability is 0.912, and the Average Variance Extracted (AVE) value is 0.786. Furthermore, the square root of twice the AVE value for internal locus of control exceeds the correlation coefficient between structures, which is .85. The HTMT value for the internal locus of control confidence interval does not contain 1.

Then, the researchers used Chin et al. (2003)’s two-stage technique to evaluate the ILOC moderating variable. The first stage of analysis focused on estimating the primary effect model. By contrast, in the second stage of analysis, the moderating and exogenous factors are multiplied to assess the interaction between managerial risk-taking propensity and internal locus of control.

The link between management risk taking propensity and prospector strategy is moderated by the internal locus of control (ILOC), as shown in Table 7, and by the internal locus of control (ILOC) and SMA practice, respectively. The impact of managerial risk-taking propensity on prospector strategy choice and managerial risk-taking propensity on SMA practice is thus also increased when the internal locus of control grows. H7a and H7b are therefore supported.

Table 7.

Tests for Moderating Effects.

	Coefficient	R ²	p-Value	Hypothesis
Managerial risk-taking propensity → Prospector strategy	0.287	0.492	.001
Internal locus of control → Prospector strategy	0.272		.000
Managerial risk-taking propensity × Internal locus of control → Prospector strategy	0.154		.015	Support
Managerial risk-taking propensity → SMA practice	0.120	0.825	.006
Internal locus of control → SMA practice	0.095		.034
Managerial risk-taking propensity × Internal locus of control → SMA practice	0.104		.001	Support

Conclusion and Implications

Conclusion

According to Table 6’s findings, managerial risk-taking propensity and prospector strategy selection were both impacted by low historical financial performance, supporting hypotheses 1 and 2. It can be inferred that when a company has been facing a financial downturn, its managerial risk-taking propensity may be stronger. A CFO will take more risks while making decisions when confronting financial decline, as stated in Section 2 (Bromiley, 1991). Such a leader frequently has a personality of managerial risk-taking propensity in decision-making and chooses a strategy that carries a lot of risk and strong innovation, which can motivate their willingness to commit resources significantly, force them to take advantage of opportunities, or result in uncertain outcomes (Keh et al., 2002). The greater the risk, the greater the profit, so when CFOs see a direct correlation between taking risks and having a high probability of benefit rather than loss in their decisions, they may be motivated to take risks (Shapira, 1986). Earlier research (Hambrick & Mason, 1984; Liem & Hien, 2020a, 2020b; Shapira, 1986) was supported by the findings of this study.

The influence of prospector strategy on using SMA information is greatest (0.770). Based on the study’s findings, it can be deduced that CFOs will exhibit a higher psychological propensity to take managerial risks during the process of choosing a risky strategy. As a result, managerial risk-taking will have an impact on both the prospector strategy and the use of SMA information. Additionally, the choice of prospector strategy will be immediately impacted by low historical financial results, and this direct impact is significant (0.411). ILOC, a moderator variable, moderated the link between managerial risk-taking propensity and the prospector approach at 0.154, compared to 0.104 for SMA information. ILOC appears to drive prospector strategy adoption more than SMA information.

The association between employing SMA information and poor historical financial performance was significant and favorable, supporting hypotheses 3 and 5. It is possible to infer that SMA information usage grew when financial performance suffered. CFOs frequently employ SMA knowledge and confidence to resolve this dilemma. As a result, CFOs may use SMA information to help them make management decisions. This information can be viewed as a source of helpful information and a competitive advantage for their organizations (Lee & Moon, 2016; Liem, 2021). As previously discussed, SMA information is utilized for operational choices including product design, performance assessment, and evaluation, as well as strategy implementation. SMA information is crucial for risk measurement, including risk aggregation, reporting, and monitoring. It also helps managers make decisions with less ambiguity and supports risk management operations and control (Winter, 2007). For instance, a CFO may need knowledge of the production budget and product quality to make judgments once they have assessed the performance of quality and productivity (Fullerton & McWatters, 2002; van Veen-Dirks, 2010). The findings of this study are consistent with earlier research (Hambrick & Mason, 1984; Liem & Hien, 2020a).

As was mentioned, CFOs must win more than they lose when making riskier decisions (March & Shapira, 1987; Shapira, 1986). CFOs are an essential instrument for adopting this risky approach, especially with a strategy like prospector strategy, and they require a lot of helpful information, supporting Hypothesis 6. They can better comprehend their decision-making with the aid of the SMA information, and it can also make it easier for them to carry out managerial duties (Mia, 1987; Sprinkle, 2003; van Veen-Dirks, 2010). To help them make decisions throughout the negotiating process, managers who want to win a contract require SMA information regarding quality, production, and delivery time (Banker, 1993; Davis & Albright, 2004). According to past studies, by using more SMA information in decision-making, financial performance will be increased under conditions of high degrees of uncertainty (such as task and environmental ambiguity). This hypothesis is supported by the outcomes of more recent studies conducted in underdeveloped nations (Nguyen et al., 2017) and other earlier studies (Hambrick & Mason, 1984; Liem, 2021; Shapira, 1986) are in agreement with those of this study.

Discussion

Previous research by Liem and Hien (2020a, 2020b), Pavlatos and Kostakis (2018) has explored the impact of upper manager traits on the utilization of management accounting information in organizations. But according to the body of existing research, relatively few studies have looked at the association between management risk-taking propensity and CFO usage of SMA information (Hiebl, 2014). The current study offers additional proof of the positive and significant influence of managerial risk-taking propensity on selecting prospector strategies and upper managers’ use of SMA information.

Vietnam’s economy is in transition from a centrally planned to a socialist-focused market economy, according to the communist philosophy. Vietnam’s setting differs from other Southeast Asian nations that encourage a liberalization economy, such as Thailand, Indonesia, and Malaysia (Yamazawa, 2012); or from industrialized nations with a capitalist economy, such as Australia. Particularly in Vietnam, the reform effort is still in its early stages. The results show that managers’ utilization of the SMA information has a favorable impact on their performance in the context of Vietnam’s transitional economy and fast-changing business environment. The findings suggest that Vietnamese businesses should foster an atmosphere at work that encourages CFOs to use SMA information when making decisions. In turn, this could enhance management effectiveness. This is due to factors like the fact that accounting systems are frequently developed to meet governmental regulations (such as taxation and general statistics) rather than the requirements of managers in making decisions. A number of elements, including historical performance, the CFO’s management risk-taking propensity, the CFO’s ILOC, and organizational strategy, must be taken into account in order to promote the use of SMA information. This conclusion has the implication that Vietnamese businesses will benefit from better performance-based SMA information. Such details may compel CFOs to look for details on performance goals in order to enhance their performance.

Implications

Theoretical Implications

First and foremost, this study added to existing research on the relationship between historical financial performance and managerial risk-taking propensity of CFOs (Kim & Aguilera, 2016), SMA practices (Cadez & Guilding, 2008; Pavlatos & Kostakis, 2015), and prospector strategy (Miles et al., 1978). These findings support earlier research (Bromiley, 1991; March & Shapira, 1987) and once again demonstrate the beneficial influence of poor historical financial performance in selecting prospector strategy. This study supports the findings of Pavlatos and Kostakis (2015), Naranjo-Gil et al. (2009), and Pavlatos and Kostakis (2015), all of which suggest that using SMA information can lower the risk of prospector strategy, increasing the likelihood that firms producing highly customized products will use SMA information (Bouwens & Abernethy, 2000; Cadez & Guilding, 2008). Second, the moderator function of ILOC in selecting prospector strategies is investigated. In this respect, the degree of the CFO’s ILOC throughout the strategic decision-making process, which has not been studied before, can be utilized to explain and moderate the impact of different levels of using SMA information and choices of prospector strategy influenced by a psychological CFO (managerial risk-taking). For businesses in a developing economy like Vietnam, this study also offers additional empirical support for the idea put forth by Finkelstein and Hambrick (1990) that the ILOC of the CFO plays a significant role in decision-making. Finally, this study adds to the limited body of research on the trait of the CFO/accounting/marketing interface by combining historical financial performance, the CFO’s managerial risk-taking propensity, ILOC (a personality variable), prospector strategy choices (a marketing variable), and the use of SMA information (an accounting variable) in the same theoretical model (Plöckinger et al., 2016). SMA designers would need to understand the pertinent aspects that might appear in a specific SMA design in an organization. The study’s conclusions concur with those made by Hambrick and Mason (1984). The current analysis supports the UET’s application to the body of existing management accounting literature (a theory that has received little attention in the accounting discipline).

Managerial Implications

This study underlined the value of management accounting in providing data to support the implementation of organizational strategy in the Vietnamese industrial sector. Prospector strategy-adopting organizations place an emphasis on rival position and information as well as product market movements and information. CFOs should also think about how ILOC affects the relationships between managerial risk-taking propensity and SMA and between managerial risk-taking propensity and choices of prospector strategy. This will help them decide if management accounting information is needed and how SMA should be made. This will help them come up with a strategy that will work when an organization’s financial performance starts to decline. Low historical financial performance is a requirement for employing SMA information and selecting a prospector strategy, but it can also be incorporated into CFO psychology. This study is particularly important from a practical standpoint since it shows CFOs how to construct SMA, a strategy that is appropriate for their individual psychology and can help them gain competitive advantages. In addition to offering advice on how to create and implement SMA, this study helps CFOs of businesses choose strategies to improve performance that are compatible with their personal traits (such as their tendency to take managerial risks) and offers insights into the relationships between prospector strategy and SMA usage. As a result, it became clear that the prospector strategy’s deployment would encourage the CFO to employ SMA information. The study’s findings give upper-level managers in an organization a better grasp of the potential applications of SMA information for enhancing organizational performance, particularly with regard to the various categories of SMA information. As a result, they are better able to tailor the use of SMA information to the particular strategy’s implementation approach.

Limitations and Directions for Future Research

This study has a number of restrictions. First, future studies should consider additional factors or moderating variables mentioned by Hambrick and Finkelstein (1987). Second, while this study only focused on managerial risk-taking propensity, many other psychological traits must now be taken into consideration for the future. Fourthly, future research should focus on organizational antecedent variables, such as organizational structure. Finally, the role of the CFO and most companies in general is increasingly being influenced by digital technology and digital transformation, these factors can be considered external factors of the organization as proposed by Hambrick & Mason and are interesting to many scholars (Ben Amor & Ben Yahia, 2022; Dong et al., 2023; Garg et al., 2023; Zarifis & Cheng, 2023).

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research,authorship,and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research,authorship,and/or publication of this article: This research is funded by University of Economics Ho Chi Minh City,Vietnam and Industrial University of Ho Chi Minh City,Vietnam.

ORCID iD

Nguyen Ngoc Hien

Data Availability Statement

Data sharing not applicable to this article as no datasets were generated or analyzed during the current study.

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The Impact of Historical Performance and Managerial Risk-taking Propensity on the Behavior of Choosing Prospector Strategy and Using Strategic Management Accounting Information in Viet Nam Manufacturer

Abstract

Plain Language Summary

Keywords

Introduction

Literature Review and Hypothesis Development

Upper Echelon Theory (UET)

Historical Financial Performance

Prospector Strategy

Strategic Management Accounting

Managerial Risk-Taking Propensity

Internal Locus of Control

Hypothesis Development

The Impact of Low Historical Financial Performance on Choosing Prospector Strategy

The Impact of Historical Financial Performance on Managerial Risk-Taking Propensity

The Impact of Low Historical Performance on Using Strategic Management Accounting Information

The Impact of Managerial Risk-Taking Propensity on Choosing Prospector Strategy

The Influence of Managerial Risk-Taking Propensity on Using Strategic Management Accounting Information

The Impact of Prospector Strategy on Using Strategic Management Accounting Information

The Moderator Role of the CFO’s Internal Locus of Control

Research Method

Variable Measurement

Sample Collection

Results

Measurement Model

Structural Model

Conclusion and Implications

Conclusion

Discussion

Implications

Theoretical Implications

Managerial Implications

Limitations and Directions for Future Research

Footnotes

Declaration of Conflicting Interests

Funding

ORCID iD

Data Availability Statement

References