Management accounting is an important component of managerial decision-making to

help guide the overall business strategy in organisations. Appropriate measures of

management accounting practices (MAPs) allow academics and practitioners to assess
the organisations’ MAP adoption effectively. In this study, based on qualitative
information disclosed in annual reports from 2003 to 2019, we construct and validate
novel and comprehensive measures of firm-level MAPs using the word embedding
model Word2Vec. We illustrate the predictive validity of our measures by examining the
determinants and value creation function of fitted MAPs. Our novel measures of MAPs
not only provide a solid foundation for large scale sample empirical analyses of
management accounting research but also pave a new way to investigate MAPs as a
package.

c. Contingency Theory:

The contingency viewpoint developed in 1950s when a research team headed by Joan
Woodward, an industrial sociologist, studied 100 British firms of different sizes producing
different products. Better performing companies were compared with average or below- average
performing companies to know the reasons why they performed better.

It was concluded that difference in performance of those companies was not because of
principles of classical theories but because of better technology to produce goods. This
developed a theory that ‘appropriate actions by managers often depend on (or are contingent on)
the situation’.

According to classical theory, if management wants to get the best out of workers, it should
increase wages or relax working conditions. The behavioural school of thought emphasises on
human needs to maximise their contribution to organisational output. Contingency approach is
synthesis of the two. It does not advocate either of the two to be universally applicable. It
depends on the situation.

If workers are skilled, participative style of management or behavioural theory can be effective
but if workers are unskilled or their physiological needs are more important than the higher-order
needs (self-actualisation needs), classical theory will be more appropriate.

“Contingency theory is a viewpoint that argues that appropriate managerial action depends on
the particular parameters of the situation. Hence, rather than seeking universal principles that
apply to every situation, contingency theory attempts to identify contingency principles that
prescribe actions to be taken depending on the characteristics of the situation.”

Each organisation is unique, each problem is unique, each decision is unique and, therefore, the
way of tackling every situation is also unique. Every decision or solution depends upon the
variables that affect the situation. Different situations call for different decisions. There is no best
way of doing things universally in all situations.

The theory developed when managers applied principles of management to different problem-
solving situations and concluded that these principles could not be universally applied to all the
situations. With increasing complexity of organisations where management has become a multi-
disciplinary area which takes into account the impact of psychological, sociological, behavioural,
technical and other sciences, no single solution exists to all kinds of problems.

Various principles, mathematical tools like statistics and operations research are situational or
contingent in nature. They depend on the particular situation. An international economist,
Charles Kindleberger said that answer to any problem in Economics could never be given
positively, rather the answer was ‘It depends’.

This applies to management theory also. According to this approach, “the task of managers is to
identify which technique will, in a particular situation, under particular circumstances, and at a
particular time, best contribute to the attainment of management goals.” Past experience and
experience of other firms also help in solving managerial problems.

This theory is an extension of systems theory. It believes that organisation is an open system
which continuously interacts with external environment (consisting of parties outside the
organisation).

While the internal environment consists of sub-systems or departments of the organisation,

external environment consists of social, political, economic, legal and technological factors that
affect its working.

According to this theory, managers take note of both these environments to solve various
business problems.

The contingency approach considers three important constraints that affect decisions
within the organisations:

(i) Technological constraints:

Different organisations require different technology. Some organisations (like iron and steel
manufacturing units) require expensive technology which cannot be easily changed to meet the
changing demands and to that extent, have limited capacity to adapt to the external environment.
Depending on the type of technology used for producing goods in

1. Unit or small batches

2. Masses or large batches

3. Continuous process