The controllability principle of performance evaluation : a comparative study of China and Hong Kong

This dissertation investigates the factors that explain why managers are held
accountable for uncontrollable items of performance. It examines, in particular, the
influence of the various determinants of this controllability principle in China, a
socialist economy, and compares them with those in Hong Kong, a capitalist economy.

Previous studies in this controllability principle are either theoretically based or
non-generalisable. They were mostly carried out in the western countries. This study
attempts to test this principle empirically and to ascertain whether western accounting
theories can be equally applied in the oriental areas with different socio-economic
settings.

Based on data collected from 71 managers in China and 57 managers in Hong
Kong, empirical results show that variations in the treatment of uncontrollables can be
explained by ten factors, namely, risk-averse attitude, managerial influenceability,
environmental uncertainty, management subjectivity, information cost, performance
observability, levels of hierarchy, firm size, divisional diversity and coordiantion need.
Among these factors, the most influential ones in China are coordination need and
information cost, and the most influential ones in Hong Kong are coordination need,
divisional diversity and managerial influenceability. Comparison of the results between
China and Hong Kong reveals that all the ten factors differ in degree and managerial
accountability of uncontrollables was shown to be more likely in Hong Kong than in
China.

Contrary to the theories in the literature, this research discovers that managers
are more likely held accountable for uncontrollables if they and/or their superiors are
more risk-averse and coordination need is low. It was also found that managers in
China are more ready to take risks than their Hong Kong counterparts. These findings
indicate that certain theories of the controllability principle need to be reviewed. Risk
attitude of the evaluator, institutional factors and divisional interdependency may exert
significant influence on managerial practices.