The Contingent Fit between Management Control System and Capabilities on Sustainability Performance

Abstract

This study aims to analyze the contingent fit between the management control system (MCS) with capabilities to improve the company's sustainability performance. The final sample was 185 environmental managers, human resources, marketing, operational, and corporate social responsibility (CSR) managers from 45 listed companies on the Indonesia Stock Exchange that published the annual report. Primary research data were taken by questionnaire. The data analysis method uses structural equation models with the help of the Smart PLS application. The results of this study indicate that 1) MCS has a direct effect on sustainability performance. 2) MCS affects capability. 3) Capability influences sustainability performance, and 4) contingent fit between MCS and capability has a proven impact on sustainability performance. Based on these results, future studies are expected to focus not only on the influence of MCS and capabilities on sustainability performance but also on the contingent fit between MCS and these capabilities. Thus, companies need to use MCS that has a contingent fit with their capabilities to improve sustainability performance Contribution/Originality: This study uses a new estimation methodology in the form of a management control system package with proven capabilities to improve sustainability performance. The contingent fit resulting from this study can help companies determine the right strategy in improving their sustainability performance. 1. INTRODUCTION Indonesia's natural destruction due to the exploitation of resources by companies is alarming. There are 10 environmental issues that are quite serious in Indonesia, namely waste production, forest destruction, and soil pollution (source: sindonews.com). Not to mention the issue of forest fires and waste pollution, which until now has not been handled optimally. Wahana Lingkungan Hidup (source: Walhi), an environmental activist organization in Indonesia, states that there are more than 300 environmental and agrarian conflicts and environmental damage, which is quite alarming. Based on environmental issues that tend to be of concern, governments, companies, producers, and consumers are required to pay more attention to sustainability performance (Wang, Pan, Wang, & Zhou, 2020). But in the Indonesian context, sustainability performance tends not to be the focus. The proof is that until 2016 alone, only 6% of companies reported sustainability performance (source: financial services authority). In fact, the sustainability report is critical because it indicates the actual sustainability performance (Papoutsi & Sodhi, 2020).

Influences of Internal Control on Enterprise Performance: Does an Information System Make a Difference?

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“…Consistent with (Hussaini and Muhammed 2018), Pakurár et al (2019) assessed the relationship between IC and financial performance for Jordanian banks and found that IC significantly influenced their financial performance. Rosini et al (2020) found that management control systems directly affect performance.…”

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