The Impact of CEO Regulatory Focus on the Adoption of Management Control Systems in Early-Stage Firms

Abstract

Regulatory focus theory suggests that individuals tend to self-regulate through either a promotion focus or a prevention focus. A promotion-focused individual has an eagerness strategy, concerned with advancement and growth. A prevention-focused individual has a vigilance strategy, concerned with security and stability. I examine how the CEO’s regulatory focus impacts the mean adoption time of a formalized management control system (MCS) for early-stage firms. I posit that promotion-focused CEOs adopt MCS faster than prevention-focused CEOs, although the difference in adoption rate will be eliminated by the presence of outsider funding (equity or debt). I test the hypothesis using data from a field survey that resulted in a 2 x 2 between-subjects design. As predicted, there is no difference in the mean adoption time for promotion and prevention-focused CEOs when outsider funding is present, suggesting outsider funding mitigates a prevention-focused CEO’s cautious tendency when allocating resources to implement new control systems.