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Parent–subsidiary relationships are commonplace nowadays, yet surprisingly there is a paucity of research analysing their dynamics over time. This paper presents a (longitudinal) case study, illuminating the dynamics implicated when a UK chemicals company imposed its systems and rules on a new subsidiary. Drawing on observations from a longitudinal case study (from 1993 to 2001), the study considers: (1) the extent to which a parent imposes its (management accounting) systems, rules and procedures on a subsidiary; (2) the role which (local) political, cultural and institutional factors in a subsidiary play in shaping the dynamics of such change implementation; (3) how new systems and practices become accepted and take root as values and beliefs and how they supplement earlier norms? The study provides insight for the questions above, and draws on institutional theories and a power mobilisation framework to assist in the interpretation of observations. We find that the operations of the subsidiary company are influenced by inter-related forces, both inside and outside the organisation encompassing issues of power, politics and culture. As such, existing institutions in a subsidiary organisation are influenced, sustained, and changed by the socio-economic context in which the subsidiary is located. Organisational practices designed to secure external legitimacy are not however always symbolic and decoupled from internal operations.

This paper investigates why and how management accounting systems (MAS) in a subsidiary company emerge, are sustained, and change over time. Drawing upon theoretical insights from new institutional sociology (NIS), old institutional economics (OIE) and power perspective (Hardy, 1996), this paper focuses on management accounting change in a group organisation. The multi-theoretical framework and empirical focus on the parent–subsidiary context in this paper, which has been largely unexplored in the management accounting literature (Granlund, 2003), is particularly novel and represents a significant contribution. In the 21st century, parent–subsidiary relationships are commonplace. However, the extant research in this area predominantly adopts a static view of such relationships (Johanson and Vahlne, 1977, Jones, 1985, Jones, 1992 and Vernon, 1966), and has focused on the complexity of change at parent company level rather than giving consideration to the subsidiary level as well (Kostova and Roth, 2002). To date, there is little understanding of the reasons why subsidiary organisations choose to retain or change their (accounting) systems (Granlund, 2003, Jones, 1985, Jones, 1992 and Vamosi, 2000) and of how a change programme such as change in MAS should take place following mergers and acquisitions (M&A) (Granlund, 2003 and Jones, 1985). Jones, 1985 and Jones, 1992 emphasises there is little understanding of the processes of why and how new MAS have emerged (or failed to emerge) in subsidiary organisations over time. Furthermore, the management accounting (MA) choice literature tends to lie in the market theory camp, which argues that firms select their MAS according to a rational economic cost–benefit calculus. Indeed, as Granlund (2003, p. 208) states, M&A “have rarely been analysed from management accounting's point of view, and this is especially so if we are looking for studies that try to understand the human and social aspects of these processes”. Interesting research questions abound, which are examined in this paper. For instance, to what extent does a parent organisation impose its rules, procedures, and/or systems (including management accounting) on a subsidiary, and how? How important are (local) political, cultural, and institutional factors in shaping the dynamics of such change implementation? How do new systems and practices (e.g., management accounting) become accepted and take root as values and beliefs and how do they supplement earlier norms? As already alluded to, this paper aims to contribute towards the shortfall in our knowledge of parent–subsidiary relationship dynamics and MA change in group organisations, using observations from a longitudinal case study. The study adopts an interpretative, (multi) institutional theory (Burns and Scapens, 2000, DiMaggio and Powell, 1991 and Scott, 2001) alongside a power mobilisation framework (Hardy, 1996), to assist in the analysis of the development of the processes (emergence, continuity, change, etc.) of new and old rules, procedures and systems that underpin the relationship dynamics in the case study. Overall, it contributes towards furthering our understanding of parent–subsidiary dynamics and highlights the need for bridge building between (institutional) theories to expand levels of analysis. The paper is structured as follows. As a starting point, the two sections below provide the theoretical background (including details key concepts used to structure the analysis) and methodological issues relevant to the study. The following two sections present the background of parent and the subsidiary companies, respectively. Then, the paper analyses the takeover process and discusses how the parent company had instigated a radical change in the ways of thinking and doing things in the subsidiary. The next section presents the subsidiary's situation after the takeover. The paper ends with a summary and discussion of the key findings.

The results of this study in a subsidiary company did not support claims that institutional pressures are primarily confined to public and not-for-profit organisations (see also Burns and Yazdifar, 2003 and Major and Hopper, 2002). This case study of a private sector firm pursuing profit objectives revealed that they, too, face institutional pressures. However, the company cases in this study are operating in chemical industry, as part of a societal sector (defined to include all organisations within a society supplying a given type of product or service together with their associated organisational sets: suppliers, financiers, regulators, and so forth), and institutional pressures in this industry and sector might be different from other sectors (Scott and Meyer, 1983 and Scott and Meyer, 1991). Moreover, the Omega case study sheds some light on the issue of whether or not efficiency and institutional pressures are dichotomous. Zucker (1987, p. 445) argues that some institutionalists believe: “Organizational conformity to the institutional environment simultaneously increases positive evaluation, resource flows, and therefore survival chances, and reduces efficiency”. However, Meyer and Rowan, 1977 and Meyer and Rowan, 1991 noted that legitimacy need not be gained inevitably at the expense of efficiency, and vice versa. In contrast to Meyer and Rowan's argument, the Omega situation in WW's time weakens the view that efficiency and institutional pressures are not dichotomous. The study highlights the fact that the legitimacy of MAS (and other Omega systems) was gained at the expense of efficiency. Omega would not have obtained legitimacy from its external constituency, WW, had its (MA) systems not been similar to that of the parent company. However, the Omega situation in CC's time supports Meyer and Rowan's (1977) view that efficiency and institutional pressures are not dichotomous, since legitimacy was not gained at the expense of efficiency. Thus, it has been observed that efficiency and institutional pressures may or may not be dichotomous, even in a particular organisation under different parent companies’ control. Finally, a brief discussion of possible implications of the Omega case for future accounting research. First, additional use of the adopted “multi-institutional theory” and processual approach is recommended to analyse the dynamics of parent–subsidiary relationships over time. Such studies should result in a more holistic understanding of the emergence, continuity and/or change in accounting forms and accountability that can emerge following mergers and acquisitions. Second, the reliance on tacit knowledge at the operating level in the face of inconsistent, institutional systems is a potentially interesting theme for further analysis. The link between institutional processes and this form of knowledge and decision-making heuristics and how these respond to the introduction of new MA techniques have not been extensively studied within institutional theory and might carry the analysis beyond the simplistic interpretation of organisational decoupling prevailing in much prior NIS research. Indeed, as Orton and Weick (1990, p. 204) pointed out, some researchers have invoked the concept of coupling, loose-coupling or loosely coupled and decoupling (see Glassman, 1973, Weick, 1976, Weick, 1982a and Weick, 1982b) however, “few researchers have questioned the meaning beyond these statements”. Third, this paper was concerned with group organisations operating in the chemical industry as part of a societal sector. However, as noted by Scott and Meyer (1991, p. 137), “societal sectors vary in many important respects” and therefore this case may not be applicable to all sectors.