Accepting and Managing the Unknown - A Study of Management Control Mechanisms During Times of Uncertainty in a Private Equity Context

Sammanfattning: This paper adds to past research on management control mechanisms (MCMs) in the private equity (PE) context. Through a cross sectional study on 11 PE firms, this paper addresses the limited research on how PE firms cope with, and reduce uncertainty, in their portfolio companies (PCs) through MCMs. Moreover, taking base in the theoretical framework developed by Simons (1995), the four levers of control, the study further explores how uncertainty affects MCMs, and elaborates this with regard to separating MCMs into formal and informal controls in order to understand how these are affected by uncertainty, and what role they play when PE firms manage uncertainty. The study finds that MCMs are affected by uncertainty in different ways, and that all MCMs (formal and informal) rely on each other and are adaptable in nature. Moreover, the study finds that informal controls, by separating them into formal social controls and informal social controls, consist of different characteristics all which have impact on the development and utilisation of formal controls. Lastly, this paper adds to existing literature by highlighting the complementing, repairing, and replacing attributes informal MCMs possess in relation to formal controls.