The Influence of Performance Measurement Systems on Managerial Performance through Cognitive and Motivational Mechanisms: Evidence from Manufacturing Companies in Libya

This research study endeavours to offer a better understanding of the relationship between performance
measurement systems (PMS) and managerial performance in large and medium-sized manufacturing companies in a developing country, taking into account the role of cognitive and motivational mechanisms. Drawing on an extensive review of relevant literature in management accounting and psychology, a framework is developed to investigate the possible effect of comprehensive PMS on individual outcomes comprising job satisfaction and managerial performance through cognitive and motivational factors, including role clarity, psychological empowerment, mental model confirmation and mental model building. Included in the analysis are the potential different effects of financial and non-financial performance measures and rewards. Primary data were collected by means of a purposely constructed survey questionnaire from 122 strategic business unit managers at large and medium-sized manufacturing companies, from diverse industrial sectors in Libya. In addition to descriptive analysis, inferential statistical tools are used to investigate direct and indirect relationships between PMS and managerial performance. To fully comprehend the mediating effects of cognitive and motivational factors in these relationships, the most advanced and up-to-date tool - the Hayes’s (2013) macro called Process through the
SPSS package – was applied to examine a total of twelve hypothesised mediated relationships, as well as to determine and report the result of measuring the effect size (i.e. the magnitude of an effect) related to these relationships.
It was established from the descriptive analysis that the comprehensiveness of PMS is significantly high in
the participating companies, noting that these companies use a mix of financial and non-financial
performance measures and rewards, albeit putting slightly less emphasis on the importance of the latter. The study indicated that there are significant positive effects on the outcome variables of job satisfaction and managerial performance in the direct relationships involving comprehensive PMS, financial and nonfinancial performance measures and rewards. Interestingly, however, non-financial performance measures and rewards seem to have more impact on both outcome variables than the financial ones. Moreover, role clarity is also found to have a direct positive relationship with psychological empowerment, as does job satisfaction with managerial performance. Although each of the four cognitive and motivational variables explored in this study has a mediating effect on the relationship between comprehensive PMS and the outcome variables, large effect size was achieved only through role clarity and psychological empowerment by testing the indirect effect of comprehensive PMS on job satisfaction. The other indirect relationships of comprehensive PMS account for a medium effect size only. With regard to the indirect effects of both financial and non-financial performance measures and rewards, the results were also significant, except that, as with the direct relationships, non-financial performance measures and rewards seem to have more impact on both outcome variables than the financial ones. The largest effect size here is obtained from the indirect relationship between non-financial performance measures and rewards and job satisfaction through psychological empowerment; all other effects were medium.
Being the first study of its kind on the complexities of PMS in companies operating in a rapidly changing
emerging economy, this study contributes to knowledge by combining and testing four cognitive and motivational variables in one comprehensive model, distinguishing between various indirect effects by
succeeding in separating and comparing between the effects of financial and non-financial performance
measures and rewards and precisely measuring effect size of mediator factors Despite its novel and
comprehensive approach, the study’s limitations are acknowledges and this leads to constructive
suggestions for future research on a multi-faceted topic that needs exploring further in both developed and emerging economy environments.