A Contingency Theory-based Investigation of the Role of Management Accounting Information in Management Control Systems in Large Manufacturing Companies in Libya

In an attempt to provide a better understanding of the design and use of effective management control systems (MCS) in a developing country, this research study adopts a contingency theory approach to investigate the role of management accounting information (MAI) in facilitating MCS in large manufacturing companies. Drawing the relevant literature on contingency theory, a framework is developed and forms the basis for investigating the possible influence of several contingent variables, including centralisation, formalisation, environmental uncertainty, manufacturing complexity and competitive strategy, on the effectiveness of MCS as well as the potential mediating effect of the usefulness of MAI on these relationships.

Based on the findings of a questionnaire-based survey of 54 large manufacturing companies from different industrial sectors in Libya, this study identifies the role of MAI in facilitating MCS in these companies in terms of the four dimensions of scope, timeliness, aggregation and integration. Descriptive and inferential statistical tools are used to analyse the collected data, including independent t-test, correlation, simple and multiple regression. The study also utilises the Preacher and Hayes’s (2004) macro through the SPSS package to investigate mediation regression effects in the MAI/MCS relationship. The results of the descriptive analysis show that more bureaucratic MCS types - characterised as formal, tight, and impersonal controls - have been adopted in large manufacturing companies in Libya to motivate, control and direct different activities. In terms of competitive strategy, no pure cost leaders or differentiators were found; rather the responding companies consider various aspects of cost leadership and product differentiation priorities when shaping their competitive strategy. Apart from manufacturing process complexity, all other contingent variables studied were found to have a significant positive influence on MCS effectiveness in these manufacturing companies.

Although each of the four MAI dimensions (i.e. scope, timeliness, aggregation, and integration) explored in this study was perceived useful in relation to planning and problem solving activities, it is the aggregated information that was perceived the most important, available, and, thus, useful information. Very importantly this study found that MAI usefulness accounts for a full (i.e. complete) mediation effect only on the relationship between centralisation and MCS effectiveness, while it accounts for a partial mediating role on the relationship between MCS effectiveness and the other three contingent variables of formalisation, environmental uncertainty, and competitive strategy. On the other hand, the usefulness of MAI transmitted the influence of manufacturing process complexity on MCS effectiveness indicating an indirect effect instead of a mediated relationship. The latter is a significant distinction not usually made in previous studies that examined interaction factors.

Thus, this study contributes to the knowledge in this important area by distinguishing between mediation and indirect effects, in particular, and between full and partial mediation effects, in general. Finally, the main limitations of this study are outlined and opportunities for future research are suggested, particularly in relation to considering the moderating effect of a fourth variable on the mediation relationship (i.e. moderated mediation) in the interplay between MAI and management control system design and use.