The Diffusion of Management Accounting Practices in Developing Countries: Evidence from Libya

The transition in Libya from a planned economy to a market economy, which
commenced in the late 1980s, has resulted in fundamental changes such as the
restructuring of state-owed enterprises, a noticeable growth in foreign direct
investment, and an emerging private sector. These changes put immediate pressure
on accounting practice to change to meet the demands of the new business
environment.

Based on the findings of a questionnaire-based survey, supplemented by interview
data, this study explores the state of „traditional‟ and „advanced‟ management
accounting practices (MAPs) of a mix of 81 large and medium size Libyan
manufacturing companies from different industrial sectors. In addition, drawing off
the existing literature on new institutional sociology and innovation diffusion
theories, a model is developed and forms the basis for investigating and evaluating
the factors that influence the development and change of MAPs in Libyan
companies. This investigation is underlined with thorough statistical inference
resulting from applying factor analysis and simple and multiple regression to the
survey data as appropriate. The data collected from 10 interviews are quantified and
analysed to provide more insight into MAPs in the responding companies.

Although the responding companies have reported using most of the MAPs
surveyed, the adoption rates of theses practices are noticeably lower than the
adoption rates of MAPs usually found in the management accounting literature. The
findings also seem to confirm those of recent studies in other countries about the
popularity of „traditional‟ practices over the much acclaimed „advanced‟ ones.
However, respondents not only claim to derive higher benefits from „traditional‟
MAPs than from „advanced‟ MAPs, but they also express their intention to place
greater emphasis on the former in the future. Thus, this study questions the
exaggeration in the criticism of traditional MAPs that characterised the obsolescence
campaign initially led by Kaplan (1986) and Johnson and Kaplan (1987) and the
acclaimed superiority of the so-called „advanced‟ MAPs.

While it is surprising to find that none of the environmental factors examined in this
study (e.g. uncertainty and market competition) seems to have an important impact
on MAPs diffusion, factors related to attributes of innovation (e.g. the availability of
resources, the availability of training, top management support and company size) do
however have a significant positive impact on the diffusion of MAPs in these Libyan
manufacturing companies. Institutional factors, especially those related to the fashion
perspective (e.g. use of consultants) and the fad perspective (e.g. being in a joint
venture with a foreign partner) appear to also be essential in facilitating diffusion.
This research concludes that the demand side perspective, which dominates the
literature on innovation diffusion, is not adequate on its own and, therefore, the
supply side and the institutional environment are also important factors in explaining
the diffusion of MAPs.

Finally the main limitations of this study are outlined and opportunities for future
research are discussed, particularly in relation to this study‟s findings about the need
to reconsider the usefulness of traditional MAPs and also the need for a multiple
perspective approach for studying the diffusion of MAPs.