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.