Management Control Systems and Performance of State-owned Enterprises in Ghana

Abstract

The influence of the Management Control Systems (MCS) on firms' strategies and performance has been explored in many studies in the past decades. Drawing on Simon's levers of control framework, this study adds a perspective to the existing literature by examining the relationships between four MCS uses and the performance of State-Owned Enterprises (SOEs) in Ghana and exploring how knowledge management and psychological empowerment mediate these relationships. Data was gathered through a survey of middle-level managers in a cross-section of SOEs in Ghana. The data were analysed using the partial least squares (PLS) approach to structural equation modelling. The results indicate that the diagnostic uses of budgets have direct and significant positive relationships with SOEs performance. In contrast, beliefs, boundary systems and the interactive uses of budgets had no direct effect on performance. The result showed that all the four uses of MCS have a direct and significant influence on knowledge management and employee psychological empowerment. In addition, the results revealed that the diagnostic uses of a budget are partially mediated by knowledge management and employee psychological empowerment; the rest of MCS (beliefs systems, boundary systems, and the interactive uses of budgets) are fully mediated by knowledge management psychological empowerment. The study contributes to the literature in many ways. First, the study provides insights into the importance of the diagnostic uses of control, revealing that SOEs place a relatively high premium on the traditional monitoring and evaluation role of management controls. Second, the findings extend the MCS literature by providing evidence that suggests that intermediate variables mediate the impact of MCS on performance. Third, the study contributes to knowledge about the importance of MCS in knowledge practices and empowering employees and managers, highlighting the need to examine the different shades of autonomy that generate psychological empowerment and determine each control's specific roles for the various forms of autonomy. Fifth, it provides evidence of the complementary roles of the four MCS, especially in relation to knowledge management and psychological empowerment in hybrid organisations such as SOEs.