The Globalization Of Financial Markets Accounting Essay

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The globalization of financial markets has led banks in developing countries to improve customer service quality, reduce operating costs, speed, and enhance profitability performance (Randle, 1995). These indicators represent banking performance. Generally, organizational performance refers to the organizational effectiveness to achieve the objectives of organization (Henri, 2004). Organizational performance refers to the organizational effectiveness and represents the results of the organization's activities, or focuses on the achievement of objectives{, 2004 #309}. Furthermore, organizational performance is viewed differently by different organizations, and there are various approaches used to measure performance. Some view performance from a financial perspective (objective measures), while others view performance from a non-financial perspective (subjective measures).

Many factors have an effect on organizational performance, particularly, contingency factors (business strategy, organizational structure, competition), and institutional factors (coercive pressures) (Hoque, 2004; Hussain & Hoque, 2002; Lee & Yang, 2011; Van der Stede, Chow, & Lin, 2006). First, among the contingency factors, business strategy is one of the important variables in the contingency studies (Chong & Chong, 1997). The organizational literature{, 1978 #175} suggests that improved business performance requires a management style that is related to a specific firm strategy and organizational structure ( e.g.,Venkatraman, Henderson, & Oldach, 1993). The strategic types in this study include prospector, defender, and analyser. Second, organizational structure is one of the important factors that affects management accounting practices (Lorenzo, 2008). According to Chia (1995), the need for integrated information from the management accounting systems is greater in organizational structures (decentralized), thereby resulting in better performance. Third, competition is one potential determinant of the use of multiple performance measures and also has a significant impact on organizational performance (Agha, Alrubaiee, & Jamhour, 2011; Majeed, 2011). Fourth, institutional factors, coercive pressures are an important institutional factor that influences organizations to have improved environmental performance (Zhu & Sarkis, 2007). The central bank's regulatory control is the most forceful factor in coercive pressure, and influence on normal function and operation of banks as well as on their performance measures (Hussain & Hoque, 2002).

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In this study, performance measures (PM) are used as the mediator variable on the relationship between the contingency and institutional factors, and organizational performance. To develop an innovative PMS, the simplest method is to utilize the integration of the set of financial and non-financial measurements (Ittner & Larcker, 2003). This study focuses on financial and non-financial measures (customer, internal business process, learning and growth). The increased attention on the measures of performance evaluation by academics and consultants reflects the increased pressure to improve organizational performance (Hoque, 2004; Nanni, Dixon, & Vollmann, 1992). Several studies have found significant relations between business strategy, organizational structure, competition and coercive pressure, and performance measurement system (e.g., Abernethy & Guthrie, 1994; Gosselin, 2005; Govindarajan & Gupta, 1985; Hoque & Hopper, 1997; Hoque & James, 2000; Lee & Yang, 2011; Maurice, 2005).

The banking sector is one of the most important sectors at both the economic and individual level, through which it achieves a number of important functions such as granting loans and credit facilities (Fakhri, 2010). The Libyan banking sector consists of the Central Bank of Libya (CBL) and 20 other banks including specialised banks (Libyan Arab Foreign Bank, Agricultural Bank, Saving and Investment Bank, Libyan Foreign Bank, and Development Bank) and 15 commercial banks work in Libya. This study focuses on 15 commercial banks and their branches.

Problem Statement

Organizational performance is one of the most important constructs in achieving the goals of the organization (Richard, Devinney, Yip, & Johnson, 2009), and is an important variable in most studies (Dess & Robinson, 2006).

Talk about the problem in business world ?

Important of banking sector?

In Libya, there are weaknesses in the banking sector (Salem, 2010), particularly, the commercial banks suffer from poor performance, high levels of non-performing loans and a lack of internal control systems (Chamiea, Elfeturi, & Abusneina, 1997; Gabgub, 2009). According to the World Bank (2009), financial intermediation continues to be low in Libya compared to other comparable countries. Furthermore, Libyan banks offer limited financial products, and loans are often made on the basis of personal connections, and lack of adequate financing from banks acts as a brake on Libya´s development (Maitah, Zedan, & Shibani, 2012). Particularly, that of Libya after the revolution February 17, 2011 needs to improve in all areas of development (See section 2.2.2 for more details).

Link between variables and OP?

Although organizational performance could be affected by multiple factors, contingency factors have been widely recognized as important factors that can affect organizational performance (Gosselin, 2005; Henri, 2006a; Hoque, 2004; Lee & Yang, 2011). To date, some of the contingency factors that have been investigated include technological factors (Melville, Kraemer, & Gurbaxani, 2004; Ruiz-Mercader, Merono-Cerdan, & Sabater-Sanchez, 2006; Santhanam & Hartono, 2003; Sinkovics & Kim, 2008; Young & Gurbaxani, 2012), organizational size (Carmeli & Tishler, 2004; Stanwick & Stanwick, 1998; Terziovski & Samson, 2000), and organizational culture (Hartog & Verburg, 2006; Lee, Tan, & Chiu, 2008; Lee & Yu, 2004; Ogbonna & Harris, 2000; Rashid, Sambasivan, & Johari, 2003).

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Despite many studies concerning the influence of contingency factors on organizational performance, the business strategy, organizational structure, and competition are important based on the broad range of contingency theory and their effect on organizational performance (Chong & Chong, 1997; Lee & Yang, 2011; Lorenzo, 2008). Firstly, business strategy is one of the important variables in contingency studies (Chong & Chong, 1997), in that the organizational literature (e.g., Miles, Snow, Meyer, & Coleman 1978) suggests that improved business performance requires an organizational structure and management style that are related to a specific-firm strategy. Furthermore, firms will achieve higher performance if they align managerial practices to the strategic priorities of the organization (Venkatraman et al., 1993).

Secondly, organizational structure is one of the important factors that affects management accounting practices (Lorenzo, 2008). The organizational structure has a significant positive impact on firm performance (Lai & Limpaphayom, 2003). The literature on management accounting indicates that less attention has been paid to the influence of organizational structure on organizational performance (Child, 1972; Lee & Yang, 2011; Miles, Snow, Meyer, & Coleman Jr, 1978).

Thirdly, competition is a powerful contextual factor affecting both organizational design and performance (Lee & Yang, 2011). Competition has a significant impact on organizational performance (Agha et al., 2011). In almost all organizations there is a good association between the company's competitive advantage and its performance. These advantages lead the company towards attaining high profits, because the low cost of goods sold and low prices have led to relatively better performance (Majeed, 2011).

In addition, some contingency factors, as well as institutional factors, are significantly associated with organizational performance (Oliver, 2003). Coercive pressures are one important institutional factors that influences organizations to have improved environmental performance (Zhu & Sarkis, 2007). There is considerable government intervention, which affects the efficient performance of Libyan commercial banks (Chamiea et al., 1997). Furthermore , the CBL has not play its role properly as an advisor and controller on economic activity; through legislation and regulations issued from it to banks that have negatively affected the their performance in the financial sector (Abdulla, 2010). According to Hussain and Hoque (2002), the central bank's regulatory control is the most forceful factor in coercive pressures and the institutional forces influence the banks to implement a particular PMS. In addition, the commercial banks are required to function within the regulations and guidelines of the central bank.

Therefore, this study attempts to combine contingency and institutional factors to enhance the effects on organizational performance. Furthermore, this study attempts to test additional mediators on the relationship between the contingency and institutional factors, and organizational performance. This study will examine the mediating effect of 'use of multiple performance measures' on the relationship between the contingency and institutional factors and organizational performance, as a response to earlier studies (Hussain & Gunasekaran, 2002b; Kaplan & Norton, 2001; Lorenzo, 2008).

The PM are useful for managing the tension between growth opportunities and financial performance (Verbeeten & Boons, 2009). Several studies (Hussain & Hoque, 2002; Kaplan & Norton, 2001; Lorenzo, 2008) emphasize the need to use multiple PM in the service sector, such as the banking sector. Through a review of the literature for PM, many contingency and institutional factors affect the use of PM (Hoque, 2004; Hussain & Hoque, 2002; Lee & Yang, 2011; Maurice, 2005; Van der Stede et al., 2006).

Contingency research is important in contributing to the development of an empirical body of literature relating to management control systems (Chenhall, 2003). Many studies use PM as a mediator factor between the relationships of the contingency factors and organizational performance (Henri, 2006a; Hoque & James, 2000; Lee & Yang, 2011; Van der Stede et al., 2006). The PM should be aligned with contingency factors such as strategy and organizational structure (Gosselin, 2005). Several studies have found significant relations between the business strategy, organizational structure, and performance measurement systems (e.g., Abernethy & Guthrie, 1994; Gosselin, 2005; Govindarajan & Gupta, 1985; Lee & Yang, 2011; Maurice, 2005). In addition, competition is one potential determinant of the use multiple performance measures in the marketplace, where the new competitive environment is the motivation for change in management accounting practices such as the PMS (O'connor, Sandra, & Francis, 2008). External environmental factors such as government regulations, and competition, have an important effect on the use of management accounting practices in Libyan companies (Alkizza & Akbar, 2005).

Institutional forces influence the banks to implement a particular PMS (Hussain & Hoque, 2002). The central bank's regulatory control is the most forceful factor in coercive pressure, and institutional forces influence the banks to implement a particular PMS (Hussain & Hoque, 2002). Furthermore, in the literature concerning institutional forces, there are studies that deal with the relation between institutional forces and PM (Gimzauskiene & Kloviene, 2011; Hussain & Hoque, 2002; Munir., Perera., & Baird., 2011), while other studies deal with the relation between institutional forces and organizational performance (Oliver, 2003; Zhu & Sarkis, 2007). Therefore, this study attempts to use performance measures as a mediator in the relationship between the institutional factors (coercive pressures) and organizational performance. Hence, this is considered as one of the major gaps in the literature.

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The increased attention on measures of performance evaluation by academics and consultants reflects the increased pressure to improve organizational performance (Hoque, 2004; Nanni et al., 1992). Furthermore, several studies have provided empirical evidence concerning the positive impact of performance measures on the financial performance of organizations in respect of long-term profitability (Banker, Lee, Potter, & Srinivasan, 2000; Van der Stede et al., 2006). In addition, many studies emphasise the need to use multidimensional performance measures to increase performance in the service sectors, such as the banking sector (Hussain & Gunasekaran, 2002b; Kaplan & Norton, 2001; Lorenzo, 2008).

To help explain the relationship between contingency and institutional factors, performance measures, and organizational performance, this study will use contingency and institutional theory as the underpinning theory. Contingency theory suggests that the fit between contextual factors (business strategy, organisational structure, and competition) and the design of management control systems is relevant to superior organizational performance (Chenhall, 2003; Langfield, 1997). Furthermore, this study will also use institutional theory to explain the relationship between institutional forces, performance measures, and organizational performance, Institutional theory is based on the assumption that various internal and external factors form the environment of an organization, and influence performance measurement in organizations (Gimzauskiene & Kloviene, 2011). According to Scott (1987), the use of contingency theory or institutional theory alone provides an incomplete understanding of the role of the "coordination and control" practices and how these interact to influence the PMS.

Wu, Mahajan, and Balasubramanian (2003) recommend that research efforts must adequately consider a mix of factors drawn from contingency and institutional perspectives of the firm to correspond with organizational performance. This study attempts to combine both contingency factors (business strategy, structure organizational, and competition) and institutional factors (coercive pressures) simultaneously. In particular, to the best of the researcher`s knowledge, relatively few studies have looked into the influence of both contingency and institutional factors on organizational performance. Hence, this is one of the major gaps in the literature. Additionally, a comprehensive review of the literature indicates that most of the studies on organizational performance have been carried out in the manufacturing sector (Beal, 2000; Hoque, 2004; Rodríguez & Ventura, 2003; Van der Stede et al., 2006; Verbeeten & Boons, 2009), the hospitality industry (Cho, Woods, Jang, & Erdem, 2006; Gray, Matear, & Matheson, 2000; Haynes & Fryer, 2000; Nickson, Baum, Losekoot, Morrison, & Frochot, 2002; Ogaard, Marnburg, & Larsen, 2008) and the insurance industry (Cummins & Weiss, 2001; Fiegenbaum & Thomas, 2006; Harris & Katz, 1989; Lai & Limpaphayom, 2003; Lee & Yu, 2004), thereby neglecting other sectors, particularly the banking industry.

Moreover, extant empirical studies on organizational performance were primarily conducted in developed countries such as the US, UK, and emerging economies in Asia, such as Malaysia and Singapore (Jusoh, Ibrahim, & Zainuddin, 2008; Lee & Yu, 2004; Van der Stede et al., 2006; Walker & Boyne, 2006). However, there is a paucity of studies on organizational performance in the developing countries, particularly in the context of Libya. Hence, this is another practical gap in the literature.

Based on above-mentioned the practical issues and existing theoretical gaps, this empirical study investigates the relationships between contingency factors (business strategy, competition, and organizational structure), institutional factors (coercive pressures), and organizational performance; this study also examines the mediating effects of performance measures on the relationship between contingency and institutional factors, and organizational performance within the commercial banks in Libya.

1.3 Research Questions

The following questions are based on the issues discussed in the research problem by analysing the relationships between the contingency factors (business strategy, organizational structure, and competition), institutional factors (coercive pressures) and organizational performance, and use performance measures as a mediator. These research questions are designed to obtain a feedback from the branch managers of commercial banks in Libya.

What is the relationship between business strategy, organizational structure, competition and coercive pressures, with organizational performance?

What is the relationship between business strategy, organizational structure, competition and coercive pressures, with performance measures?

What are the relationships between performance measures and organizational performance?

Do performance measures positively mediate the relationship between business strategy, organizational structure, competition and coercive pressures, with organizational performance?

1.4 Research Objectives

This study is designed to evaluate the role of the contingency and institutional factors on organizational performance and use the performance measures as a mediator within the commercial banks of Libya. To simplify this, the researcher has designed the following objectives to capture the research problem and provide answers to the research questions.

To determine the relationship between business strategy, organizational structure, competition and coercive pressures, with organizational performance.

To determine the relationship between business strategy, organizational structure, competition and coercive pressures, with performance measures.

To determine the relationships between the performance measures and organizational performance.

To determine which performance measures positively mediate the relationship between business strategy, organizational structure, competition and coercive pressures with organizational performance.

1.5 Significance of the Study

This study investigates the effect of the contingency and institutional factors on the performance measures, and their effect on organizational performance in the commercial banks in Libya. This is important for both theory and practice. Firstly, the study will attempt to combine the influence of both contingency and institutional factors on organizational performance, simultaneously. Second, the present study will demonstrate the mediating strength of performance measures on the contingency and institutional factors, and organizational performance. Furthermore, the antecedents of performance measures have not been used as a mediator in the relationship between the institutional factors (coercive pressures) and organizational performance. Hence, this study will be significant in filling a major gap in the literature.

This study is also going to be significant in a practical sense. Firstly, the study will provide insights into the mechanisms and importance of organizational performance in the commercial banks in Libya, and the factors affecting it, through study's findings, which provide direction and guidelines for the development of organizational performance. Second, most studies in this area have been conducted in developed countries (e.g., Hoque, 2004; Verbeeten & Boons, 2009), whereas this study will be conducted in a developing country - Libya. Furthermore, developing countries have huge natural resources, and about 70% of the world's population are in developing countries. Third, most studies in this area have been conducted in the manufacturing sector (Beal, 2000; Hoque, 2004; Rodríguez & Ventura, 2003; Van der Stede et al., 2006; Verbeeten & Boons, 2009), while other studies emphasize the need to apply this type of research in the service sectors, such as the banking sector (Hussain & Hoque, 2002). The banking sector is one of the most important in Libya, and at the same time, one of the structural constituents of the economy of any country.

1.6 Scope of the Study

This study is confined to examine the impact of contingency factors (business strategy, organizational structure, and competition) and institutional factors (coercive pressures) on organizational performance, through performance measures (financial and non- financial) as mediator in a survey of commercial banks in Libya.

Organisational performance is viewed differently by different organizations, and there are various approaches used to measure performance. This study focuses on performance from both a financial perspective (objective measures) and a non-financial perspective (subjective measures), while the factors affecting organisational performance consist of business strategy (discussed in terms of prospectors, defenders, and analyser), organizational structure (discussed in terms of decentralization), competition, and coercive pressures (discussed in terms of central bank 'regulation control). Furthermore, it uses of multiple performance measures relating to the four perspectives of the balanced scorecard for financial and non-financial (customer, internal business process, learning and growth).

The banking sector in Libya consists of 20 banks, including 5 specialized banks and 15 commercial banks. The study includes all the commercial banks in Libya. In order to limit the scope, the study focuses on all branches (489) of commercial banks in Libya (CBL, 2011). The sample size of the study is 217. This study uses a quantitative approach, through the distribution of questionnaires to senior manager and branch managers of the commercial banks in Libya.

1.7 Organization of the Study

The thesis is organized into three chapters in the following sequence. Chapter one provides an overview of the study. Chapter two presents a review of the literature pertaining to this research. This chapter includes organizational performance, business strategy, organizational structures, competition and coercive pressure, and multiple performance measures. Chapter three describes the research methodology, research framework, hypotheses development, research design, and measurement of variables, data collection, and data analysis techniques.