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MANAGEMENT ACCOUNTING PRACTICES AND PERFORMANCE OF MANUFACTURING FIRMS IN THE LAGOS METROPOLIS
Background to the Study
It is believed that industrialisation is one of the major anchors for economic growth and development (Ajibolade, 2013). According to Ajibolade (2013), countries worldwide especially the developing economies have strived to direct their primary focus of economic planning and management in achieving growth and development to the transformation of their economies through industrialisation. One facet of industrialisation which has gained popularity is the manufacturing sector. The Manufacturing sector is a key driver of industrialisation; however, in the developing world with much emphasis on African, the sector has not achieved desirable sustainable performance (Ayodele&Falokun, 2003).
The challenges of improving performance of the manufacturing sector globally and in the African are no different in Nigeria. Nigeriaian manufacturing sector performance has dwindled over the years. Immediately after independent, Nkrumah’s administration stepped up the industrialisation policy which saw manufacturing aspect of industry accounting for 10% of Gross Domestic Product (GDP) in 1960, 14% to GDP in 1970 and 10% in the 1990 (Obed, 2016). During these periods, manufacturing was seen not as the main driver of the industrialisation policy but also a major contributor to economic growth and development.
This sector which is praised in terms of performance, is currently struggling to achieve positive growth. The Association of Nigeria Industries (AGI) has been crying that the manufacturing sector of Nigeria continues to
shrink and Nigeria is on the verge of losing its industrial base. The criticality of this concern was echoed when the manufacturing sector recorded an unprecedented -8% growth rate in 2015 (Obed, 2016). According to Association of Nigeria Industries (AGI) (2013), some of the causes of the poor performance include competition, continuous technological challenges, poor power stability and cost of business.
Notwithstanding the current performance trend, it is believed that the Nigeriaian manufacturing sector still has potentials to achieve desirable results and contribute significantly to economic growth if the challenges are addressed (Akoto, Awunyo-Vitor&Angmor, 2013). In view of this, researchers have over the years conducted studies to provide empirical insight into the challenges and possible recommendations. For instance some researchers have investigated how management of the working capital can address the performance (Akoto et al, 2013).
However, these efforts have not arrested the challenges. It is therefore important to consider other relevant areas. Following accounting pundits researchers, adoption of effective management accounting practices by manufacturing firms is an obvious means to approach the challenges of competition, change and costing so as to improve performance (Horngren, Datar, Foster, Rajan, &. Ittner, 2009). Management accounting methods and techniques help management of organizations including manufacturing firms to plan, direct and control operating costs and to achieve optimal performance (Gichaaga, 2013)
Management accounting is the “application of appropriate techniques and concepts in processing the historical and projected economic data of an entity to
assist management in establishing a plan for reasonable economic objectives and in the making of rational decisions with a view towards achieving these objectives” (Gichaaga, 2014,p.12).
Effective management accounting practices scan operational environment and provide management with information from its environment to facilitate decision-making and achieve competitive advantages and change management (Smith, 2009). According to McWatters (2001), management accounting adapts to organizational change which are often driven by three major forces: technological change, globalization, and customer needs. A critical review of these characteristics of management accounting practice show that , it is capable to mitigate the factors which cause the poor performance of manufacturing sector in Nigeria as asserted by AGI (AGI, 2013).
Therefore, to build a robust, resilient and growing manufacturing sector in Nigeria, management accounting practices among the players of this sector need to be assessed. From the discussions above, it can be reiterated that for the manufacturing sector to improve performance and play an integral role in improving the country’s economy, the necessary management practices should be adopted and duly followed. Thus, effective management accounting practice can be a medium through which the manufacturing sector can be viewed as the leading edge of modernization and skilled job creation, as well as a fundamental source of various positive spill overs (Ajibolade, 2013).
Besides the general assertions, theoretically, there are evidences to suggest the relationship between management accounting practice and performance. These theories include institutional theory and the contingency theory (Bette, 2011; Ma &Tayles, 2009). For instance, according to Ma
&Tayles (2009), management accounting practice uses institutional framework as posits by the institutional theory, to identify and interpret the external and internal influencers, minimise threats and investing in opportunities to enhance organisational performance.
Despites the assertions and theoretical evidences supporting the role of management accounting practices (MAP) in improving organisational performance, globally, the subject has not received much empirical attention. The situation in the Nigeriaian context is worrying given the current challenges of the sector. The few studies in the Nigeriaian context have focused on areas such as MAP and general SMEs (Abor&Effah, 2011; Amoako, 2013) and MAP in the telecommunication industry (Mbawuni&Anertey, 2014). Little or no attention has been given to the manufacturing sector as far as MAP is concerned. It is against these, that the present study seeks to examine management accounting practices and the performance of manufacturing firms in the Lagos metropolis.
Lagos metropolis is chosen as the setting for the study because of the relatively low liquidation or exit of the manufacturing firms in Nigeria (Davies & Karr, 2015). Despite the challenges face by the manufacturing firms in Nigeria, firms in Lagos have high survival rate. According to Davies and Karr (2015), the survival rates as at the end of 2013 are 79.6% for Accra, 82.6% for Lagos, 71.1% for Sekindi-Tarkoradi and 66.7% for Cape Coast. It is therefore important to assess the management accounting practices of the manufacturing firms in Lagos so that the lessons can be a spill over to other parts of Nigeria.