Post-privatisation changes in management control, firm activities and performance: the case of Eritrea-based firms

Privatisation is mainly encouraged by the World Bank and the IMF to offer solutions for the failures of public ownership (Shirley & Walsh, 2001). The transfer of ownership and control of public firms into private owners was presumed to bring outcomes like improved Management Control System [MCS] practices and performance. Proponents of privatisation have considered the internal and external contextual factors as unproblematic and would pose no problems. The literature also does not show how MCS changes actually take place and studies did not address whether privatisation results meet the expectations mainly from the context of developing countries. Furthermore, evidence from former studies has indicated that the outcomes of privatisation had been inconclusive both in the developed and developing countries. In fact, some studies have suggested that the success of privatisation is likely to be affected by MCS practices and contextual factors. Therefore, this study was conducted in Eritrea to shed light on the relations among privatisation, MCS change, and firm performance, while taking into account the influence of contextual factors. In this respect, we have developed suitable conceptual framework to guide our study. We have applied a qualitative research approach and used the case study method. Findings from our three case firms indicated that the MCS practices, firm activities and performance were significantly affected by contextual factors. Factors that played positive role include the capacity and experience and involvement of multinational and local owners. Conversely, factors that had negative effects were mainly government regulations and political uncertainty (war)