International Journal of Advanced and Applied Sciences, 3(10) 2016, Pages: 79-88 Contents lists available at Science-Gate International Journal of Advanced and Applied Sciences Journal homepage: http://www.science-gate.com/IJAAS.html 79 Management control system, organizational learning, and firm’s performance: An empirical study from developing economy Rabee Shurafa *, Rapiah Bt Mohamed School of Accountancy, College of Business UUM, Universiti Utara Malaysia, 06010 Sintok, Kedah, Malaysia ARTICLE INFO ABSTRACT Article history: Received 14 June 2016 Received in revised form 10 October 2016 Accepted 21 October 2016 Even though it is widely accepted that effective design of management control system (MCS) has the ability to stimulate organizational learning, which ultimately will enhance the organizational performance, empirical research analysis on such relationship in the context of the developing economy, in comparison to the existing literature of the developed economy, is still scarce. In particular, the influence of each of levers of control (LOC) components (belief, boundary, diagnostic, and interactive control) on the organizational learning still lacking with conflicting results. Based on a survey of 129 top managers of the Palestinian listed firms, we examine how different MCS have different influence on organizational learning and how organizational learning ultimately influences the organizational performance. The evidence suggests that neither beliefs system, nor the boundary system facilitates learning. In addition, an interactive control system also has no significant influence on organizational learning, which unlike the case of the developed economy. By contrast, diagnostic control system is the only control system that has significance influence on organizational learning. In addition, the result indicates that organizational learning has a positive influence on firm’s performance. This paper contributes to stream of literature from the perspective of the developing economy and provide suggestions for potential directions of future MCS research in the context of the devolving economy. Keywords: Management control system Levers of control Organizational learning and organizational performance Developing economy Palestine © 2016 The Authors. Published by IASE. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). 1. Introduction *Management control systems (MCS) represent organization's means to achieve its objectives by providing useful information to assist in decision making, planning and performance evaluation (Anthony and Govindarajan, 2007; Merchant and Van der Stede, 2011; Otley et al., 1995; Simons, 2013). By contrast, organizational learning at its basic concept means the development of prudence through the acquisition of new knowledge that has the potential to influence behavior (Sinkula, 1994; Slater and Narver, 1995), which ultimately will impact the performance. The association between MCS and organizational learning has been examined previously to adjust control mechanisms in a way that can facilitate organizational learning for better firms performance * Corresponding Author. Email Address: rabeeshurafa@gmail.com (R. Shurafa) https://doi.org/10.21833/ijaas.2016.10.013 2313-626X/© 2016 The Authors. Published by IASE. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/) (Bisbe and Otley, 2004; Henri, 2006; Simons, 1990; Widener, 2007). Every organization has a certain level of experience that should be converted into knowledge by exploiting MCS. The desired influence of MCS on organizational learning can be illustrated in two points. First, MCS must accumulate organizational experience; second, MCS must convert this experience into better business practice in order to build sustainable competitive advantage, since organizational learning is described as a successful management instrument applied to gain sustainable competitive advantage (Calantone, Cavusgil, and Zhao, 2002; Lonial and Carter, 2015; Lord, 2014). In fact, Organizational experience without a future use is useless. Some organizations have years of experience, but the performance still the same or slightly difference from before, which motivated several researchers to examine the potential influence of MCS in accumulating and converting organizational historical experience into better performance. However, even though it is widely accepted that effective design of management control system (MCS) has the ability to stimulate organizational learning, which ultimately will