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Printed in Great Britain Pergamon Press plc
LOKMAN MIA
Department of Accounting and Finance, University of Tasmania
Abstract
This study empirically examined the effect of budget participation on managerialperformance tgsinga con-
tingency theory approach. Contingent variables investigated included managerial attitude (towards their
job and company) and motivation (to work). The results indicated that both variablesmoderated the effect
of budget participation. Specifically,participation in the budgeting process by managers who reported a
more favourable attitude or motivation, was associated with improved performance; whereas participation
by managers exhibiting a less favourable attitude or motivation, was associated with hampered perform-
ance. These results support the fundamental argument that an organization may be better off following a
budgeting style (participative or non-participative) that is congruent with its employee attitude and moti-
vation.
*I am indebted to Ken Ferris, Southern Methodist University,Ferdinand Gul,WollongongUniversityand Ron Weber, Queens-
land Universityfor their help in revising and developing the paper. Comments by Peter BrowneU,Macquarie University,Rob
Chenhall, La Trobe University,Ken Moores, Otago University and by the participants at the AAANZconference (1985) on
an earlier version of the paper are acknowledged. I am also indebted to the anonymous reviewers for their helpful comments
and advice on earlier,drafts of the paper.
465
466 LOKMAN MIA
no differences in performance b e t w e e n par- While Lawler & Hackman (1979), Siegal & Ruh
ticipatively and non-participatively set budgets (1973), Patchen ( 1 9 7 0 ) and Hofstede ( 1 9 6 7 )
(Kenis, 1979; Ivancevich, 1976; Steers, 1979; reported a significant and positive relationship
Milani, 1975; Foran & Decoster, 1974). Adding between participation and motivation, Brownell
confusion, some studies have even reported a (1983), Ivancevich ( 1 9 7 9 ) and Staw ( 1 9 7 7 ) did
negative relationship b e t w e e n participation and not observe such a relationship.
performance, suggesting that authoritarian goal One potential explanation for these inconclu-
setting may lead to performance superior to that sive results is that changing (improving)
associated with participative goal setting (e.g. employee attitude and motivation through
Blumenfield & Leidly, 1969; Bryan & Locke, budgetary participation, or by other means,
1967; Stedry, 1960; Morse & Reimer, 1956). assumes that individuals are only the recipients
A problem facing researchers in this area is of stimuli, and fails to consider that individuals
therefore a need to reconcile these conflicting may be m o r e than merely passive recipients of
results. One way of doing this is to adopt a con- such stimuli. A m o r e realistic view is that since
tingency theory approach. Govindarajan individuals themselves may be the augmentors
(1986), for example, used environmental uncer- of stimuli (see Milton et al., 1984), an organiza-
tainty as a contingent variable in evaluating the tion may be better off following a budgeting
relationship b e t w e e n budget participation and style (participative or non-participative) that is
performance. He reported that increased partici- congruent with its e m p l o y e e attitude and moti-
pation improved performance in environmen- vation.
tally highly uncertain situations, but h a m p e r e d Two exceptions to the treatment of employee
performance in low uncertain situations. Brow- attitude and motivation as o u t c o m e variables are
nell ( 1 9 8 1 ) found that increased participation Brownell & Mclnnes ( 1 9 8 6 ) and Milani (1975).
by employees w h o w e r e "internals" ( o n the Brownell & McInnes examined the potential of
locus of control scale) resulted in improved per- employee motivation as a construct intervening
formance, whereas participation b y employees in the relationship b e t w e e n budget participation
w h o w e r e "externals" ( o n the same scale) ham- and performance. The term intervening is used
pered performance. Similarly, Hofstede ( 1 9 6 7 ) here in the sense that the relationship b e t w e e n
found that increased participation by employees budget participation and performance exists
having a high need for independence was as- partly via motivation as shown in Fig. 1 (see
sociated with improved performance, but no
Attitude
such relationship could be obtained in the case motivation
of employees w h o had a low need for indepen-
dence (see also Vroom, 1959).
With regard to attitude and motivation, r e -
searchers have c o m m o n l y treated these con-
structs as o u t c o m e variables in evaluating the participation m performance
effectiveness of budgetary participation. A rea- Fig. 1. Model sharing motivation and attitude as intervening variables.
son underlying this c o m m o n assumption is the (Adapted from Brownell & McInnes, 1986.)
expectation that participation should positively
affect these variables as o u t c o m e criteria. How- Brownell & Mclnnes, 1986). Contrary to their
ever, the results to date are generally inconsis- expectations, motivation did not play a signifi-
tent. Although Collins ( 1 9 7 8 ) and Vroom cant intervening role, i.e. the relationship be-
(~959), for example, reported a significant, posi- t w e e n participation and performance did not
tive relationship b e t w e e n participation a n d exist via motivation. In another study, Milani
employee attitude, Ivancevich ( 1 9 7 9 ) found no ( 1 9 7 5 ) examined the potential of employee
such relationship. In the case of motivation, a attitude as a construct intervening the relation-
similarly equivocal situation apparently exists. ship b e t w e e n budget participation and perform-
MANAGERIALATYITUDE,MOTIVATIONAND BUDGETPERFORMANCE 467
There is no theoretical justification for expecting a two way interaction between attitude and motivation or a three way
interaction among budget participation, attitude and motivation that affect performance. To validate this view, statisticaltests
were undertaken and the results are reported later in this paper.
468 LOKMANMIA
level managers in a large company. The com- ing (6%), production (19%), R&D (5%), pur-
pany was originally incorporated in Australia as a chasing (7%), maintenance (10%), personnel
mining and associated investments company (6%), administration ( 1 2 % ) and accounts and
about a decade ago. In recent years it has finance ( 17% ). The respondents had an average
emerged as a major Australian company, mainly tenure of 7 years (ranging from 1 to 20 years)
through the acquisition of other companies with the corporation and supervised on average
doing business in diversified fields. The com- 12 subordinates (ranging from 1 to 40).
pany is listed on the Australian Stock Exchange,
operates nationally in Australia and consists of The measurement of variables
five operating divisions engaged in the import- The variables incorporated into the question-
ing and distribution of automobiles, and the naire were participation, attitude, motivation
manufacturing and selling of furniture, plastic and performance.
building products, gardening equipment and
electrical goods. Budget participatior~ Milani's ( 1 9 7 5 ) mea-
A series of meetings with the corporate man- sure of budget participation was employed to
agement indicated that each of the divisions was assess the amount of influence and involvement
treated as a profit centre, with the divisional an individual employee perceives to have on a
managers being given considerable autonomy in jointly-set budget (Brownell, 1979). The use of
running their divisions. All of the divisions have this instrument enables the results of the present
been using budgets for several years to plan their study to be compared with those of other studies
operations and to evaluate performance. More- of budget participation. Respondents are re-
over, the corporate management appeared to quested to rate their level of budget participa-
have been interested in encouraging a participa- tion under each of the six items on a 7-point
tive style of budgeting in all divisions. Likert-type scale. The overall score for the con-
The distribution of the questionnaire was struct is the sum of the scores under each of the
handled via the internal mailing system of the six items. The use of the measure in the present
company, under a corporate cover letter study yielded a Cronbach alpha coefficient of in-
encouraging cooperation in the study. Each ternal reliability of 0.89 which compares favour-
respondent was provided with a stamped, self- ably with other studies of this type 2 (see Brow-
addressed envelope to return the completed nell, 1985).
questionnaire direct to the researcher. The sam-
ple consisted of 115 middle and lower level Attitude. A literature review indicated that, in
managers from various functional areas: sales, a budgetary situation, Milani ( 1 9 7 5 ) offers the
marketing, production, R&D, purchase, mainte- most clear and complete definition of attitude.
nance, personnel, administration and accounts He defined attitude in terms of employees' feel-
and finance. However, selection of the respon- ings and predispositions towards their jobs
dents was made by the division management, so (attitude towards job) and employer (attitude
the sample was not strictly random. In selecting towards company) in a budgetary context. At-
respondents, the management was requested to titude towards the job is measured using a 16-
choose samples of managers from all functional item instrument adapted by Milani ( 1 9 7 5 ) from
areas. a larger instrument developed by Miller (1934).
The questionnaire was fully completed by 83 Examples of items included in this measure are:
managers, yielding a response rate of 72%. "I can think of few jobs I would rather have than
These managers were from sales ( 18% ), market- this one" and "This job is disliked by everyone".
2 Afactor analysis using the scores for the measure in this study yielded one eigen value greater than unity resulting in the
extraction ofone Factor.The Factorhad an eigen value of 3.82 and explained 64% of variance in participation. The factorload-
ings of items 1--6in the instrument were 0.83, 0.57, 0.70, 0.89. 0.92 and 0.85, respectively.
MANAGERIALATTITUDE,MOTIVATIONAND BUDGETPERFORMANCE 469
Attitude towards the c o m p a n y is m e a s u r e d using o b t a i n e d for the valence measure was 0.76.
a 10-item instrument also a d a p t e d by Milani These coefficients c o m p a r e favourably with pre-
( 1 9 7 5 ) from an instrument d e v e l o p e d by vious results (Ferris, 1977).
Bergen (1939). Examples of items i n c l u d e d in
this measure are: "A large n u m b e r of the
e m p l o y e e s w o u l d leave h e r e if they c o u l d get Performance. Managerial p e r f o r m a n c e was
g o o d jobs elsewhere", and "On the whole, the m e a s u r e d using superior ratings. Self-ratings
c o m p a n y treats us about as well as w e deserve". w e r e not used to avoid the possibility of having
The score for a manager's overall attitude is the a higher leniency e r r o r ( h i g h e r mean values)
sum of scores for his attitude towards the job and and a l o w e r variability e r r o r ( r e s t r i c t i o n of
attitude towards the c o m p a n y (Shaw & Wright, r a n g e ) in the score (see Thornton, ~968; Prien &
1967, pp. 130-132; Tiflfin, 1952, pp. 4 6 5 - 4 7 1 ) . Liske, 1962). Moreover, since the participants in
A c h e c k of internal reliability for the measure in this study held managerial positions, an evalua-
this study y i e l d e d a Cronbach alpha coefficient tion of their p e r f o r m a n c e on a m o r e global basis
of 0.61 w h i c h is an a c c e p t a b l y high level (Nun- was c o n s i d e r e d important. The superior ratings
nally, 1967). aimed to p r o v i d e such a w i d e r evaluation of
managerial p e r f o r m a n c e (Heneman, 1974).
MotivatiorL W o r k motivation was m e a s u r e d A list containing the names and addresses of
using an instrument d e v e l o p e d by Lawler & Sut- superiors for the 83 participating managers in
d e (1973). In the c u r r e n t study, w o r k motiva- the sample was obtained from the divisional
tion was v i e w e d in the c o n t e x t of an e x p e c t a n c y managers' office. Also information on the p e r i o d
paradigm, and thus as a function of the e f f o r t - for w h i c h each of the participating managers had
p e r f o r m a n c e (E--*P) expectancy, the perform- b e e n working u n d e r his c u r r e n t s u p e r i o r p r i o r
a n c e - o u t c o m e (P--*O) e x p e c t a n c y and valence to the study was also obtained. A p e r i o d of 6
(V) (Ferris, 1977; Vroom, 1964). An e x a m p l e of m o n t h s was c o n s i d e r e d necessary for a superior
items measuring (E--*P)e x p e c t a n c y is "Working to form an accurate o p i n i o n about his subordi-
hard ---->G o o d job performance", and (P-*O) ex- nate's performance. This criterion was met by 60
p e c t a n c y is "Working hard --->High pay". The va- of the 83 participating managers. The superior of
lence (V) is m e a s u r e d by the e x t e n t of desir- each of these 60 managers was then r e q u e s t e d to
ability for, say, "High pay". Using the instrument, evaluate as accurately as possible the overall per-
r e s p o n d e n t s r e p o r t their e x p e c t a n c i e s on a 7- formance of the participating manager directly
point scale ranging from 1 ( n e v e r ) to 7 ( a l w a y s ) r e p o r t i n g to him. 4 The superiors w e r e p r o v i d e d
and valences on a 9-point scale ranging from 1 with a 9-point Likert-type scale ranging from
( e x t r e m e l y u n d e s i r a b l e ) to 9 ( e x t r e m e l y desir- b e l o w average ( 1 ) to above average perform-
able). The overall score for motivation is deter- ance (9). Each of the r e s p o n d e n t superiors was
m i n e d by c o m b i n i n g the e x p e c t a n c i e s and val- assured of anonymity and p r o m i s e d that the data
ence. 3 Use of the e x p e c t a n c y measure in this c o l l e c t e d w o u l d be used only for the p u r p o s e of
study y i e l d e d an internal reliability coefficient of the study. Superior ratings of p e r f o r m a n c e for 51
0.74 for (E--*P) e x p e c t a n c y and 0.86 for (P--~O) participating managers w e r e obtained. Thus, the
expectancy. The internal reliability coefficient final sample size used for analysis was 51.
Y 1.00
XI -O. 11 1.00
X2 -O. 15 0.29" 1.00
X3 -0.10 0.02 0.18* 1.00
X4 0.35* -0.18" -0.19" -0.10 1.00
X5 0.28* -0.04 -0.10 -0.12 0.14 1.00
* P < 0.05.
TABLE 3. Test of Hl: interaction between participation and attitude affecting performance
Variables CoefficientsB Coefficientvalue S.E. T* Statistical value SignilicanceP
5Application of the deviation score method is useful to test the proposition in this study that managerial performance should
improve in cases of managers whose budget participation is congruent (a good fit) with their attitude or motivation. A low
participation (negative rescaled value), for example, by managers who have a less favourable attitude (again a negative re-
scaled value) is a congruent situation and the interaction term is positive. A similar result is expected in cases of high partici-
16ation and more favourable attitude or motivation. However, in cases where participation is high but attitude or motivation
is less favourable or vice versa, an incongruent (a misfit) situation exists resulting in a negative interaction term which is ex-
pected to be associated with hampered performance.
MANAGERIAL ATTITUDE, MOTIVATION AND BUDGET PERFORMANCE 471
Earlier it was argued that a significant two way ations ( 2 ) and ( 3 ) below, and then graphically
interaction b e t w e e n attitude and motivation presented in Figs 3 and 4. The steps taken for this
(the two contingent variables), and a three way analysis are: ( a ) taking the partial derivative of
interaction a m o n g participation, attitude and equation ( 1 ) over XI, ( b ) determining the value
motivation affecting performance should not be o f X 2 ( t h e inflection point) at which this variable
expected, due to an absence of theoretical sup- would have no moderating effect on the rela-
port. This argument was statistically tested using tionship b e t w e e n X 1 and Y, and ( c ) plotting the
/
>" ~
'~1'~ ! O/ /~
0.1 0.2 013 014 015 016
Employee attitude
017
Fig. 3. Interaction between budget participation and employee attitude affecting managerial performance.
+0.2
.~ +0.I
I I I I
o • . . u.o 0.7
0.5
Workmotivation
-0.2
Fig. 4. Interaction between budget participation and work motivation affecting managerial performance.
472 LOKMANMIA
joint effect of the main and interaction terms average attitude and motivation respectively in
( see Schoonhoven, 1981; Southwood, 1978). this study.
The use of steps ( a ) and ( b ) above p r o d u c e d The slope of the line plotting the joint effect of
equations ( 2 ) and ( 3 ) as: the main and interaction terms in Fig. 3 is higher
than the slope of that line in Fig. 4. This differ-
d/dX 1 = b2 +b4X 2 (2) ence in slope indicates that the moderating
effect of attitude on the participation-perform-
and ance relationship is stronger than that of motiva-
tion.
x 2 = - b /b4 (3)
o f a t t i t u d e a n d m o t i v a t i o n as d i s c u s s e d a b o v e c a u t i o n is n e c e s s a r y b e f o r e g e n e r a l i z i n g t h e re-
supports the fundamental argument made suits.
e a r l i e r in this p a p e r that an o r g a n i z a t i o n m a y b e ( 2 ) T h u r s t o n e & Chave's ( 1 9 2 9 ) t h e o r y a n d
b e t t e r off f o l l o w i n g a b u d g e t i n g style ( p a r t i c i p a - t e c h n i q u e , o n w h i c h t h e a t t i t u d e scale is based,
tive o r n o n - p a r t i c i p a t i v e ) that is c o n g r u e n t w i t h has b e e n c r i t i c i s e d b e c a u s e t h e s a m e s c o r e for
its e m p l o y e e a t t i t u d e a n d m o t i v a t i o n . T h e re- two individuals may not necessarily mean they
sults i m p l y that an i m p o s e d o r a n o n - p a r t i c i p a - h a v e an i d e n t i c a l a t t i t u d e ( s e e Milani, 1975;
tive b u d g e t i n g m a y b e m o r e effective ( i n t e r m s Shaw & W r i g h t , 1967; Tiffin, 1957). M o r e o v e r ,
o f p e r f o r m a n c e ) in t h e case o f m a n a g e r s w h o a l t h o u g h t h e i n t e r n a l reliability coefficient
h a v e a less f a v o u r a b l e ( l o w ) a t t i t u d e a n d / o r ( 0 . 6 1 ) for t h e scale m e a s u r i n g e m p l o y e e at-
m o t i v a t i o n ( s e e Figs 3 a n d 4). O n t h e o t h e r hand, t i t u d e is satisfactory ( N u n n a l l y , 1967; Ferris,
a p a r t i c i p a t i v e b u d g e t i n g m a y b e m o r e effective 1977), it is n o t v e r y high. U n f o r t u n a t e l y p r e v i -
in t h e c a s e o f m a n a g e r s w h o h a v e a m o r e favour- o u s r e s e a r c h e r s w h o h a v e u s e d t h e scale h a v e
a b l e ( h i g h ) a t t i t u d e a n d / o r m o t i v a t i o n . How- n o t r e p o r t e d t h e i r reliability c o e f f i c i e n t (see, for
ever, it s h o u l d b e n o t e d t h a t s i n c e this s t u d y e x a m p l e , Milani, 1975).
u s e d Milani's ( 1 9 7 5 ) p a r t i c i p a t i o n c o n t i n u u m ( 3 ) An e m p l o y e e ' s p e r f o r m a n c e m a y b e influ-
scale, t h e p o s s i b l e effect o f a n o n - p a r t i c i p a t i v e o r e n c e d b y variables s u c h as g r o u p b e h a v i o r , j o b
authoritarian budgeting on performance could security, w o r k i n g c o n d i t i o n s , r e w a r d s y s t e m s
n o t b e e x p l i c i t l y tested. F u t u r e r e s e a r c h n e e d s and top managements' policies not investigated
to p u r s u e this issue further. in this study. T h e s e t h e r e f o r e m a y b e o t h e r con-
t i n g e n t variables m o d e r a t i n g t h e p a r t i c i p a t i o n -
B e y o n d t h e usual l i m i t a t i o n s o f s u r v e y re-
p e r f o r m a n c e relationship.
s e a r c h ( B r o w n e l l , 1985), a n u m b e r o f issues
N o t w i t h s t a n d i n g s u c h limitations, t h e r e s u l t s
w o r t h d i s c u s s i n g are:
h e l p to r e c o n c i l e t h e r e s u l t s r e p o r t e d b y previ-
( 1 ) Data for t h e s t u d y w e r e c o l l e c t e d f r o m o u s r e s e a r c h in this a r e a a n d t h e r e b y m a k e s o m e
v a r i o u s d e p a r t m e n t s in a large c o m p a n y . Al- c o n t r i b u t i o n to i m p r o v e o u r u n d e r s t a n d i n g o f
t h o u g h t h e d e p a r t m e n t s a p p e a r e d t o h a v e a rea- t h e effect o f p a r t i c i p a t i o n o n m a n a g e r i a l p e r -
sonable amount of autonomy, the top manage- f o r m a n c e in a b u d g e t a r y c o n t e x t . C e r t a i n l y o n
m e n t w a s likely to h a v e h a d a significant influ- t h e basis o f t h e p r e s e n t findings it w o u l d a p p e a r
ence on how the departments were managed. that an o r g a n i s a t i o n is likely to b e b e t t e r off fol-
T h e r e m a y t h e r e f o r e b e factors at w o r k w h i c h l o w i n g a b u d g e t i n g style that is c o n g r u e n t w i t h
a r e specific to t h e p a r t i c i p a n t c o m p a n y , s o s o m e its e m p l o y e e a t t i t u d e a n d m o t i v a t i o n .
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