THE EFFECTS OF VALUE ATTAINMENT AND COGNITIVE ROLES OF BUDGETARY PARTICIPATION ON JOB PERFORMANCE

Vincent K. Chong, Ian R. C. Eggleton and Michele K. C. Leong

ABSTRACT
This chapter examines the effects of the value attainment and cognitive roles of budgetary participation on job performance. A structural model consisting of variables such as budgetary participation, job-relevant information, job satisfaction, and job performance is proposed and tested using a survey questionnaire on 70 senior managers, drawn from a crosssection of the nancial services sector. Their responses are analyzed using a structural equation modeling (SEM) technique. The results reveal that budgetary participation is positively associated with job-relevant information. These results lend support to the cognitive effect of budgetary participation, which suggests that subordinates participate in the budget setting process to share information. In addition, the results suggest that budgetary participation is positively associated with job satisfaction.
Advances in Accounting Behavioral Research Advances in Accounting Behavioral Research, Volume 8, 213233 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1475-1488/doi:10.1016/S1475-1488(04)08009-3

213

214

VINCENT K. CHONG ET AL.

These results support the value attainment role of budgetary participation, which increases subordinates levels of job satisfaction. Furthermore, the results reveal that there are positive relationships between job-relevant information and job satisfaction, job-relevant information and job performance, and job satisfaction and job performance.

INTRODUCTION
Since the pioneering work of Argyris (1952) concerning the behavioral aspects of budgeting, a sizable body of research has developed in management accounting examining the effect of budgetary participation on job performance (see Covaleski, Evans, Luft, & Shields, 2003, for a comprehensive review). To date, the results of empirical evidence on the cognitive role of budgetary participation on job performance have produced consistent outcomes (Chenhall & Brownell, 1988; Kren, 1992; Chong & Chong, 2002).1 Kren (1992) developed a research model, which explicitly examined the cognitive function of budgetary participation on job performance. He argues that budgetary participation can facilitate the acquisition and use of job-relevant information. Job-relevant information, in turn, can improve performance. Specifically, Kren nds that budgetary participation affects job performance indirectly through job-relevant information. A review of the literature on participative budgeting indicates that value attainment is another role of budgetary participation (Locke & Schweiger, 1979; Locke & Latham, 1990; Shields & Shields, 1998). Indeed, numerous studies have recognized the value attainment role of budgetary participation (see e.g. Chenhall, 1986; Chenhall & Brownell, 1988; Chong & Bateman, 2000). However, no studies have explicitly tested its impact on subordinates job performance, and its potential inuence within a cognitive model of budgetary participation. The value attainment role of budgetary participation theoretically affects subordinates levels of job satisfaction (Shields & Shields, 1998). Specifically, the value attainment effect of budgetary participation suggests that allowing subordinates to participate in the budgetsetting process will increase the likelihood that they will feel satised with their values (French, Israel, & As, 1960; Strauss, 1963; Lowin, 1968; Locke & Schweiger, 1979). Subordinates values may include: (1) the opportunity to express their views, (2) the feeling of being treated equally, and (3) the desire for respect or dignity (Argyris, 1955; Davis, 1957). To date, the

Roles of Budgetary Participation on Job Performance

215

existing literature has not explicitly tested the value attainment role of budgetary participation within the cognitive model of budgetary participation developed by Kren (1992). This gap in the accounting literature, which remains unexplored, constitutes the primary motivation for our study. This study extends Krens cognitive model by incorporating the variable of job satisfaction in our theoretical model (see Fig. 1). We argue that participation in the budget-setting process will help managers attain values, and that, subsequently, such value attainment of budgetary participation will manifest itself as higher job satisfaction, which in turn, enhances job performance. We posit that the cognitive role of budgetary participation enhances the gathering of job-relevant information (Link 1, Fig. 1), and that the value attainment effect of budgetary participation increases subordinates levels of job satisfaction (Link 2, Fig. 1). In addition, we argue that the availability and use of job-relevant information enhances job satisfaction and job performance (Links 3 and 4, respectively, Fig. 1). Finally, we propose that subordinates with higher levels of job satisfaction will be more likely to perform better in their job (Link 5, Fig. 1). In summary, the cognitive and value attainment roles of budgetary participation should initially

Cognitive Effect

Performance Effect

Budgetary Participation

Link 1

Job-Relevant Information

Link 4

Job Performance

Link 2

Link 3 Link 5

Job Satisfaction

Value Attainment Effect

Performance Effect

Fig. 1.

Theoretical Model.

216

VINCENT K. CHONG ET AL.

enhance job-relevant information and job satisfaction, which in turn, lead to higher job performance. The remainder of the chapter is organized as follows: In the next section, the relevant literature is reviewed and hypotheses underlying the study are developed. Subsequent sections present the research method, results, and conclusion and limitations of the study.

RESEARCH MODEL AND THEORETICAL DEVELOPMENT

The Cognitive Effect Hypothesis: The Relationship between Budgetary Participation and Job-Relevant Information The rst hypothesis is concerned with the relationship between budgetary participation and job-relevant information (Link 1 of Fig. 1).2 Prior accounting literature suggests that budgetary participation provides an opportunity for subordinates to gather job-relevant information to facilitate their decision-making process (Kren & Liao, 1988; Chenhall & Brownell, 1988; Kren, 1992; Magner, Welker, & Campbell, 1996). For example, Kren and Liao (1988) suggest that participation provides cognitive benets, which enable the subordinates to clarify and comprehend the means by which objectives can be fullled. Chenhall and Brownell (1988), on the other hand, claim that budgetary participation allows managers to acquire job-relevant information that assists and claries their role expectations, the methods used in fullling their role expectations, or the consequences of role performance. Kren (1992) and Magner et al. (1996) nd that budgetary participation is positively associated with job-relevant information. The psychological literature (see Latham & Saari, 1979; Campbell & Gingrich, 1986) also indicates that budgetary participation has a positive and direct effect on job-relevant information. In summary, the above literature review and empirical evidence suggest that budgetary participation serves as a cognitive function by enabling managers to obtain, exchange, and disseminate job-relevant information. Hence, this study postulates that the cognitive role of budgetary participation is positively associated with job-relevant information. The following hypothesis is tested: H1. Budgetary participation is positively associated with job-relevant information.

Roles of Budgetary Participation on Job Performance

217

The Value Attainment Effect Hypothesis: The Relationship between Budgetary Participation and Job Satisfaction The second hypothesis is concerned with the relationship between budgetary participation and job satisfaction (Link 2 of Fig. 1). The notion of the value attainment role of budgetary participation suggests that allowing subordinates to participate in the budget-setting process will increase the likelihood that they will feel satised with their values (French et al., 1960; Strauss, 1963; Lowin, 1968; Locke & Schweiger, 1979).3 Prior studies (e.g. Chenhall & Brownell, 1988; Lau & Tan, 2003) support the value attainment role of budgetary participation. For example, Chenhall and Brownell (1988, p. 231) conclude that yparticipation is most helpful in decreasing managers role ambiguity, and that decreased role ambiguity improves job satisfaction. Chenhall and Brownell attribute their ndings to the managers opportunity to participate in a budget-setting process, which allows them to attain their values (i.e. to reduce the level of role ambiguity). Consequently, these managers felt highly satised with their job because of such value attainment. Similarly, Lau and Tan (2003) nd that budgetary participation is likely to improve subordinates levels of job satisfaction because allowing them to get involved in the budget-setting process enhances their ability to meet their budget targets (i.e. to meet their values). In addition, subordinates who participate in the budget-setting process may experience feelings of dignity and self-respect (Cherrington, 1980; Shields & Shields, 1998). Shields and Shields (1998) suggest that budgetary participation helps to increase the subordinates self-esteem, morale, and to enhance their job satisfaction. They claim that the positive relationship between budgetary participation and job satisfaction is due to the fact that ythe act of participation allows a subordinate to experience self-respect and feelings of equality arising from the opportunity to express his or her values (Shields & Shields, 1998, p. 59). Furthermore, the opportunity to participate in the budget-setting process may cause subordinates to feel that their jobs are more fullling and induce them to exert greater work-related effort (see Deci & Ryan, 1985). Prior research suggests that the exertion of effort in the job itself provides fulllment of peoples intrinsic needs to be competent and effective, hence contributing to job satisfaction (Aronson & Mills, 1959; Cardozo, 1965; Emmons, 1986). In summary, the above discussion suggests that the value attainment role of budgetary participation is expected to increase subordinates levels of job satisfaction. Thus, the formal hypothesis is as follows:

218

VINCENT K. CHONG ET AL.

H2. Budgetary participation is positively associated with job satisfaction. The Relationship between Job-Relevant Information and Job Satisfaction The third hypothesis is concerned with the relationship between job-relevant information and job satisfaction (Link 3 of Fig. 1). A review of the literature suggests that job-relevant information is related to subordinates job satisfaction (see OReilly & Caldwell, 1979; White & Mitchell, 1979; Grifn, 1983; Lau & Tan, 2003). Lau and Tan (2003, p. 23), for example, nd that yjob-relevant information, which promotes feeling of success through successful task completion, was associated with improved subordinates job satisfaction. Lau and Tans argument was based on the needs-satisfaction model proposed by Salancik and Pfeffer (1977, 1978), which suggests that the expectation of feeling success (failure) is associated with feelings of satisfaction (dissatisfaction). In addition, the needs-satisfaction model suggests that needs fulllment leads to increased job satisfaction. Specifically, it is argued that yjobs which fulll a persons needs are satisfying; those that do not are not satisfying (Salancik & Pfeffer, 1977, p. 428). In summary, the more job-relevant information that subordinates have about how to perform their job, the more job satisfaction they will have. Thus, the following hypothesis is tested: H3. Job-relevant information is positively associated with job satisfaction. The Relationship between Job-Relevant Information and Job Performance The fourth hypothesis is concerned with the relationship between jobrelevant information and job performance (Link 4 of Fig. 1). Job-relevant information gathered through a participative process could enhance an individuals ability to perform (Beehr & Love, 1983). The existing literature suggests that the use of job-relevant information enhances job performance (see e.g. Campbell & Gingrich, 1986; Kren, 1992; Chong & Chong, 2002). Kren (1992), for example, nds that job-relevant information is positively associated with job performance. He attributes his results to the fact that job-relevant information helped subordinates to improve their action choices through better-informed effort, and consequently, improved performance. Kren (1992, p. 512) summarizes the usefulness of job-relevant information for decision making as follows:

Roles of Budgetary Participation on Job Performance

219

yJob-relevant information can improve performance because it allows more accurate predictions of environmental states and thus allows more effective selection of appropriate courses of action.

Chong and Chong (2002) conclude that the use of job-relevant information improves subordinates job performance because job-relevant information allows them to improve their decision choices. In summary, the above discussion suggests that the higher the level of job-relevant information, the higher the level of subordinates job performance. Hence, the following hypothesis is tested: H4. Job-relevant information is positively associated with job performance. The Relationship between Job Satisfaction and Job Performance The fth hypothesis is concerned with the relationship between job satisfaction and job performance (Link 5 of Fig. 1). Recall that a primary objective of this study is to demonstrate the value attainment role of budgetary participation on subordinates job performance. Numerous prior accounting studies (see e.g. Choo & Tan, 1997; Poznanski & Bline, 1997) have demonstrated that job satisfaction is an antecedent to job performance. For example, Choo and Tan (1997) nd that job satisfaction mediates the relationship between disagreement in budgetary performance evaluation style and job performance. Specifically, they nd that when subordinates preferred budgetary performance evaluation styles differed from their superiors preferred budgetary performance evaluation styles, this disagreement leads to lower levels of job satisfaction and poorer job performance amongst subordinates. A dissatised subordinate may be more likely than a highly satised subordinate to decide simply not to perform in his or her job (see Franken, 1982). For example, Franken (1982, p. 451) claims that:
Job dissatisfaction is an important issue because it has been linked toythe decision simply to not perform. ydissatisfaction is likely to lead to ysimply poor performance.

In addition, a subordinate who is satised with his or her job is assumed to perform better (Locke, 1986; Katzell, Thompson, & Guzzo, 1992). Katzell et al. (1992, p. 198) suggest that job satisfaction should be regarded as an attitudinal state of arousal that disposes one to exert effort. These studies attribute such ndings (i.e. that there is a positive relationship between job satisfaction and job performance), to the fact that highly satised subordinates are more likely to exert additional effort to perform. Effort refers to the amount of energy spent on [an] act per unit of time (Naylor,

220

VINCENT K. CHONG ET AL.

Pritchard, & Ilgen, 1980, p. 6). It represents the force, energy, or activity by which work is accomplished (see Naylor et al., 1980; Ilgen & Klein, 1988). Brown and Peterson (1994) found that increased effort leads to improved job performance.4 In summary, the above discussion suggests that the higher the levels of job satisfaction, the higher the levels of subordinates job performance. Thus, the following hypothesis is tested: H5. Job satisfaction is positively associated with job performance.

RESEARCH METHOD
The data collection method used in this study was a mailed survey questionnaire. This method was employed as it enables a large random sample to be tested, which enhances external validity. A total of 141 senior-level managers from rms in the nancial services sector were randomly drawn from the Kompass Australia (1999) business directory. Telephone calls were made to ensure that each of the senior-level managers selected would receive the questionnaire, and would be the person involved in answering the questionnaire. Most importantly, these managers were called to ensure that they held budget responsibilities in their respective rms. Respondents were involved in the preparation of budgets for planning and control purposes. Since all of the respondents occupied positions of high responsibility and accountability, their role of budgetary participation in our sample is not one of pseudo-participation.5 Each participant was sent a survey questionnaire with a covering letter explaining the objective of the study and a reply paid self-addressed envelope. To enhance our response rate, each respondent was promised a gift voucher of 15 Australian dollars for returning the completed questionnaire. Each questionnaire was pre-coded to enable non-respondents to be traced and follow-up to be executed. A follow-up letter and another copy of the questionnaire were sent to those people who had not responded after four weeks. The response rate to the mail-out was 54%.6 Of the 77 questionnaires, seven were excluded from the study because they were considered outliers.7 This resulted in 70 usable responses for the nal data analysis. The organizations surveyed have an average of 908 employees. Each manager, on average, was responsible for 98 employees. The average age of each participant was 42 years. The average length of time spent in the position

Roles of Budgetary Participation on Job Performance

221

was nearly 4 years and each manager had, on average, 10 years experience in his or her current area of responsibility.

Measurement of Variables Budgetary participation was measured by a three-item scale, similar to those used by Kren (1992) and Magner et al. (1996), which was originally developed by Milani (1975). These three similar items were chosen to insure that the budgetary participation scale would be comparable with those of Kren (1992) and Magner et al. (1996). The three items were: (1) To what extent are you involved in setting your budget?, (2) How much inuence do you feel you have on the nal budget?, and (3) How do you view your contribution to the budget?. Each item was measured on a 7-point Likert-type scale (scored 17), with higher values on the item scale indicating higher budgetary participation. Cronbachs alpha coefcient (Cronbach, 1951) obtained for this scale was 0.89, which indicates high internal reliability for the scale (Nunnally, 1967). Job-relevant information was measured using Krens (1992) three-item, 7point Likert-type scale. The objective of this measure is to assess the extent to which managers perceived information availability is necessary for the purposes of evaluating important decision alternatives and making effective job-related decisions. The scale ranges from 1 (strongly disagree) to 7 (strongly agree). The three items were: (1) I am always clear about what is necessary to perform well on my job, (2) I have adequate information to make optimal decisions to accomplish my performance objectives, and (3) I am able to obtain the strategic information necessary to evaluate important decision alternatives. Cronbachs alpha coefcient obtained for this scale was 0.77, which indicates satisfactory internal reliability for the scale. Job satisfaction was measured by a two-item, 7-point Likert-type scale developed by Dewar and Werbel (1979). The two items were: (1) All in all, I am satised with my job, and (2) In general, I like working in this company. Cronbachs alpha coefcient obtained for this scale was 0.91, which indicates high internal reliability for the scale. A single-item, 7-point Likert-type scale was used to measure job performance as it was consistent with numerous prior accounting studies (e.g. Merchant, 1981, 1984; Mia & Chenhall, 1994; Dunk, 1995). Respondents were asked to rate their overall performance from well below average to well above average on a fully anchored 7-point Likert-type scale.

222

VINCENT K. CHONG ET AL.

RESULTS
Table 1 shows the descriptive statistics and Pearson correlation matrix for the variables used in the study. To test the theoretical model (Fig. 1) and associated hypotheses, a structural equation modeling (SEM) technique was used. The SEM technique allows us to simultaneously test the entire budgetary participationperformance structural model. It also allows the specication of more complex models and makes allowances for errors in measurement. The SEM technique used in this study was based on the EQS structural equation computer program (Bentler, 1995). An approach recommended by Anderson and Gerbing (1988) was utilized, which involves two steps. First, the measurement model was evaluated by conrmatory factor analysis. Second, on the basis of the results of the measurement model analysis, only those items reecting a common construct were aggregated to derive unidimensional composite scales for the structural model tests (Anderson & Gerbing, 1988).

Analysis of the Measurement Model The rst step of the analysis is to develop a measurement model. The measurement model consists of three factors (budgetary participation, jobrelevant information, and job satisfaction). The w2 statistic and t indices are summarized in Table 2, panel A. Although, the w2 statistic has been the most

Table 1.
Variable

Descriptive Statistics and Pearson Correlation Matrix n 70.

Actual (Theoretical) Range Mean S.D. 2.007.00 (1.007.00) 1.007.00 (1.007.00) 2.337.00 (1.007.00) 4.007.00 (1.007.00) 1 2 3 4

1. Budgetary participation 2. Job satisfaction 3. Job-relevant information 4. Job performance

5.16 1.58 1.00 5.53 1.22 0.39 1.00 5.39 1.06 0.24 0.32 1.00 6.08 0.81 0.25 0.36 0.44 1.00

Significant at the 0.01 level (2-tailed). Significant at the 0.05 level (2-tailed).

Roles of Budgetary Participation on Job Performance

223

Table 2.

Results of Conrmatory Factor Analysis.

Panel A: w2 Statistics and Fit Indices Fit Measures w2 Df w2 (p-value) w2 /df Fit indices CFI NFI NNFI GFI Recommended Values NA NA 40.05 p3.00 X0.90 X0.90 X0.90 X0.90 Result of This study 36.58 17 0.003 2.15 0.94 0.89 0.90 0.89

Residual analysis RMSEA p0.10 0.13 AOSR p0.05 0.06 Panel B: Standardized Loading, Composite Reliability, Variance Extracted Estimate and Cronbachs Alpha Variable Standardized Loading Composite Reliability Variance Extracted Estimate 0.73 Cronbachs Alpha

Budgetary participation BP1 BP2 BP3 Job-relevant information JRI1 JRI2 JRI3 Job satisfaction JS1 JS2

0.89 0.78 0.93 0.85 0.87 0.86 0.95 0.59 0.85 0.98 0.91

0.89

0.66

0.77

0.84

0.91

CFI Comparative Fit Index, higher values indicate better t. NFI Normed Fit Index, higher values indicate better t. NNFI Non-Normed Fit Index, higher values indicate better t. GFI Goodness-of-Fit Index, higher values indicate better t. RMSEA Root Mean Square of Approximate, lower values indicate better t. AOSR Average Off-Diagonal Standardized Residual, lower values indicate better t. All standardized loadings are significant at po0.05.

224

VINCENT K. CHONG ET AL.

often used indicator for model t, it is not as useful as other t indicators (Browne & Mels, 1994). Bollen and Long (1993) suggest the use of multiple model t indicators. The results shown in Table 2, panel A reveal that the w2 statistic for our measurement model does not t the data (w2 36:58; po0.003). However, the value of the w2 divided by the degree of freedom is 2.15, which is below the cutoff value of 3 and is indicative of model t (Hartwick & Barki, 1994; Segars & Grover, 1993). Further, the t measures such as comparative t index (CFI) and non-normed t index (NNFI) are 0.94 and 0.90, respectively, which meets or exceeds the 0.90 minimum threshold (Bentler & Bonett, 1980; Anderson & Gerbing, 1988; Hair et al., 1998). The normed t index NFI 0:89 and goodness-of-t index (GFI 0.89) fall marginally short of the desired 0.90 criteria. The root mean square error of approximate (RMSEA) is 0.13, indicating a reasonable t, although this value is somewhat higher than desired (Segars & Grover, 1993; Hartwick & Barki, 1994; Fogarty, Singh, Rhoads, & Moore, 2000). Finally, the average off-diagonal standardized residual is 0.06, suggesting a marginal t. Taken together, the t indices seem to be adequate and respecication is not necessary. Furthermore, the tests for convergent validity and discriminant validity provide further support for this decision. Convergent Validity Test The convergent validity of the scale is assessed by three measures: standardized loading, composite reliability, and variance extracted estimate (Fornell & Larcker, 1981). The results shown in Table 2, panel B, reveal that the standardized loadings for all the items of the three scales are highly significant (po0.05). The composite reliability reects the internal consistency of the indicators measuring a given factor (Fornell & Larcker, 1981). It is analogous to Cronbachs (1951) alpha coefcient for measuring the reliability of a multiple-item scale. The composite reliability is 0.87 or greater for each scale, indicating that the items comprising each scale are highly correlated. Variance extracted estimates assess the amount of variance that is captured by an underlying factor in relation to the amount of variance due to measurement error (see Fornell & Larcker, 1981). The variance extracted estimates for three of the factor scales exceeds the minimum level of 0.50 recommended by Fornell and Larcker (1981). Taken together, these results provide support for the convergent validity of the three scales. Discriminant Validity Test Discriminant validity is inferred when measures of each construct converge on their respective true scores, which are different from the scores of other

Roles of Budgetary Participation on Job Performance

225

constructs (see Churchill, 1979). The discriminant validity of the three scales is assessed using the procedure outlined by Bagozzi, Yi, and Phillips (1991). Specifically, a model is estimated in which the correlation between (1) budgetary participation and job-relevant information; (2) budgetary participation and job satisfaction; (3) job-relevant information and job satisfaction, respectively, are restricted to unity (i.e. the correlation is xed at 1.0). The ts of the constrained models are then compared with those of the original unconstrained models. The results of the discriminant validity analysis for the three scales are shown in Table 3. As shown in Table 3, panel A, the w2 difference tests are significant for the models, which estimate the correlations between the budgetary participation and job-relevant information scales (w2 1 63:45; po0.01), the budgetary participation and job satisfaction scales (w2 1 12:26; po0.05), and jobrelevant information and job satisfaction scales (w2 1 8:16; po0.05). These results suggest that the above-mentioned scales exhibit very strong properties of discriminant validity. A further test for the discriminant validity of the three scales is conducted by comparing the variance extracted estimates with the squared of the correlations between the latent constructs (Fornell & Larcker, 1981). As shown in Table 3, panel B, the variance extracted estimates for all constructs exceed the squared of the correlations. These results provide strong support for the discriminant validity of the three scales.

Analysis of the Structural Model The hypotheses are tested by relying on the standardized parameter estimates for the theoretical model as shown in Fig. 2. As expected, the results reveal that H1, which states that budgetary participation is positively associated with job-relevant information, is statistically significant (standardized path coefficient 0:24; po0.05). Thus, these results support H1 and lend support to the cognitive effect of budgetary participation, which suggests that subordinates participate in the budget-setting process to share information. In addition, the results shown in Fig. 2 reveal that budgetary participation is positive and statistically significantly associated with job satisfaction (standardized path coefficient 0:34; po0.05). These results support H2. Support is also found for H3, H4, and H5, since significantly positive relationships are demonstrated between job-relevant information and job satisfaction (H3), job-relevant information and job performance (H4), and job satisfaction and job performance (H5) (standardized path

226

VINCENT K. CHONG ET AL.

coefcients 0.24, 0.36, and 0.24, respectively po0.05). Overall, the model accounts for 24% of the variance in job performance (R2 0:24; see Fig. 2). In order to understand better the impact of the linkage between budgetary participation and job performance, a model that excluded the value attainment effect of budgetary participation (i.e. job satisfaction) is tested for comparison purposes. As expected, budgetary participation is positive and statistically significantly associated with job-relevant information (standardized path coefficient 0:36; po0.05), and job-relevant information is also positive and significantly associated with job performance (standardized path coefficient 0:45; po0.05). The cognitive effect model accounts for 21% of the variance in job performance R2 0:21: Recall that the value attainment-cognitive effect model accounts for 24% of the variance in job performance, while the cognitive effect model alone accounts for only 21% of the variance in the job performance. Taken together, these results reveal that the introduction of the value attainment effect into the cognitive effect model result in a statistically significant (F change 3:06; po0.043, 1-tailed) increase in R2, suggesting that the combined value attainment and cognitive effect improve the predictive ability of our model.

CONCLUSION AND LIMITATIONS

The main objective of this study is to test the impact of the value attainment role of budgetary participation on job performance, and its inuence within the cognitive model. This study contributes to the participative budgeting literature in a number of ways. First, it introduces the value attainment role of budgetary participation to the accounting literature, and explicitly examines this role of budgetary participation on job performance. Second, it provides empirical support to the value attainment role of budgetary participation, which was theorized to increase subordinates job satisfaction. This result is consistent with our value attainment effect hypothesis and prior studies (e.g. Chenhall & Brownell, 1988; Chong & Bateman, 2000). In addition, this study extends prior studies by incorporating the value attainment role of budgetary participation into the cognitive model. The results of this study reveal that the joint effects of the value attainment and cognitive roles of budgetary participation significantly improved subordinates job performance. Furthermore, the results of this study provide additional empirical evidence to support the robustness of the ndings of prior studies that examined the cognitive role of budgetary participation (e.g. Kren, 1992; Magner et al., 1996).

Roles of Budgetary Participation on Job Performance

227

Table 3.

Results of Discriminant Validity Tests.

Panel A: The w2 Difference Test Model Constrained model: BP-JRI Unconstrained model: BP-JRI Constrained model: BP-JS Unconstrained model: BP-JS Constrained model: JRI-JS Unconstrained model: JRI-JS Panel B: Variance Extracted Estimate Test Intercorrelation BP-JRI BP-JS JRI-JS 0.41 0.43 0.35 w2 13.02 76.47 6.86 19.12 11.31 3.15 df 8 9 5 4 5 4 Dw2 63.45 12.26 8.16

Squared Intercorrelation 0.17 0.18 0.12

Variance Extracted Estimate 0.730.66 0.730.84 0.660.84

po0.05. po0.01. The squared of the correlation is less than both variance extracted estimates.

R2 = 0.06

R 2 = 0.24

Budgetary Participation

0.24*

Job-Relevant Information

0.36*

Job Performance

0.34*

0.24*

0.24*

Job Satisfaction

R 2 = 0.21

Fig. 2. Standardized Path Coefcients. (*Significant at 0.05 level. Model w2 0:51; d.f. 1 (po0.48); Bentler-Bonnet Normed Fit Index (NFI) 0.99; Bentler-Bonnet Nonnormed Fit Index (NNFI) 1.09; Comparative Fit Index (CFI) 1.00; Goodness-of-Fit Index (GFI) 0.99; Root Mean Square Error of Approximate (RMSEA) 0.00; Average Off-Diagonal Standardized Residual (AOSR) 0.01.)

228

VINCENT K. CHONG ET AL.

Several limitations of this study need to be noted. First, sample was selected from the nancial services sector. Hence, in generalizing the results to other industries, caution should be exercised. Further studies that compare two industries such as the manufacturing and nancial services sectors would be worthwhile. A related issue to the sample is the use of relatively small sample size n 70 in this study. Prior studies (e.g. Bentler & Bonnet, 1980; Zimmerman, Eason, & Gowan, 1999) have criticized the problems associated with the use of small sample size for structural equation modeling. An alternative approach, path analysis, could be used as it would likely yield similar results to structural equation modeling regarding the significance of the relations between variables. Second, this study uses a selfrating scale to measure job performance which is likely to have resulted in higher leniency and lower variability errors in this measure (Prien & Liske, 1962; Thornton, 1968). Thus, care should be taken in interpretation of the results. Future studies could employ different research methods (e.g. longitudinal eld studies) to investigate systematically the theoretical relationships proposed in this study. In addition, future study may also consider employing objective measures of performance (e.g. return-on-investment or return-on-assets to measure performance). Third, this study focuses on an examination of the value attainment and cognitive roles of budgetary participation without considering the potential motivational function of budgetary participation on job performance (Nouri & Parker, 1998; Chong & Chong, 2002; Wentzel, 2002). An attempt to test the three roles (i.e. motivational, cognitive, and value attainment) of budgetary participation in a single study would provide more insight into the process as to how budgetary participation really affects job performance. Finally, while this study tested a recursive model, a non-recursive model might be more applicable to the situation. In other words, there could be simultaneous links between (1) budgetary participation and job-relevant information; (2) job-relevant information and both job satisfaction and performance, and (3) job satisfaction and job performance. Applying the test of a non-recursive model was not possible in this study due to identication problems. Future research may attempt to test for a non-recursive model of participative budgeting.

NOTES
1. The cognitive mechanism suggests that the process of participation improves subordinates performance by increasing the quality of decisions as a result of the

Roles of Budgetary Participation on Job Performance

229

subordinate sharing job-relevant information with the superior (Kren, 1992; Shields & Shields, 1998, p. 59). 2. Job-relevant information refers to information that assists job-related decisionmaking (Kren, 1992). It is also known as ex-ante information (see Baiman, 1982), decision-facilitating information (see Demski & Feltham, 1976; Magee, 1986; Hilton, 1994), and task-relevant knowledge (Murray, 1990; Wier, 1993). 3. Pinder (1984, p. 95) suggests that yvalues are those things that a person believes are conducive to his/her welfare, while Locke (1983, p. 1034) claims that ya value is what a person consciously or subconsciously desires, wants, or seeks to attain. As noted earlier, subordinates values may include: (1) the opportunity to express their views, (2) the feeling of being treated equally, or (3) the desire for respect or dignity (Argyris, 1955; Davis, 1957). It is suggested that values play an important role in determining job satisfaction (Katzell, 1964). 4. In general, it is suggested that increased effort can either lead to immediate performance increases if it is directed toward current performance, or lead to delayed performance increases if it is directed toward learning (see Bonner & Sprinkle, 2002). The focus of this study is to investigate the increased effort, which is directed toward current performance (i.e. immediate performance), rather than directed toward learning (i.e. delayed performance). 5. Pseudo-participation refers to a budget-setting process in which subordinates are involved, but the superior makes the nal decision. It is a consultative-type budgeting process in which the subordinates input to the budget is being ignored (Argyris, 1952; see also Pasewark & Welker, 1990). Pasewark and Welker (1990) suggest pseudo-participation can have a de-motivating effect on subordinates. 6. We tested for non-response bias using the approach suggested by Oppenheim (1966, p. 34). No statistically significant differences in the mean scores between the early and late responses were found. 7. The seven responses considered as outliers were from individuals in companies that employed substantially more people than the other rms. These seven rms employed a range of 10,000140,000 employees. We conducted a univariate assessment of the values of the standardized scores, which revealed that all these seven responses exceeded the recommended threshold standardized values (Z scores) range from 73 to 74 (Hair, Anderson, Tatham, & Black. 1998, p. 65). The structural equation modeling (SEM) analyses were repeated before the exclusion of the seven outliers. The results revealed that there were no differences between SEM results based on 77 (before exclusion of the seven responses) and those based on 70 responses. This implies that our results are relatively robust to variations in the size (i.e. number of employees) of the sample.

ACKNOWLEDGEMENTS
The authors appreciate the helpful comments and suggestions of Vicky Arnold (Editor), the Associate Editor, two anonymous reviewers, and seminar participants at York University, Toronto on the earlier drafts of this chapter. An earlier version of this paper was presented at the 2001

230

VINCENT K. CHONG ET AL.

Asian-Pacific Conference on International Accounting Issues, Rio de Janeiro, Brazil.

REFERENCES
Anderson, J. C., & Gerbing, D. W. (1988). Structural equation modeling in practice: a review and recommended two-step approach. Psychological Bulletin, 103(3), 411423. Argyris, C. (1952). The impact of people on budgets. New York: Controllership Foundation. Argyris, C. (1955). Organizational leadership and participative management. Journal of Business, 28, 17. Aronson, E., Mills, J. (1959). The effect of severity of initiation on liking for a group. Journal of Abnormal and Social Psychology, (September), 59, 177181. Bagozzi, R. P., Yi, Y., & Phillips, L. W. (1991). Assessing construct validity in organizational research. Administrative Science Quarterly, 36, 421458. Baiman, S. (1982). Agency research in managerial accounting. Journal of Accounting Literature, 1, 154213. Beehr, T. A., & Love, K. G. (1983). A meta-model of the effects of goal characteristics, feedback, and role characteristics in human organizations. Human Relations, 36(2), 151166. Bentler, P. M. (1995). EQS structural equation program manual. Encino, CA: Multivariate Software, Inc. Bentler, P. M., & Bonnet, D. G. (1980). Significance tests and goodness-of-t in the analysis of covariance structure. Psychological Bulletin, 88(3), 588600. Bollen, K., & Long, I. S. (1993). Tests for structural equation models. Newbury Park, CA: Sage Publication. Bonner, S. E., & Sprinkle, G. B. (2002). The effects of monetary incentives on efforts and task performance: theories, evidence, and a framework for research. Accounting, Organizations and Society, 27, 303345. Brown, S. P., & Peterson, R. A. (1994). The effect of effort on sales performance and job satisfaction. Journal of Marketing, 70, 7480. Browne, M., & Mels, G. (1994). RAMONA users guide. Columbus, OH: The Ohio State University. Campbell, D. J., & Gingrich, K. F. (1986). The interactive effects of task complexity and participation on task performance: a eld experiment. Organizational Behavior and Human Decision Processes, 38(2), 162180. Cardozo, R. N. (1965). An experimental study of consumer effort, expectation, and satisfaction. Journal of Marketing Research, 2, 244249. Chenhall, R. H. (1986). Authoritarianism and participative budgeting: a dyadic analysis. The Accounting Review, 61(2), 263272. Chenhall, R. H., & Brownell, P. (1988). The effect of participative budgeting on job satisfaction and performance: role ambiguity as an intervening variable. Accounting, Organizations and Society, 13(3), 225233. Cherrington, D. J. (1980). The work ethic: working values and values that work. New York: Amacom. Chong, V. K., & Bateman, D. (2000). The effects of role stress on budgetary participation and job satisfaction-performance linkages: a test of two different models. Advances in Accounting Behavioral Research, 3, 91118.

Roles of Budgetary Participation on Job Performance

231

Chong, V. K., & Chong, K. M. (2002). Budget goal commitment and informational effects of budget participation on performance: a structural equation modeling approach. Behavioral Research in Accounting, 14, 6586. Choo, F., & Tan, K. B. (1997). A study of the relations among disagreement in budgetary performance evaluation style, job-related tension, job satisfaction and performance. Behavioral Research in Accounting, 9, 199218. Churchill, G. A. (1979). A paradigm for developing better measures of marketing constructs. Journal of Marketing Research, 16, 6473. Cronbach, L. J. (1951). Coefcient alpha and the internal structure of tests. Psychometrika, 16, 297334. Covaleski, M. A., Evans, J. H., Luft, J. L., & Shields, M. D. (2003). Budgeting research: three theoretical perspectives and criteria for selective integration. Journal of Management Accounting Research, 15, 349. Davis, K. (1957). Management by participation: its place in todays business world. Management Review, 46, 6979. Deci, E. L., & Ryan, R. M. (1985). Intrinsic motivation and self determination in human behaviour. New York: Plenum. Demski, J. S., & Feltham, G. A. (1976). Cost determination: a conceptual approach. Ames: Iowa State University Press. Dewar, R., & Werbel, J. (1979). Universalistic and contingency predictions of employee satisfaction and conict. Administrative Science Quarterly, 24(3), 426448. Dunk, A. S. (1995). The joint effects of budgetary slack and task uncertainty on subunit performance. Accounting and Finance, 35(2), 6175. Emmons, R. A. (1986). Personal strivings: an approach to personality and subjective well-being. Journal of Personality and Social Psychology, 51, 10581068. Fogarty, T. J., Singh, J., Rhoads, G. K., & Moore, R. K. (2000). Antecedents and consequences of burnout in accounting: beyond the role stress model. Behavioral Research in Accounting, 12, 3167. Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with observable variables and measurement error. Journal of Marketing Research, 18, 3950. Franken, R. E. (1982). Human motivation. Monterey, CA: Brooke/Cole Publishing Company. French, J. R. P., Jr., Israel, J., & As, D. (1960). An experiment on participation on Norwegian factory: Interpersonal dimensions of decision-making. Human Relations, 13, 319. Grifn, R. W. (1983). Objective and social sources of information in task redesign: a eld experiment. Administrative Science Quarterly, 28, 184200. Hair, J. F., Jr., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis with readings. Englewood Cliffs, NJ: Prentice-Hall International, Inc. Hartwick, J., & Barki, H. (1994). Explaining the role of user participation in information system use. Management Science, 40(4), 440465. Hilton, R. W. (1994). Managerial accounting. New York: McGraw-Hill, Inc. Ilgen, D. R., & Klein, H. J. (1988). Individual motivation and performance: Cognitive inuences on effort and choice. In: J. P. Campbell & R. J. Campbell (Eds), Productivity in organizations (pp. 143176). San Francisco: Jossey-Bass. Katzell, R. A. (1964). Personal values, job satisfaction, and job behavior. In: H. Borow (Ed.), Man in a world at work. Boston: Houghton Mifin. Katzell, R. A., Thompson, D. E., & Guzzo, R. A. (1992). How job satisfaction and job performance are and are not linked. In: C. J. Cranny, P. C. Smith & E. F. Stone (Eds), Job

232

VINCENT K. CHONG ET AL.

Satisfaction: How people feel about their jobs and how it affects their performance. New York: Lexington Books. Kompass Australia. (1999). Prahran: Peter Isaacson. Kren, L. (1992). Budgetary participation and managerial performance: The impact of information and environmental volatility. The Accounting Review, 67(3), 511526. Kren, L., & Liao, W. M. (1988). The role of accounting information in the control of organizations: a review of the evidence. Journal of Accounting Literature, 7, 280309. Latham, G. P., & Saari, L. M. (1979). Importance of supportive relationships in goal setting. Journal of Applied Psychology, 64, 151156. Lau, C. M., & Tan, S. L. C. (2003). The effects of participation and job-relevant information on the relationship between evaluative style and job satisfaction. Review of Quantitative Finance and Accounting, 21(17), 1734. Locke, E. A. (1983). The nature and causes of job satisfaction. In: M. D. Dunnette (Ed.), Handbook of industrial and organizational psychology. New York: Wiley. Locke, E. A. (1986). Job attitudes in historical perspective. In: D. Wren (Ed.), Paper dedicated to the development of modern management. Briarcliff Manor, NY: Academy of Management. Locke, E. A., & Latham, G. P. (1990). A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice-Hall. Locke, E. A., & Schweiger, D. M. (1979). Participation in decision-making: one more look. Research in Organizational Behavior, 1, 265339. Lowin, A. (1968). Participative decision making: A model, literature critique, and prescriptions for research. Organizational Behavior and Human Performance, 3, 68106. Magee, R. P. (1986). Advanced management accounting. New York: Harper & Row. Magner, N., Welker, R. B., & Campbell, T. L. (1996). Testing a model of cognitive budgetary participation processes in a latent variable structural equations framework. Accounting and Business Research, 27(1), 4150. Merchant, K. A. (1981). The design of the corporate budgeting system: inuences on managerial behavior and performance. The Accounting Review, 56(4), 813829. Merchant, K. A. (1984). Inuences on departmental budgeting: an empirical examination of a contingency model. Accounting, Organizations and Society, 9(3/4), 291307. Mia, L., & Chenhall, R. H. (1994). The usefulness of management accounting systems, functional differentiation and managerial effectiveness. Accounting, Organizations and Society, 19(1), 113. Milani, K. (1975). The relationship of participation in budget setting to industrial supervisor performance and attitudes: a eld study. The Accounting Review, 50(2), 274284. Murray, D. (1990). The performance effects of participative budgeting: An integration of intervening and moderating variables. Behavioral Research in Accounting, 2, 104123. Naylor, J. C., Pritchard, R. D., & Ilgen, D. R. (1980). A theory of behavior in organizations. New York: Academic Press. Nouri, H., & Parker, R. J. (1998). The relationship between budgetary participation and job performance: The roles of budget adequacy and organizational commitment. Accounting, Organizations and Society, 23(5/6), 467483. Nunnally, J. C. (1967). Psychometric theory. New York: McGraw-Hill. Oppenheim, A. N. (1966). Questionnaire design and attitudes measurement. London: Heinemann Educational Books, Ltd.

Roles of Budgetary Participation on Job Performance

233

OReilly, C. A., & Caldwell, D. F. (1979). Informational inuence as a determinant of perceived task characteristics and job satisfaction. Journal of Applied Psychology, 64, 157165. Pasewark, W., & Welker, R. (1990). A Vroom-Yetton evaluation of subordinate participation in budgetary decision making. Journal of Management Accounting Research, 2, 113126. Pinder, C. C. (1984). Work motivation. Glenview, IL: Scott Foresman. Prien, E. P., & Liske, R. E. (1962). Assessment of higher-level personnel: III. Rating criteria: A comparative analysis of supervision ratings and incumbent self-rating of job performance. Personnel Psychology, 15, 187194. Poznanski, P. J., & Bline, D. M. (1997). Using structural equation modeling to investigate the causal ordering of job satisfaction and organizational commitment among staff accountants. Behavioral Research in Accounting, 9, 154171. Salancik, G. R., & Pfeffer, J. (1977). An examination of need-satisfaction model of job design. Administrative Science Quarterly, 22, 427456. Salancik, G. R., & Pfeffer, J. (1978). A social information process approach to job attitudes and task design. Administrative Science Quarterly, 23, 224253. Segars, A. H., & Grover, V. (1993). Re-examining perceived ease of use and usefulness: A conrmatory factor analysis. MIS Quarterly, 17(4), 517525. Shields, J. F., & Shields, M. D. (1998). Antecedents of participative budgeting. Accounting, Organizations and Society, 23(1), 4976. Strauss, G. (1963). Some notes on power-equalization. In: H. Leavitt (Ed.), The social science of organizations: Four perspectives. Englewood Cliffs, NJ: Prentice-Hall, Inc. Thornton, G. C. (1968). The relationship between supervisory and self-appraisals of executive performance. Personnel Psychology, 21, 441456. Wentzel, K. (2002). The inuence of fairness perceptions and goal commitment on managers performance in a budget setting. Behavioral Research in Accounting, 14, 247271. White, S. E., & Mitchell, T. M. (1979). Job enrichment versus social cues: A comparison and competitive test. Journal of Applied Psychology, 64, 19. Wier, B. (1993). The effects of task relevant knowledge, goal level, goal commitment, and motivation on the participation-performance linkage: an empirical examination. Unpublished Ph.D. Thesis, Texas Tech University. Zimmerman, R. A., Eason, P., & Gowan, M. (1999). Taxpayer performance between income tax and consumption tax: Behavioral life cycle effects. Behavioral Research in Accounting, 11, 111142.