Budget effectiveness in multinational corporations: an empirical test of the use of budget controls moderated by two dimensions of budgetary participation under high and low environmental dynamism.
A subdivision of a larger unit.
Noun 1. subunit - a monetary unit that is valued at a fraction (usually one hundredth) of the basic monetary unit
fractional monetary unit performance is enhanced by budget communication in domestic subunits of the multinational when reliance on budget control and environmental dynamism are high. The ability to influence the budget had no impact on subunit performance.
Foreign subunits differ from domestic subunits, but not in the manner hypothesised. Budget effectiveness for foreign subunits is more complex than previous research designs have addressed.
The issue of effectiveness of budget controls in multinational companies(2) has generated recent attention. Notably, normative nor·ma·tive
Of, relating to, or prescribing a norm or standard: normative grammar.
nor discussions suggest that the budget processes should be different in foreign subunits from those in domestic subunits because of differences in environment, strategic emphasis, geographic distance, language, and culture, in the foreign units (Egelhoff 1988, p. 163, Bartlett and Goshal 1989, p. 100). In the only empirical studies Empirical studies in social sciences are when the research ends are based on evidence and not just theory. This is done to comply with the scientific method that asserts the objective discovery of knowledge based on verifiable facts of evidence. on the subject, Hassel Noun 1. Hassel - Norwegian chemist noted for his research on organic molecules (1897-1981)
Odd Hassel (1991) and Hassel and Cunningham (1993) found that effectiveness of budget controls and budgetary participation varies between domestic and foreign business units of multinational companies in some contexts. These studies have been limited because they have only considered two variables in the budget process. This study, by contrast, considers three variables: reliance on budget controls, budget communication or budget influence, and environmental dynamism.
Effectiveness of budget controls in general has been a topic of interest for several years. Notably, the benefits of budgetary participation have been widely touted in textbooks (e.g., Dominiak and Louderback 1988, pp. 214-216, Hansen Han·sen , Gerhard Henrik Armauer 1746-1845.
Norwegian physician and bacteriologist who discovered (1869) the leprosy bacillus. 1990, pp. 592-594, Lere n. 1. Learning; lesson; lore.
v. t. & i. 1. To learn; to teach.
a. 1. Empty.
n. 1. Flesh; skin. 1991, pp. 367-368). In particular, it is claimed that participation moderates the supposed undesirable effects of reliance on budget controls to enhance effectiveness of the budget process because managers are motivated mo·ti·vate
tr.v. mo·ti·vat·ed, mo·ti·vat·ing, mo·ti·vates
To provide with an incentive; move to action; impel.
mo to perform if they participate in the budget process. Yet, extensive research has produced equivocal EQUIVOCAL. What has a double sense.
2. In the construction of contracts, it is a general rule that when an expression may be taken in two senses, that shall be preferred which gives it effect. Vide Ambiguity; Construction; Interpretation; and Dig. , even contradictory results (e. g., Hopwood 1972, Otley This article is about the West Yorkshire town. For the town in Suffolk, see Otley, Suffolk. For the town in Iowa, see Otley, Iowa. 1978, Brownell Brownell can refer to: People
People with the surname Hirst:
The impact of environmental conditions has also been an issue of concern in studies of budget effectiveness and subunit performance (e.g., Hayes Hayes, river, c.300 mi (480 km) long, rising in a lake NE of Lake Winnipeg, central Manitoba, Canada, and flowing NE to Hudson Bay. It was the chief route used by Hudson's Bay Company traders from Hudson Bay to Lake Winnipeg and the interior; York Factory, an 1977, Otley 1978, 1980, Waterhouse There have been several famous people with the surname Waterhouse:
A stylized octagonal motif in Oriental rugs.
[Persian, rose; see julep.] and Chia (1994) found that perceived per·ceive
tr.v. per·ceived, per·ceiv·ing, per·ceives
1. To become aware of directly through any of the senses, especially sight or hearing.
2. To achieve understanding of; apprehend. environmental uncertainty interacted with management accounting system design, and organization decentralisation n. 1. same as decentralization.
Noun 1. decentralisation - the spread of power away from the center to local branches or governments
spreading, spread - act of extending over a wider scope or expanse of space or time to affect performance. This study, following an approach similar to Brownell and Dunk (1991) and Gul and Chia (1994), considers the three-way interaction of reliance on budget control, budget communication or budget influence, and the environment.
Prior studies of three-way interactions cited above have essentially been limited to assessing the significance of the regression coefficient Regression coefficient
Term yielded by regression analysis that indicates the sensitivity of the dependent variable to a particular independent variable. See: Parameter.
regression coefficient as a means of assessing the significance of the three-way interaction. Recent methodological advances (e.g., see Champoux and Peters 1987, Govindarajan 1988, Gul and Chia 1994) demonstrate that additional explanatory ex·plan·a·to·ry
Serving or intended to explain: an explanatory paragraph.
ex·plan information is presented with a hierarchical A structure made up of different levels like a company organization chart. The higher levels have control or precedence over the lower levels. Hierarchical structures are a one-to-many relationship; each item having one or more items below it. regression regression, in psychology: see defense mechanism.
In statistics, a process for determining a line or curve that best represents the general trend of a data set. which examines the increase in [R.sup.2] with the inclusion of the three-way interaction term. This study uses such a hierarchical approach.
The previous studies, with the exception of Harrison (1992), were performed in a single country and did not consider effects of multinational business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets and environmental conditions that vary among countries. This study includes the multinational dimension by examining budget processes in domestic and foreign subunits of a Finnish multinational company. This paper, thus, has two primary purposes: First, to explore effectiveness of budget processes in multinational companies. Second, to explore budget effectiveness in general by considering three-way interactions of relevant variables using a hierarchical regression approach. A major feature of the study is that it employs two dimensions of budgetary participation, communication and influence, separately in the three-way models. The remainder of the paper presents the variables measured and hypotheses tested, the research design and methods, presentation of the results, and concluding discussion.
Variables Measured and Hypotheses
Reliance on Budget Controls
The budget has been traditionally widely viewed as a major tool for organization control (e.g., Parker 1977, p. 135, and sources cited by him). Hopwood (1972) suggested that high reliance on budget controls is associated with dysfunctional dys·func·tion also dis·func·tion
Abnormal or impaired functioning, especially of a bodily system or social group.
dys·func behavior. Otley (1978) failed to replicate rep·li·cate
1. To duplicate, copy, reproduce, or repeat.
2. To reproduce or make an exact copy or copies of genetic material, a cell, or an organism.
A repetition of an experiment or a procedure. the results and instead suggested that reliance on budget controls is associated with enhanced performance. A study by Brownell (1982) suggested that participation in the budgeting process moderates the effects of reliance on budget controls so that high (low) reliance on budget controls interacting with high (low) budgetary participation is associated with higher performance. Hirst (1987), though, failed to replicate Brownell's findings. Dunk (1989) in an extension of these studies found contradictory results that high (low) reliance on budget controls interacting with high (low) budgetary participation leads to low performance. These studies are not entirely comparable, but they do indicate that the issue of the effectiveness of budget controls, and potential moderating factors, is far from settled. This study continues the exploration by considering reliance on budget controls in multinational companies with potential moderating factors.
Budget Communication and Influence
Almost all prior studies on budget control processes have been based on Milani's (1975) measure of budget participation and they have viewed budgetary participation as a unidimensional u·ni·di·men·sion·al
Adj. 1. unidimensional - relating to a single dimension or aspect; having no depth or scope; "a prose statement of fact is unidimensional, its value being measured wholly in terms construct (e. g., Brownell 1982, 1985, Brownell and Hirst 1986, Hirst 1987, Dunk 1989, Mia 1989) even though Milani Milani is the surname of:
Our analysis indicates that budgetary participation is at least bi-dimensional: 1) the extent to which information is communicated back and forth between headquarters and subunit managers, and 2) the extent to which subunit managers influence the budgets for their units. The two dimensions are conceptually independent. For example, in domestic subunits of a multinational company, communication with headquarters may be extensive but the budget may be set by headquarters with no influence by the subordinate managers. By contrast, in highly autonomous foreign subunits of a multinational company with a multi-domestic strategy (Bartlett and Goshal 1989), subordinate managers may have substantial influence over their budgets with only limited communication with headquarters.
Budget communication is the extent to which information is exchanged between headquarters and subunit managers about factors that affect the budget and performance. Recent a priori a priori
In epistemology, knowledge that is independent of all particular experiences, as opposed to a posteriori (or empirical) knowledge, which derives from experience. arguments suggest that benefits from budget participation are derived primarily from the communication of information (e. g., Miller and Monge Monge may refer to:
Gaspard Monge, Conte de Péluse (1746-1818)
Edgard Monge, (1965 - ) 1986, Vroom and Jago JAGO Judge Advocate General's Office 1988). Similarly, in their concluding discussion, Brownell and Dunk (1991, p. 702) suggest that budgetary participation serves as a major information exchanging role and that the primary benefit from participation is related to the exchange of information about technology and markets.
Budget influence is the degree to which subunit managers perceive per·ceive
1. To become aware of directly through any of the senses, especially sight or hearing.
2. To achieve understanding of; apprehend. that they have command over the process that establishes the criteria under which they may be evaluated. As discussed above, traditional definitions and measurement of budgetary participation include elements of both communication and influence. Yet, almost all of the textbooks and the studies cited above base the arguments for participation on the influence aspects. For example, a leading textbook textbook Informatics A treatise on a particular subject. See Bible. states that creativity, challenge, and increased responsibility inherent in influencing the budget motivates higher performance by managers and satisfaction with their work (e.g., Hansen 1990, p. 592). By implication implication
In logic, a relation that holds between two propositions when they are linked as antecedent and consequent of a true conditional proposition. Logicians distinguish two main types of implication, material and strict. high reliance on budget controls alone is dysfunctional. Despite the wide-spread conventional wisdom about the benefits of budgetary influence, the equivocal results of several empirical studies do not support beneficial effects. It must be noted, though, that the measure of budgetary participation used combined factors for the two dimensions of budget communication and budget influence.
With one significant exception (Hassel and Cunningham 1993), no empirical studies have explicitly addressed budget communication and budget influence separately. This study continues the example of Hassel and Cunningham (1993) and examines budget communication and influence separately. Because the two dimensions are conceptually independent, it is appropriate to develop hypotheses separately for each dimension. Factor analysis, presented below, tends to confirm the existence of these two dimensions.
Conditions in the environment have been suggested as major factors influencing budget effectiveness and management performance (e.g., Hayes 1977, Otley 1978, 1980, Waterhouse and Tiessen 1978). Environmental characteristics are multidimensional mul·ti·di·men·sion·al
Of, relating to, or having several dimensions.
multi·di·men and no one variable can represent the entire set of environmental characteristics. Representations in previous studies have used three generalised Adj. 1. generalised - not biologically differentiated or adapted to a specific function or environment; "the hedgehog is a primitive and generalized mammal"
biological science, biology - the science that studies living organisms characteristics of environmental conditions developed by Duncan Duncan, city (1990 pop. 21,732), seat of Stephens co., SW Okla., in an oil, farm, and cattle area; inc. 1892. There is an oil industry, and electronics, concrete, and apparel are manufactured. During the late 19th cent. (1972) complexity (Brownell 1985, 1987), dynamism (Brownell 1985, 1987, Hassel 1991, Hassel and Cunningham 1993), and uncertainty (Govindarajan 1984, Gul and Chia 1994). This study focuses on dynamism, or change in critical characteristics of the operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. , as a generalised environmental characteristic of interest for multinational companies. The measure of dynamism (described below) incorporates the notion of both complexity and uncertainty. Also, Egelhoff (1988) after examining several environmental characteristics suggests that rate of change in the environment is the most important variable in multinational companies. The measure of dynamism used here, however, is not intended to be a comprehensive and definitive environmental measurement. It is important to note that the environmental construct is perceived dynamism, not necessarily actual dynamism, because it is the perception of the environment that influence management decisions (Gul and Chia 1994, p. 48).
Budget effectiveness is a multidimensional concept that may be perceived differently by the involved interest groups (Otley 1980, p. 424). For this study, though, we have selected one dimension, self-reported subunit performance, a construct that incorporates both budget and goal-oriented A system, person, or organization that tends to achieve a goal and demonstrate it in subsequent actions.
Goal-oriented or goal-driven/goal-directed/purposive is a property of systems which are able to think/reason/inference using symbols. performance. Variations on this construct using a single self-reported measurement have been successfully used in several prior studies (e.g., Brownell 1982, 1985, Dunk 1989, Govindarajan 1984, 1986, Gupta Gupta (gp`tə), Indian dynasty, A.D. c.320–c.550, whose empire at its height encompassed much of N India. Ancient Indian culture reached a high point during this period. and Govindarajan 1984, Hirst and Lowy Lowy is a surname, and may refer to:
This page or section lists people with the surname Lowy. 1990).
Reliance on Budget Controls and Budget Communication -- Domestic Subunits
Traditional budget controls were developed when manufacturing process, market conditions, and other environmental factors were relatively stable. They were also developed when essentially all business activity of a company was within the boundaries of a single country. Because of the stable environment, and because headquarters and subunits were within the same country, all managers had access to the same basic knowledge about technology, markets, and economic conditions. As a result, in stable environments, headquarters could rely on budget control effectively.
With rapid changes in manufacturing technology and markets conditions, however, it has been argued that traditional budget controls alone would not be effective (Brownell and Dunk 1991, p. 702, Hassel 1991, p. 33). As mentioned above, communication in the budget process serves a major information exchange role about critical factors in the environment. Because of the high degree of shared culture, values, and language in domestic situations, the benefit of the communication is enhanced because persons at all levels in the organization have a high level of Common knowledge of underlying economic conditions and the communication can focus on the critical dynamic factors. As a result, it can be argued that there will be a significant interaction among reliance on budget controls, budget communication, and environmental dynamism in domestic subunits of a multinational company and the following hypothesis can be tested:
H1a: In domestic subunits of multinational companies, the interaction of reliance on budget controls, budget communication, and environmental dynamism has a significant effect on subunit performance.
Discovery of an interactive effect by itself is not sufficient to discover the conditions under which budget communication produces positive effects on subunit performance. It can be argued, though, that with rapid changes in manufacturing technology and dynamic markets, traditional budget controls alone would not be effective (Brownell and Dunk 1991, p. 702, Hassel 1991, p. 33). High degrees of budget communication about the changes in technology and markets are needed, therefore, to moderate what would otherwise be dysfunctional reliance on budget controls in dynamic environments. Therefore. the following hypothesis can be tested:
H1b A category under the U.S. Immigration and Nationality Act by which aliens can enter the U.S. for three years if they work in a specialized field and their employers cannot fill the position locally. The three years may also be extended to six years. : In domestic subunits of multinational companies, high levels of budget communication interact with high levels of environmental dynamism to produce high perceived subunit performance when reliance on budget controls is high.
Reliance on Budget Controls and Budgetary Communication -- Foreign Subunits
With two significant exceptions (Hassel 1991, Hassel and Cunningham 1993) there have been no significant empirical studies of budget effectiveness in foreign subunits of multinational companies. As a result, it is necessary to rely in addition on a priori reasoning and conventional wisdom to develop hypotheses. Hassel (1991) found a significant positive impact on performance of foreign subunits from reliance on budget controls when the environment is dynamic. This outcome is consistent with Waterhouse and Tiessen (1978) who argued a priori that when environments are dynamic, reliance on budget controls produces the most effective controls.(3) Hassel and Cunningham (1993) found that foreign subunits, unlike domestic subunits, did not benefit from budget communication when the environment is dynamic (Hassel and Cunningham 1993). That study did not consider, however, the impact of reliance on budgetary controls. The implication is that local managers, especially in multinational companies with multi-domestic strategies, need to be free to respond to local environmental conditions without the need to communicate with headquarters. Unlike domestic subunits which have a high degree of common shared culture, values, and intuitive sense of business conditions with the headquarters, extensive communication between foreign subunits and headquarters can be tedious and time consuming because of differences in language, culture, and limits on communication technology. Thus, attempts to foster communication between headquarters and foreign subunits when the environment is dynamic would be ineffective and may produce dysfunctional results because local managers should devote their resources to cope with the demands of the local environment rather than to engage in tedious communication with headquarters. Therefore we argue that there is no significant effect on performance of foreign subunits from the interaction of reliance on budget controls, budget communication, and environmental dynamism. As a result, the following hypothesis can be tested:
H2: In foreign subunits of multinational companies, there will be no effect on subunit performance from the interaction of reliance on budget controls, budget communication, and environmental dynamism.
Reliance on Budget Controls and Budget Influence -- Domestic Subunits
As discussed above, extensive studies of budget participation have not tended to support beneficial effects on subunit performance when reliance on budget controls is high. As mentioned, these studies measured a construct that included both communication and influence, even though the arguments were based mostly on the influence aspects. All of these studies were conducted in a single country. Thus it would seem that budget influence would have no moderating impact on the alleged dysfunctional effects of reliance on budget controls in domestic subunits of a multinational. Hassel and Cunningham (1993) found that high degrees of budget influence is associated with decreased performance of domestic subunits of multinational companies. The interaction between budget influence and environmental dynamism did not significantly affect subunit performance, however. That study did not consider the impact of reliance on budget controls. Thus it would seem likely that there would be no significant interactive effect on subunit performance from the three-way interaction of reliance on budget controls, budget influence, and environmental dynamism. Therefore, the following hypothesis can be tested:
H3: In domestic subunits of a multinational company, there will be no effect on subunit performance from the interaction of reliance on budget controls, budget influence and environmental dynamism.
Reliance on Budget Controls and Budget Influence -- Foreign Subunits
As mentioned above, only two significant empirical studies have addressed the effectiveness of budget controls in foreign subunits of multinationals. Hassel (1991) found that reliance on budget controls is associated with high performance in foreign subunits when the environment is dynamic. This finding is consistent with the a priori arguments of Waterhouse and Tiessen (1978). That study did not, however, consider budget influence. Hassel and Cunningham (1993) found that budget influence alone is negatively associated with performance in foreign subunits of multinationals and that interaction with environmental dynamism did not moderate this negative impact. That latter study, however, did not consider reliance on budget controls. The a priori discussions cited above suggest that managers of foreign subunits of multinationals should be able to influence their budgets when the reliance on budget controls is high (Egelhoff 1988, p. 163, Bartlett and Goshal 1989, p. 100). It can be argued that the foreign managers are motivated to perform better if they have influence over their budgets when the environment is dynamic because the local managers understand the local conditions. Thus it can be argued that the ability of foreign subunit managers to influence their budgets has a moderating effect on what would otherwise have a negative impact on subunit performance when reliance on budget controls and environmental dynamism are high. Thus the following hypothesis can be tested:
H4a: In foreign subunits of multinational companies, the interaction of reliance on budget controls, budget influence, and environmental dynamism has a significant effect on subunit performance.
Discovery of an interactive effect by itself is not sufficient to discover the conditions under which budget influence produces positive effects on subunit performance. The a priori normative arguments cited above indicate that autonomy of subunit managers is essential in foreign subunits of multinational companies because of distances, cultural and language barriers, etc. Such autonomy is especially important when the environment is dynamic because of barriers that inhibit inhibit /in·hib·it/ (in-hib´it) to retard, arrest, or restrain.
1. To hold back; restrain.
2. effective interaction with headquarters. Following the conventional wisdom and a priori reasoning, it can be argued, that when environments of local subunits of multinational companies are dynamic, the high use of budget controls alone would not be effective because budgets imposed by the headquarters would not reflect local multi-domestic conditions and local managers would not be motivated to perform to their potential. Because the foreign subunit managers are the ones most familiar with the local environments, markets, etc., they are the ones who should have primary input on determining budget amounts. As a result, managers of local subunits must be able to influence their budgets in order to enhance their motivation leading to high subunit performance. Therefore, the following hypothesis can be tested:
H4b: In foreign subunits of multinational companies, high levels of budget influence interact with high levels of environmental dynamism to produce high perceived subunit performance when reliance on budget controls is high.
This study involved a questionnaire survey within a multinational company headquartered in Finland Finland, Finnish Suomi (swô`mē), officially Republic of Finland, republic (2005 est. pop. 5,223,000), 130,119 sq mi (337,009 sq km), N Europe. . The company has grown domestically and abroad through related diversification Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.
Diversification is possibly the greatest way to reduce the risk. around the building materials Building materials used in the construction industry to create .
These categories of materials and products are used by and construction project managers to specify the materials and methods used for . industry. The company has approximately 100 manufacturing units with profit-centre responsibility in more than 15 foreign countries. Each unit reports directly to the headquarters in Finland. The company's net sales Net Sales
The amount a seller receives from the buyer after costs associated with the sale are deducted.
This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight were the equivalent of US$ 1.3 billion for the year studied, of which 54% were generated by the foreign units. The company uses a standardised Adj. 1. standardised - brought into conformity with a standard; "standardized education"
standard - conforming to or constituting a standard of measurement or value; or of the usual or regularized or accepted kind; "windows of standard width"; reporting system for domestic and foreign subsidiaries that focuses on financial measurements such as operating profit Operating profit (or loss)
Revenue from a firm's regular activities less costs and expenses and before income deductions.
See operating income. and return on capital employed Return on capital employed (ROCE)
Indicator of profitability of the firm's capital investments. Determined by dividing Earnings Before Interest and Taxes by (capital employed plus short-term loans minus intangible assets). . Multinationals with a decentralised Adj. 1. decentralised - withdrawn from a center or place of concentration; especially having power or function dispersed from a central to local authorities; "a decentralized school administration"
decentralized multi-domestic strategy for its foreign operations are most amendable a·mend
v. a·mend·ed, a·mend·ing, a·mends
1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive.
2. to profit-center structures and financial control based reporting and tend to implant implant /im·plant/ (im-plant´) to insert or to graft (tissue, or inert or radioactive material) into intact tissues or a body cavity. their domestic control system into their foreign operations (Dyment Dyment can refer to:
Table 1. Survey Response Rate Domestic Units Foreign Units(a) Total number of questionnaires 40 40 Total number distributed(b) 39 37 Number of responses 37 33 Response rates(c) 95% 89% Number useable 36 31 Useable response rate(c) 95% 84% All Units Total number of questionnaires 80 Total number distributed(b) 76 Number of responses 70 Response rates(c) 92% Number useable 67 Useable response rate(c) 88%
(a) Countries include Sweden Sweden, Swed. Sverige, officially Kingdom of Sweden, constitutional monarchy (2005 est. pop. 9,002,000), 173,648 sq mi (449,750 sq km), N Europe, occupying the eastern part of the Scandinavian peninsula. , Norway Norway, Nor. Norge, officially Kingdom of Norway, constitutional monarchy (2005 est. pop. 4,593,000), 125,181 sq mi (324,219 sq km), N Europe, occupying the western part of the Scandinavian peninsula. , Denmark Denmark (dĕn`märk), Dan. Danmark, officially Kingdom of Denmark, kingdom (2005 est. pop. 5,432,000), 16,629 sq mi (43,069 sq km), N Europe. , Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). , Holland, Belgium Belgium (bĕl`jəm), Du. België, Fr. La Belgique, officially Kingdom of Belgium, constitutional kingdom (2005 est. pop. 10,364,000), 11,781 sq mi (30,513 sq km), NW Europe. , France, U.K., Spain Spain, Span. España (āspä`nyä), officially Kingdom of Spain, constitutional monarchy (2005 est. pop. 40,341,000), 194,884 sq mi (504,750 sq km), including the Balearic and Canary islands, SW Europe. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of .
(b) Four units were excluded from the sample because they were sold during the process.
(c) As a percentage of questionnaires distributed
The participants were identified by one of the researchers and the corporate controller using the organization chart. Criteria used to select the participants included: (1) each participant should have budget responsibility for the subunit; (2) each unit would be a profit-centre and have manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. ; (3) each person must have held the position for at least two years to have command over the target-setting process for the period of the study; (4) an equal number of domestic and foreign-unit managers would be selected; and (5) because of the nature of the study it was necessary to include subunits facing different degrees of environmental dynamism.
Phases leading to the mailing the questionnaire are:
Phase 1: Unstructured interviews Unstructured Interviews are a method of interviews where questions can be changed or adapted to meet the respondent's intelligence, understanding or belief. Unlike a structured interview they do not offer a limited, pre-set range of answers for a respondent to choose, but instead were conducted with the corporate controller and business-unit controllers at the headquarters. The purpose of the interviews was to gain insight into the budgeting and evaluation process in the organization and to identify whether the measurement instruments intended for the study could be used.
Phase 2: The survey instrument was left for comments by a group of controllers, after which it was pilot-tested with a group of domestic managers. After the survey instrument was finalised in the parent company's language (Finnish), it was translated into Swedish for the Scandinavian units, and into English 1. English - (Obsolete) The source code for a program, which may be in any language, as opposed to the linkable or executable binary produced from it by a compiler. The idea behind the term is that to a real hacker, a program written in his favourite programming language is for the other foreign units. The reporting language of the international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. of the corporation is English, but Swedish was considered to be more appropriate for the Scandinavian managers. The language of the questionnaire was cross-checked by translators This is primarily a list of notable Western translators. Please feel free to add translators from other languages, cultures and areas of specialization. Large sublists have been split off to separate articles. . The aim of the tri-lingual instrument was to give managers the opportunity to respond in a language with which they were comfortable in order to enhance the response rate and the validity of the responses.
Phase 3: Eighty questionnaires, of which half went to foreign units, were mailed with a cover letter from the Vice-President vice president or vice-pres·i·dent
n. Abbr. VP
1. An officer ranking next below a president, usually empowered to assume the president's duties under conditions such as absence, illness, or death.
2. that indicated corporate approval of the study. Responses were returned directly to one of the researchers using corporate envelopes. The response rate is shown in Table 1. Domestic unit managers returned 95% usable USable is a special idea contest to transfer US American ideas into practice in Germany. USable is initiated by the German Körber-Stiftung (foundation Körber). It is doted with 150,000 Euro and awarded every two years. responses, and foreign unit managers 84%. The usable response rate (88%) precludes the need for any nonresponse analysis.
Measurement and Validation See validate.
validation - The stage in the software life-cycle at the end of the development process where software is evaluated to ensure that it complies with the requirements. of Variables
This study uses subunit performance as the dependent variable. The three independent variables measured are 1) reliance on budget controls, 2) budget communication or budget influence, and 3) environmental dynamism. Measurement and validation procedures are discussed below. Descriptive statistics descriptive statistics
see statistics. are shown in Table 2.
Table 2. Descriptive Statistics for Variables Measured (Foreign units in bold face)
Theoretical Actual Mean Range Range Reliance on budget controls 2-10 5-10 9.05 5-10 8.81 Budget communication 3-15 7-14 11.30 3-15 10.58 Budget influence 3-15 6-15 12.57 7-15 13.26 Environmental dynamism 1-5 2-4 3.45 2-4 3.37 Subunit performance 1-5 2-4 2.82 1-4 2.7 Standard Deviation Reliance on budget controls 1.03 1.22 Budget communication 1.63 2.55 Budget influence 2.51 2.02 Environmental dynamism 0.55 0.39 Subunit performance 0.57 0.62
The specific measurement approach is adapted from Govindarajan (1984) and Gupta and Govindarajan (1984). Managers were first asked to evaluate the importance they attach TO ATTACH, crim. law, practice. To an attachment for contempt for the non- take or apprehend by virtue of the order of a writ or precept, commonly called an attachment. It differs from an arrest in this, that he who arrests a man, takes him to a person of higher power to be disposed of; to ten potential performance evaluation Performance evaluation
The assessment of a manager's results, which involves, first, determining whether the money manager added value by outperforming the established benchmark (performance measurement) and, second, determining how the money manager achieved the calculated return criteria on a five-point Likert scale Likert scale A subjective scoring system that allows a person being surveyed to quantify likes and preferences on a 5-point scale, with 1 being the least important, relevant, interesting, most ho-hum, or other, and 5 being most excellent, yeehah important, etc . These criteria include measurable items such as return on capital employed and operating profit; they also include subjective subjective /sub·jec·tive/ (sub-jek´tiv) pertaining to or perceived only by the affected individual; not perceptible to the senses of another person.
1. criteria such as personnel development and product development. The respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. were then asked to indicate the extent to which they are satisfied with their units' performance on a five-point Likert scale for each of the ten criteria. The measurement used in the study is the average of the scores for managers' satisfaction with each criterion weighted by the perceived importance. The weighted measure does not readily lend itself to an internal reliability test. A reasonably convergent validity Convergent validity is the degree to which an operation is similar to (converges on) other operations that it theoretically should also be similar to. For instance, to show the convergent validity of a test of mathematics skills, the scores on the test can be correlated with scores was established, however, between business unit controllers' perceptions of overall subunit performance and the subunit general managers' responses (r=0.39, p [is less than] 0.01).
Budget Communication and Influence
This study, like the previous studies involving budgetary participation (e.g., Brownell 1982, 1985, Brownell and Hirst 1986, Hirst 1987, Dunk 1989, Mia 1989) uses the six items (see Table 3) developed by Milani (1975) with modifications to permit responses on a five-point Likert scale. These previous studies, though, used a composite measure of the six items based on the premise that they represented a single factor. In this study, factor analysis of the responses shows that they load on two factors with eigenvalues eigenvalues
statistical term meaning latent root. greater than 1.0. These factors have been titled budget influence and budget communication and represent 60% of the total variance The discrepancy between what a party to a lawsuit alleges will be proved in pleadings and what the party actually proves at trial.
In Zoning law, an official permit to use property in a manner that departs from the way in which other property in the same locality . Rotated rotated
turned around; pivoted.
see rotated tibia. factor loadings are presented in Table 3. The measurement used in this study is the aggregate of the three items in each factor.
Table 3. Rotated Factor Loadings of Budgetary Participation Items Factor Title and Items(*) Loading > 0.40 Loading Budget Influence Amount of manager's influence on final budget of the 0.87 unit The portion of the budget that the manager was 0.84 involved in setting The importance of the manager's contribution to the 0.73 budget Budget Communication Frequency of supervisior-initiated budget related 0.81 discussions Frequency of manager-initiated budget-related 0.73 discussions Kind of reasoning provided to managers when budget is 0.55 revised Factor Title and Items(*) Loading > 0.40 Percentage of Variance Budget Influence 37.3 Amount of manager's influence on final budget of the unit The portion of the budget that the manager was involved in setting The importance of the manager's contribution to the budget Budget Communication 22.7 Frequency of supervisior-initiated budget related discussions Frequency of manager-initiated budget-related discussions Kind of reasoning provided to managers when budget is revised
(*) Items adapted from Milani (1975)
Reliance on Budget Controls
The extent of reliance on budget controls was assessed in a manner similar to that of Brownell (1985, 1987) which was adapted from Otley's (1978) eight-item superior evaluation-style measure. Subsidiary managers were asked how important they perceive that the budget is for the headquarters. Like Brownell, two items were assessed: 1) The importance of meeting the budget, and 2) the importance of making a profit. A five-point scale was used ranging from 1) "not at all important", to 5) "very important". The two items were summed to give an overall measure. The two items are associated (r=0.43; p [is less than] 0.01).
The measure of the environment used in this study represents the average rate of change in the critical elements of a subunit's operating environment. This measure includes both complexity (critical elements) and dynamism (rate of change), two major dimensions of environmental uncertainty (Duncan 1972). The measurement approach is that of Brownell (1985, 1987) and Hassel (1991) who adapted Duncan's (1972) measurement approach. Twelve potentially critical elements in the subunit's operating environment were developed from Brownell (1985, 1987) and Sathe (1982). The elements include aspects of customer, distributor, and government relations; technical developments; supplies of capital, raw material, and labour; competitors' actions; and impacts of inderdependence and corporate policy. Respondents were asked to rate each element as critical or non-critical for their decision-making decision-making,
n the process of coming to a conclusion or making a judgment.
n a type of informal decision-making that combines clinical expertise, patient concerns, and evidence gathered from and then to indicate the perceived rate of change each element. Only the perceived rate of change in the critical elements of the operating environment was included in the measure of dynamism. The critical items were averaged to give an overall measure of dynamism.
Hypothese 1a, 2, 3, and 4a are tested using a hierarchical regression (Champoux and Peters 1987, Govindarajan 1988, Gul and Chia 1994). This approach uses a multiplier multiplier
In economics, a numerical coefficient showing the effect of a change in one economic variable on another. One macroeconomic multiplier, the autonomous expenditures multiplier, relates the impact of a change in total national investment on the nation's total interaction model with cross-product terms of the independent variables (Southwood Southwood can be a short form for:
(1) Y = [a.sub.0] + [a.sub.1] [x.sub.1] + [a.sub.2] [x.sub.2] + [a.sub.3] [x.sub.3] + [b.sub.1] [x.sub.1] [x.sub.2] + [b.sub.2] [x.sub.1] [x.sub.3] + [b.sub.3] [x.sub.2] [x.sub.3] + e
(2) Y = [a.sub.0] + [a.sub.1] [x.sub.1] + [a.sub.2] [x.sub.2] + [a.sub.3] [x.sub.3] + [b.sub.1] [x.sub.1] [x.sub.2] + [b.sub.2] [x.sub.1] [x.sub.3] + [b.sub.3] [x.sub.2] [x.sub.3] + [c.sub.1] [x.sub.1] [x.sub.2] [x.sub.3] + e
Y = Subunit performance.
[x.sub.1] = Reliance on budget controls
[x.sub.2] = Budget communication or budget influence
[x.sub.3] = Environmental dynamism
a, b, and c = Regression coefficients.
Difference scores from the mean are used for the independent variables in order to provide a clearer basis to interpret signs of the interaction coefficients (Brownell and Hirst 1986) and to minimise multicolinearity between main and cross-product effects (Cronbach 1987). A two-model approach is used in which the model is fit separately for domestic and foreign managers for both budget communication and budget influence.
The difference between equation 1 and equation 2 is the inclusion of the three-way interaction term in equation 2. Support for hypotheses 1a and 4a results from a significant unstandardised coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int)
1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities.
2. [c.sub.1]. If [c.sub.1] is significant, the effect of any of the variables depends on the level of the other two variables. An additional appropriate test for hypotheses 1a and 4a is to determine whether the inclusion of the three-way interaction term adds significantly to the variance explained by the regression (Southwood 1978). Thus the difference in [R.sup.2] between the two equations indicates the magnitude of the impact of including the three-way interaction term in the regression. If [c.sub.1] is significant, the corresponding incremental Additional or increased growth, bulk, quantity, number, or value; enlarged.
Incremental cost is additional or increased cost of an item or service apart from its actual cost. [R.sup.2] will also be statistically significant at the same probability level (Southwood 1978, Gul and Chia 1994).
As mentioned above, significant three-way interactions are not sufficient to provide information about the moderating effect of budget communication or budget influence. Therefore, in order to test hypotheses 1b and 4b if hypotheses 1a and 4a are supported, two-way interactions of two of the independent variables will be tested for subgroups dichotomised at the mean of the third independent variable (Brownell and Dunk 1991, Harrison 1992) following similar approaches to those above. In this study, subunits are dichotomised into two subgroups based on high and low reliance on budget control and then dichotomised into two subgroups based on high and low environmental dynamism. The following equations are used:
(3) Y = [a.sub.0] + [a.sub.i] [x.sub.i] + [b.sub.j] [x.sub.j] + e
(4) Y = [a.sub.0] + [a.sub.i] [x.sub.i] + [b.sub.j] [x.sub.j] + [b.sub.1] [x.sub.i] [x.sub.j] + e
Y = Subunit performance.
[x.sub.ij] = the independent variables remaining after dichotomising on the third
a and b = Regression coefficients.
The difference between equations 3 and 4 is the inclusion of the two-way interaction term in equation 4. Support for hypotheses 1b and 4b results from a significant unstandardised coefficient [b.sub.1]. As above, the test is to determine whether the inclusion of the two-way interaction term adds significantly to the variance explained by the regression by examining the difference in [R.sup.2] between the two equations.
Simple correlations among the variables are computed using raw scores and are presented in Table 4. The significant negative correlation Noun 1. negative correlation - a correlation in which large values of one variable are associated with small values of the other; the correlation coefficient is between 0 and -1
indirect correlation between reliance on budget controls and environmental dynamism in domestic subunits (r=-0.43; p [is less than] 0.001) indicates that budgets are de-emphasized as the environment becomes more dynamic for domestic subunits as argued for the hypotheses. The opposite correlation between these two variables for foreign subunits is likewise consistent with the arguments for the hypotheses (see note 2).
Table 4. Correlation Matrix Noun 1. correlation matrix - a matrix giving the correlations between all pairs of data sets
statistics - a branch of applied mathematics concerned with the collection and interpretation of quantitative data and the use of probability theory to estimate population for the Variables Tested (Foreign subunits in bold face)
Variable 1 2 3 1. Subunit performance - - 2. Budget communication 0.12 - 0.09 - 3. Budget influence -0.22 0.17 - -0.23 0.31(**) - 4. Reliance on Budget Control 0.20 0.24(*) 0.06 0.28(*) -0.02 -0.27 5. Environmental dynamnism -0.02 -0.10 -0.08 -0.17 -0.05 -0.07 Variable 3 5 1. Subunit performance 2. Budget communication 3. Budget influence 4. Reliance on Budget Control - - 5. Environmental dynamnism -0.43(***) - 0.14 -
(*) p < 0.10; (**) p < 0.05; (***) p < 0.01 (one tail tests)
The results of hypotheses tests 1a, 2, 3 and 4 are shown in Table 5 which shows regression equations Regression equation
An equation that describes the average relationship between a dependent variable and a set of explanatory variables. for equations 1 and 2 for both budget communication and budget influence. These results support hypotheses 2 and 3 because the coefficient of the three-way interaction term is not significant. Thus there is no significant impact from budget communication in foreign subunits and from budget influence on performance in domestic subunits as reflected in three way interactions ([c.sub.1]) and two way interactions ([b.sub.1] and [b.sub.3]).
Table 5. Results of Multiple Regression Multiple regression
The estimated relationship between a dependent variable and more than one explanatory variable. Analysis with Budget Communication Variable (Standard Errors in Parentheses See parenthesis.
parentheses - See left parenthesis, right parenthesis. )
Variables Budget Communication Domestic With 3-way term Constant ([a.sub.0]) 2.88(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) 0.21(*) (0.11) Budget Communication (BC) ([a.sub.2]) -0.00 (0.07) Environmental Dynamism (ED) ([a.sub.3]) -0.18 (0.22) RBC x BC ([b.sub.1]) -0.03 (0.08) RBC x ED ([b.sub.2]) 0.02 (0.13) BC x ED ([b.sub.3]) 0.20 (0.15) RBC x BC x ED ([c.sub.1]) 0.25(**) (0.11) [R.sup.2] 0.24 F 1.33 Change in [R.sup.2] 0.13 F for change in [R.sup.2] 5.03(**) Variables Budget Communication Domestic Without 3-way term Constant ([a.sub.0]) 2.86(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) 0.06 (0.09) Budget Communication (BC) ([a.sub.2]) -0.00 (0.07) Environmental Dynamism (ED) ([a.sub.3]) -0.12 (0.24) RBC x BC ([b.sub.1]) 0.02 (0.08) RBC x ED ([b.sub.2]) 0.01 (0.13) BC x ED ([b.sub.3]) 0.23 (0.16) RBC x BC x ED ([c.sub.1]) n/a n/a [R.sup.2] 0.11 F 0.63 Change in [R.sup.2] n/a F for change in [R.sup.2] n/a Variables Budget Communication Foreign With 3-way term Constant ([a.sub.0]) 2.72(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) -0.10 (0.14) Budget Communication (BC) ([a.sub.2]) 0.07 (0.06) Environmental Dynamism (ED) ([a.sub.3]) -0.20 (0.33) RBC x BC ([b.sub.1]) 0.01 (0.06) RBC x ED ([b.sub.2]) 0.53 (0.35) BC x ED ([b.sub.3]) -0.03 (0.17) RBC x BC x ED ([c.sub.1]) -0.12 (0.17) [R.sup.2] 0.15 F 0.58 Change in [R.sup.2] 0.02 F for change in [R.sup.2] 0.54 Variables Budget Communication Foreign Without 3-way term Constant ([a.sub.0]) 2.76(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) -0.10 (0.14) Budget Communication (BC) ([a.sub.2]) 0.06 (0.06) Environmental Dynamism (ED) ([a.sub.3]) -0.19 (0.33) RBC x BC ([b.sub.1]) -0.01 (0.06) RBC x ED ([b.sub.2]) 0.44 (0.33) BC x ED ([b.sub.3]) -0.09 (0.16) RBC x BC x ED ([c.sub.1]) n/a n/a [R.sup.2] 0.12 F 0.54 Change in [R.sup.2] n/a F for change in [R.sup.2] n/a Variables Budget Communication Domestic With 3-way term Constant ([a.sub.0]) 2.84(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) 0.07(*) (0.09) Budget Communication (BC) ([a.sub.2]) -0.05 (1.10) Environmental Dynamism (ED) ([a.sub.3]) -0.02 (0.27) RBC x BC ([b.sub.1]) 0.00 (0.04) RBC x ED ([b.sub.2]) 0.22 (0.27) BC x ED ([b.sub.3]) 0.04 (0.17) RBC x BC x ED ([c.sub.1]) -0.12 (0.17) [R.sup.2] 0.10 F 0.47 Change in [R.sup.2] 0.02 F for change in [R.sup.2] 0.54 Variables Budget Communication Domestic Without 3-way term Constant ([a.sub.0]) 2.85(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) 0.09 (0.09) Budget Communication (BC) ([a.sub.2]) -0.05 (0.04) Environmental Dynamism (ED) ([a.sub.3]) 0.01 (0.27) RBC x BC ([b.sub.1]) -0.01 (0.04) RBC x ED ([b.sub.2]) 0.04 (0.10) BC x ED ([b.sub.3]) 0.01 (0.16) RBC x BC x ED ([c.sub.1]) n/a n/a [R.sup.2] 0.08 F 0.46 Change in [R.sup.2] n/a F for Change in [R.sup.2] n/a Variables Budget Communication Foreign With 3-way term Constant ([a.sub.0]) 2.78(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) -0.10 (0.12) Budget Communication (BC) ([a.sub.2]) 0.06 (0.07) Environmental Dynamism (ED) ([a.sub.3]) -0.30 (0.31) RBC x BC ([b.sub.1]) 0.11 (0.07) RBC x ED ([b.sub.2]) 0.18 (0.32) BC x ED ([b.sub.3]) -0.16 (0.17) RBC x BC x ED ([c.sub.1]) -0.17 (0.17) [R.sup.2] 0.23 F 1.01 Change in [R.sup.2] 0.03 F for change in [R.sup.2] 0.94 Variables Budget Communication Foreign Without 3-way term Constant ([a.sub.0]) 2.79(***) (0.11) Reliance on Budget Controls (RBC) ([a.sub.1]) -0.10 (0.12) Budget Communication (BC) ([a.sub.2]) -0.09 (0.06) Environmental Dynamism (ED) ([a.sub.3]) -0.20 (0.29) RBC x BC ([b.sub.1]) 0.10 (0.07) RBC x ED ([b.sub.2]) 0.21 (0.32) BC x ED ([b.sub.3]) -0.20 (0.17) RBC x BC x ED ([c.sub.1]) n/a n/a [R.sup.2] 0.20 F 1.03 Change in [R.sup.2] n/a F for change in [R.sup.2] n/a
(*) p < 0.10; (**) p < 0.01; (***) p < 0.01 (two-tail test)
Support for hypotheses 1a and b is shown by results in Table 5 and 6. As shown in Table 5, the coefficient for three-way interaction term for reliance on budget controls, budget communication, and environmental dynamism ([c.sub.1]) is significant (p [is less than] 0.05). Including the three-way interaction term in the regression equation significantly increases the [R.sup.2] from 0.11 to 0.24 (p [is less than] 0.05). Thus the three-way interaction is positively associated with subunit performance in the domestic units of the multinational company and hypothesis 1a is supported.
To test for hypothesis 1b, as mentioned, it is necessary to dichotomise Verb 1. dichotomise - divide into two opposing groups or kinds
class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you classify these pottery shards--are they prehistoric?" the domestic sample on one of the variables while testing the two-way interaction between the other two variables. Table 6 shows the dichotomisation Noun 1. dichotomisation - the act of dividing into two sharply different categories
division - the act or process of dividing of the domestic subunits first by high and low reliance on budget control and then by high and low environmental dynamism. For the subset A group of commands or functions that do not include all the capabilities of the original specification. Software or hardware components designed for the subset will also work with the original. with a high reliance on budget control, the two-way interaction of budget communication and environmental dynamism is significant (p [is less than] 0.10) and significantly increases [R.sup.2] from 0.02 to 0.16 (p [is less than] 0.10). Thus hypothesis 1b is supported. The interpretation is that when the headquarters emphasizes the budget then domestic managers need to communicate in dynamic environments. Dichotomising the sample on environmental dynamism neither supports nor fails to support the hypothesis. It is interesting to note, though, that for the subset with low environmental dynamism, the coefficient of two-way interaction of budget communication and reliance on budget control is significant and negative and increases the [R.sup.2] from 0.09 to 0.30 (p [is less than] 0.10). Thus, when environmental dynamism is low, high communication and reliance on budget controls is associated with lower subunit performance. Consequently, there is no need to match high budget control with high communication to enhance performance when the environment is stable.
Table 6. Results of Multiple Regression Analysis for Domestic Subunits With Budget Communication Variable Dichotomized on Reliance on Budget Control (Standard Errors in Parentheses)
Variables Low Reliance With Without 2-way term 2-way term Constant ([a.sub.0]) 2.74(***) 2.77(***) (0.21) (0.12) Environmental Dynamism (ED) ([a.sub.1) -0.25 -0.15 (0.33) (0.25) Budget Communication (BC) ([a.sub.2]) 0.04 0.05 (0.10) (0.07) BC x ED ([b.sub.1]) -0.08 n/a (0.27) n/a [R.sup.2] 0.09 0.08 F 0.22 0.43 Change in [R.sup.2] 0.01 n/a F for change in R 0.88 n/a Variables High Reliance With Without 2-way term 2-way term Constant ([a.sub.0]) 2.91(***) 3.10(***) (0.12) (0.20) Environmental Dynamism (ED) ([a.sub.1]) -0.22 0.39 (0.28) (0.33) Budget Communication (BC) ([a.sub.2]) -0.02 0.04 (0.08) (0.08) BC x ED ([b.sub.1]) 0.36(*) n/a (0.18) n/a [R.sup.2] 0.16 0.02 F 1.39 0.70 Change in [R.sup.2] 0.14 n/a F for change in R 3.72(*) n/a Variable Environmental Dynamism Low Dynamism With Without 2-way term 2-way term Constant ([a.sub.0]) 2.74(***) 2.77(***) (0.21) (0.12) Environmental Dynamism (ED) ([a.sub.1]) 0.19 0.10 (0.11) (0.12) Budget Communication (BC) ([a.sub.2]) -0.15 -0.12 (0.11) (0.12) BC x ED ([b.sub.1]) 0.22(*) n/a (0.11) n/a [R.sup.2] 0.30 0.09 F 2.05 0.76 Change in [R.sup.2] 0.21 n/a F for change in R 4.30(*) n/a Variables Environmental Dynamism High Dynamism With Without 2-way term 2-way term Constant ([a.sub.0]) 2.91(***) 3.10(***) (0.12) (0.20) Environmental Dynamism (ED) ([a.sub.1]) 0.14 0.03 (0.13) (0.11) Budget Communication (BC) ([a.sub.2]) 0.10 0.10(*) (0.06) (0.06) BC x ED ([b.sub.1]) 0.11 n/a (0.08) n/a [R.sup.2] 0.24 0.14 F 1.57 0.26 Change in [R.sup.2] 0.10 n/a F for change in R 2.02 n/a
(*) p < 0.10; (**) p < 0.05; (***) p < 0.01 (one-tail tests)
Hypothesis 4a is not supported because the coefficient of the three-way interaction term for reliance on budget controls, budget influence, and environmental dynamism is not significant and does not significantly increase the [R.sup.2] for foreign subunits of the multinational. Thus, hypothesis 4b becomes most. Therefore, the impact of budget influence on subunit performance of foreign subunits is limited.
The results of this study provide the first empirical evidence that communication in the budget process is the major factor of budgetary participation that has a positive effect on subunit performance when the environment is dynamic. Thus the results support the suggestion of Brownell and Dunk (1991) that the exchange of information about changes in markets and technology is the primary benefit of budget participation. In this study, these results are limited to domestic subunits of a multinational company.
The results of the study did not find any moderating impact of submit managers' ability to influence their budget in either foreign or domestic subunits for any conditions of reliance on budget controls and environmental dynamism. This outcome, combined with that of Hassel and Cunningham (1993) that budget influence alone has a negative impact on foreign subunit performance, provides additional evidence that managers' ability to influence their budgets is not inherently motivating and may be dysfunctional. This finding, likewise, is consistent with the suggestion of Brownell and Dunk (1991) that communication, rather than motivational factors, represent the primary benefit of budgetary participation.
This study demonstrates that differences do exist between domestic and foreign subunits with respect to the efficacy of the budget process. Yet, they do not support the a priori conventional wisdom that foreign managers must have control over their budgets in order to enhance their performance. The effectiveness of the budget process in foreign subunits of multinationals is seemingly seem·ing
Outward appearance; semblance.
seeming·ly adv. more complex than has been addressed by research designs to date.
This study is among the first to examine the two dimensions of budgetary participation, communication and influence, separately and demonstrates the efficacy doing so. Results suggest that budget communication and budget influence are indeed separate dimensions and that future studies should be approached in this manner.
This study is limited because it considered only three possible independent variables that affect the budget process. It is also limited because it was conducted within a single company. However, the absolute majority of the cited studies on budget control were conducted within one single company. All of the subunits are manufacturing subunits that operate mostly in developed industrialised Adj. 1. industrialised - made industrial; converted to industrialism; "industrialized areas"
industrial - having highly developed industries; "the industrial revolution"; "an industrial nation" countnes of Western Europe Western Europe
The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). and North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. . Therefore, results cannot be generalised to other companies. A natural extension would be to study a multinational with a more centralised Adj. 1. centralised - drawn toward a center or brought under the control of a central authority; "centralized control of emergency relief efforts"; "centralized government"
centralized global strategy that would call the profit-center structure into question. Nonetheless, the results provide a valuable initial insights into several issues relating to relating to relate prep → concernant
relating to relate prep → bezüglich +gen, mit Bezug auf +acc budget effectiveness, especially for multinational companies.
(1) The authors appreciate the helpful comments of Dennis Dennis is a male first name derived from the Greco-Roman name Dionysius meaning "servant of Dionysus", the Thracian god of wine, which is ultimately derived from the Greek Dios (Διος, "of Zeus") combined with Nysos or Nysa (Νυσα), where the Bline, Alan A`lan´
n. 1. A wolfhound. Dunk, Judy Judy is most commonly a female given name, as well as a shorten form of Judith. It may also refer to:
American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876).
Noun 1. Reeve REEVE. The name of an ancient English officer of justice, inferior in rank to an alderman.
2. He was a ministerial officer, appointed to execute process, keep the king's peace, and put the laws in execution. , Saeed Roohani on an earlier version of the paper and the two MIR reviews for their comments.
(2) There is an extensive body of literature on performance evaluation in multinationals. These studies have mainly focused on performance evaluation measures and methods and not behavioral behavioral
pertaining to behavior.
see psychomotor seizure. budget control as in this study.
(3) Waterhouse and Tiessen (1978) did not limit their arguments to specific situations such as foreign subunits of multinationals. As discussed above, these arguments do not apply to domestic units of multinationals. We do argue, though, that they apply to foreign subunits.
Arnold, J. A., Moderator variables A moderator variable is, in general terms, a qualitative (e.g., sex, race, class) or quantitative (e.g., level of reward) variable that affects the direction and/or strength of the relation between dependent and independent variables. : a clarification of conceptual and psychometric psy·cho·met·rics
n. (used with a sing. verb)
The branch of psychology that deals with the design, administration, and interpretation of quantitative tests for the measurement of psychological variables such as intelligence, aptitude, and issues, Organisational Behavior and Human Performance, 1982, pp. 143-174.
Bartlett, C. A./Goshal, S., Managing Across Borders: The Transnational Solution, Boston Boston, town, England
Boston, town (1991 pop. 26,495), E central England, on the Witham River. Boston's fame as a port dates from the 13th cent., when it was a Hanseatic port trading wool and wine. Having recovered from a decline in the 18th and 19th cent. : Harvard Business School Harvard Business School, officially named the Harvard Business School: George F. Baker Foundation, and also known as HBS, is one of the graduate schools of Harvard University. Press 1989.
Brownell, P., The Role of Accounting Data in Performance Evaluation, Budgetary Participation and Organizational Effectiveness Organizational effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce. The idea of organizational effectiveness is especially important for non-profit organizations as most people who donate money to non-profit , Journal of Accounting Research, 20, 2, 1982, pp. 12-27.
Brownell, P., Budgetary Systems and the Role of Functionally Differentiated dif·fer·en·ti·ate
v. dif·fer·en·ti·at·ed, dif·fer·en·ti·at·ing, dif·fer·en·ti·ates
1. To constitute the distinction between: Organizational Activities, Journal of Accounting Research, 23, 2, 1985, pp. 502-512.
Brownell, P. The Role of Accounting Information, Environment and Management Control in Multi-National Organizations, Accounting and Finance, 27, 1, 1987, pp. 1-16.
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Brownell, P./Hirst, M., Reliance on Accounting Information, Budgetary Participation, and Task Uncertainty: Tests of a Three-way Interaction, Journal of Accounting Research, 24, 2, 1986, pp. 241-249.
Champoux, J. E./Peters, W. S., Form, Effect Size and Power in Moderated Regression Analysis In statistics, a mathematical method of modeling the relationships among three or more variables. It is used to predict the value of one variable given the values of the others. For example, a model might estimate sales based on age and gender. , Journal of Organizational Psychology, 60, 1987, pp. 243-255.
Cherrington Cherrington is a village in Shropshire, England.
It is near to the larger village of Tibberton. Newport is the nearest town. , D. J./Cherrington, J. O., Appropriate Reinforcement reinforcement /re·in·force·ment/ (-in-fors´ment) in behavioral science, the presentation of a stimulus following a response that increases the frequency of subsequent responses, whether positive to desirable events, or Contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. in the Budgeting Process, Journal of Accounting Research, Supplement 1973, pp. 225-253.
Collins, F., The Interaction of Budget Characteristics and Personality Variables with Budgetary Response Attitudes, The Accounting Review, 53, 2, 1978, pp. 324-335.
Cronbach, L. J., Statistical Tests for Moderator Variables: Flaws in analysis Recently Proposes, Psychological Bulletin, November November: see month. 1987, pp. 414-417.
Dominiak, G. F./Louderback, J. G. III, Managerial Accounting Managerial Accounting
The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals.
Notes: , Boston: PWS-Kent 1988.
Duncan, R. B., Characteristics of Organizational Environments and Perceived Environmental Uncertainty, Administrative Science Quarterly Administrative Science Quarterly, founded in 1956, is one of the most eminent academic journals in the field of organizational studies. It is published by Cornell University.
People claimed to have been involved as founders include James D. , 17, 3, 1972, pp. 313-327.
Dunk, A. S., Budget Emphasis, Budgetary Participation and Managerial Performance: a Note, Accounting, Organizations and Society, 14, 4, 1989, pp. 321 -324.
Dyment, J. J., Strategies and Management Controls for Global Corporations, Journal of Business Strategy, 7, 4, 1987, pp. 20-26.
Egelhoff, W. G., Organizing the Multinational Enterprise: An Information Processing information processing: see data processing.
Acquisition, recording, organization, retrieval, display, and dissemination of information. Today the term usually refers to computer-based operations. Perspective, Cambridge Cambridge, city, Canada
Cambridge (kām`brĭj), city (1991 pop. 92,772), S Ont., Canada, on the Grand River, NW of Hamilton. It was formed in 1973 with the amalgamation of Galt, Hespeler, and Preston, all founded in the early 19th cent. , MA: Ballinger Ballinger may refer to:
Govindarajan, V., Appropriateness of Accounting Data in Performance Evaluation: An Empirical Examination of Environmental Uncertainty as an Intervening Variable An intervening variable is a hypothetical concept that attempts to explain relationships between variables, and especially the relationships between independent variables and dependent variables. , Accounting, Organizations and Society, 9, 2, 1984, pp. 123-135.
Govindarajan, V., Impact of Participation in the Budgetary Process on Managerial Attitude and Performance: Universalistic and Contingency contingency n. an event that might not occur. Perspectives, Decision Sciences, 17, 4, 1986, pp. 496-516.
Govindarajan, V., A Contingency Approach to Strategy Implementation at the Business-Unit Level: Integrating Administrative Mechanisms with Strategy, Academy of Management Journal, 31, 4, 1988, pp. 828-853.
Gul, F. A./Chia, Y. M., The Effects of Management Accounting Systems, Perceived Environmental Uncertainty and Decentralization de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. of Managerial Performance: A test of Three-Way Interaction, Accounting, Organizations and Society, 19, 415, 1994, pp. 413-426.
Gupta, A. K./Govindarajan, V., Business-Unit Strategy, Managerial Characteristics, and Business- Unit Effectiveness at Strategy Implementation, Academy of Management Journal, 27, 1, 1984, pp. 25-41.
Hansen, D., Management Accounting, Boston: PWS-Kent 1990.
Harrison, G. L., The Cross-Cultural cross-cul·tur·al
Comparing or dealing with two or more different cultures: a cross-cultural survey; cross-cultural influences on an artist's work. Generalizability of the Relation Between Participation, Budget Emphasis and Job Related Attitudes, Accounting, Organizations and Society, 17, 1, 1992, pp. 1-15.
Hassel, L., Headquarter head·quar·ter
v. head·quar·tered, head·quar·ter·ing, head·quar·ters Usage Problem
To provide with headquarters: Reliance on Accounting Performance Measures in a Multinational Context, Journal of International Financial Management and Accounting, 13, 1, 1991, pp. 17-38.
Hassel, L./Cunningham, G. M., Budget Effectiveness in Multinational Companies: An Empirical Examination of Environmental Interaction on Cognitive and Affective affective /af·fec·tive/ (ah-fek´tiv) pertaining to affect.
1. Concerned with or arousing feelings or emotions; emotional.
2. Effects of Two Dimensions of Budgetary Participation, Scandinavian Journal of Management, 9, 4, 1993, pp. 297-316.
Hayes, D. C., The Contingency Theory Contingency theory refers to any of a number of management theories. Several contingency approaches were developed concurrently in the late 1960s.
They suggested that previous theories such as Weber's bureaucracy and Taylor's scientific management had failed because they of Management Accounting, The Accounting Review, 52, 1, 1977, pp. 22-39
Hirst, M. K., Reliance on Accounting Measures, Task Uncertainty, and Dysfunctional Behavior: Some Extensions, Journal of Accounting Research, 21, 1, 1983, pp. 596-605.
Hirst, M. K., Some Further Evidence on the Effects of Budget Use and Budget Participation on Managerial Performance, Australian Journal of Management The Australian Journal of Management (AJM) is an academic journal publishing papers about management. History
The journal was founded in 1976 by the Australian Graduate School of Management . , 12, 1, 1987, pp. 49-56.
Hirst, M. K./Lowy, S. K., The Linear Additive additive
In foods, any of various chemical substances added to produce desirable effects. Additives include such substances as artificial or natural colourings and flavourings; stabilizers, emulsifiers, and thickeners; preservatives and humectants (moisture-retainers); and and Interactive Effects of Budgetary Goal Difficulty and Feedback on Performance, Accounting, Organizations, and Society, 15, 5, 1990, pp. 425-436.
Hopwood, A. G., An Empirical Study of the Role of Accounting Data in Performance Evaluation, Journal of Accounting Research, 10, Supplement, 1972, pp. 156-182.
Jaccard, J./Turrisi, R./Wan, C. K., Interaction Effects in Multiple Regression, Newbury Newbury, town (1991 pop. 31,488), West Berkshire, S central England. In a farming region, Newbury trades in wool, malt, and farm products. Paper, furniture, and metal products are also made. In the Middle Ages the town was an important textile manufacturing center. Park, CA: Sage 1990.
Kenis, I., Effects of Goal Characteristics on Managerial Attitudes and Performance, The Accounting Review, 54, 4, 1979, pp. 707-721.
Lere, J. C., Managerial Accounting: A Planning-Operating-Control Framework, New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of : Wiley Wiley may refer to:
Mia, L., The Impact of Participation in Budgeting and Job Difficulty on Managerial Performance and Work Motivation: A Research Note, Accounting, Organizations and Society, 14, 4, 1989, pp. 347-357.
Milani, K., The Relationship of Participation in Budget-Setting to Industrial Supervisor Performance and Attitudes: A Field Study, The Accounting Review, 50, 2, 1975, pp. 274-284.
Miller, K. I./Monge, P. R., Participation, Satisfaction, and Productivity, Academy of Management Journal, 25, 4, 1986, pp. 727-753.
Otley, D. T., Budget Use and Managerial Performance, Journal of Accounting Research, 16, 1, 1978, pp. 122-149.
Otley, D. T., The Contingency Theory of Management Accounting: Achievement and Prognosis prognosis /prog·no·sis/ (prog-no´sis) a forecast of the probable course and outcome of a disorder.prognos´tic
n. pl. prog·no·ses
1. , Accounting, Organizations and Society, 5, 4, 1980, pp. 413-420.
Parker, L., A Reassessment Reassessment
The process of re-determining the value of property or land for tax purposes.
Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. of the Role of Control in Corporate Budgeting, Accounting and Business Research, Spring 1977, pp. 135-143.
Sathe, V., Controller Involvement in Management, Englewood Englewood (ĕng`gəlwd).
1 City (1990 pop. 29,387), Arapahoe co., N central Colo., on the South Platte River, a residential and industrial suburb of Denver; inc. 1903. Cliffs, NJ, USA: Prentice-Hall 1982.
Southwood, K. E., Substantive Substantive may refer to:
AJS is edited by Andrew Abbott of the University of Chicago. , 1978, pp. 1154-1203.
Vroom, V. H./Jago, A. G., The New Leadership: Managing Participation in Organizations, Englewood Cliffs, NJ: Prentice-Hall 1988.
Waterhouse, J. H./Tiessen, P A., Contingency Framework for Management Accounting Systems Research, Accounting, Organizations and Society, 3, 1, 1978, pp. 65-76.
Lars G. Hassel, Associate Professor of Accounting, Department of Accounting, Turku School of Economics The Turku School of Economics (Finnish Turun kauppakorkeakoulu) is a university specialising in economic and business sciences located in Turku, Finland. The university was previously called Turku School of Economics and Business Administration. and Business Administration, and Abo Akademi University, Turku Turku (tr`k), Swed. Åbo, city (1998 pop. 170,931), capital of Western Finland prov. , Finland. Gary Gary, city (1990 pop. 116,646), Lake co., NW Ind., a port of entry on Lake Michigan; inc. 1909. Gary was founded by the U.S. Steel Corporation, which purchased the land in 1905 and landscaped it for a city. M. Cunningham, Professor of Accounting, U.S.A.
Manuscript manuscript, a handwritten work as distinguished from printing. The oldest manuscripts, those found in Egyptian tombs, were written on papyrus; the earliest dates from c.3500 B.C. received March 1995, revised October October: see month. 1995.