aligning industrial relations risk, budgetary participation, and budgeting measures of performance -...
TRANSCRIPT
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
1/48
Aligning Industrial Relations Risk, Budgetary Participation,and Budgeting Measures of Performance: Impact on
Managerial Performance
Zahirul Hoque*
La Trobe University, Australia
Peter Brosnan
Griffith Business School, Griffith University,Brisbane, Australia
*Corresponding authors address: Professor Zahirul Hoque, Department of Accounting,School of Business, La Trobe University, Victoria, 3086 Australia; Tel (613) 9479 3433; Fax(613) 9479 2356; E-mail: [email protected]
Acknowledgements: We gratefully acknowledge the financial support provided by theAustralian Research Council for this research. We appreciate the helpful comments andsuggestions of Michael Barry, Robert Chenhall, Kim Langfield-Smith, Ken Merchant, WimVan der Stede, Chris Chapman, Trevor Hopper, and seminar participants at MonashUniversity on an earlier draft.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
2/48
1
Aligning Industrial Relations Risk, Budgetary Participation,and Budgeting Measures of Performance: Impact on
Managerial Performance
ABSTRACT: While previous contingency studies in managerial accounting conceivedenvironmental or contextual factors as affecting control systems design such asbudgeting in terms of markets, technology, or task environment, not much priorempirical research considered the industrial relations environment as an importantcontextual factor affecting the design and functioning of organizational control systems.In this study, industrial relations is a type of organizational risk arising from industrialrelations related actions such as employee work stoppages, actions of trade unionofficials, conflicts between trade unions, and linkage of trade unions with nationalpolitical parties, which could be expected to play a significant role in an organizationscontrol systems design and use.
Using Lawrence and Lorschs (1967) contingency theory of Organizations andEnvironment, we extend the contingency management accounting research literatureby empirically assessing the performance consequences of the fit or alignmentbetween industrial relations risk, budgetary participation, and budgetary measures ofperformance. More specifically, drawing from Drazin and Van de Vens (1985)Alternative Forms of Fit in Contingency Theorythis paper seeks to achieve two goals.First, we examine whether greater use of budgetary information for performanceevaluation is likely to be dependent on the positive association between industrialrelations risks and budgetary participation. Second, we assess whether managerialperformance enhances when there is an alignment or fit between industrial relations
risk, budgetary participation, and budget use. The results from a sample of 55Australian coal mining companies provide strong support for the hypothesesdeveloped. The results suggest that managerial performance improves with increasinguse of budgets in performance evaluation under increased industrial relations risk onlywhen there is a provision for high levels of employee budgetary participation. Thisstudy adds to the limited knowledge of the interaction of accounting and industrialrelations in organizations.
Keywords: Contingency fit theory; mining industry; industrial relations; manageemntcontrol systems; budgetary participation; budget use; managerial performance.
INTRODUCTION
Budgeting, as a control systems design, is one of the most extensively researched
topics in managerial accounting and has been studied from the theoretical perspectives of
economics, psychology, and sociology (for details, see Covaleski, Dirsmith and Samuel, 1996;
Fisher, Fredrickson and Pfeffer, 2000; Fisher, Maines, Pfeffer and Sprinkle, 2002; Covaleski,
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
3/48
2
Evans, Luft and Shields, 2003; Hansen, Otley and Van der Stede, 2003).1 Relying on behavioral
(or psychological) theories, numerious accounting studies find managers participation in setting
their business budgets to be associated with greater use of budgets in organizational as well as
managerial performance evaluation (for example, see Argyris, 1952; Golembiewski, 1964;
Hofstede, 1967; Hopwood, 1973; Brownell, 1982, 1983; Brownell and Hirst, 1986; Brownell and
McInnes, 1986; Brownell and Dunk, 1991). The lesson from behavioral research studies is that
the managements concern for employees would lead to increased satisfaction, which would, in
turn, result in improved performance (Davidson and Griffin, 2006). 2
While early behavioral accounting research provided useful insights into the
organizational processes in terms of the impact of the individual on the organization and the
impact of the organization on the individual, its universal recommendation one best way to
manage organizations (Davidson and Griffin, 2006) gave birth the contingency perspective,
developed by Woodward (1958, 1965), Burns and Stalker (1961), Chandler (1962), Thompson
(1967), Lawrence and Lorsch (1967) and others. In general, contingency theory suggests that
each organization is unique and its processes and managerial behavior depend on
environmental situations within which the organization operates (Covaleski et al., 1996;
Donaldson, 2001). Viewed from such a context, considerable accounting studies identify how
MCS in an organization can be best designed and used to match organizational situations
within which MCS are employed.3 Further, contingency theory suggests that a fit or alignment
between organizational context variables and MCS design and use is likely to be associated
with superior performance (Drazin and Van de Ven, 1985; Donaldson, 2001; Gerdin and Greve,
2004; Chanhall and Chapman, 2006).
1For recent evidence on budgeting research, refer to the Forum on Budgeting published in the issue 15 of the
Journal of Management Accounting Research(2003).
2For a review of this literature, see Greenberg et al. (1993), Shields and Young (1993), Covaleski et al (1996),
and Shields and Shields (1998).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
4/48
3
We draw on these theoretical arguments to empirically examine (a) whether greater
budgetary participation under conditions of increased industrial relations risk leads to greater
use of budgets in performance evaluation, and (b) whether an alignment between industrial
relations risk, budgetary participation, and budget use results in superior managerial
performance. We argue that the interaction among these three key organizational elements is
compatible and useful for ongoing performance improvement at the organizational and
employee levels.
In this paper, industrial relations is a type of organizational risk arising from an
environment where management and employees/workers work towards different goals or
when conflict and hostility pervade the organization (Davidson and Griffin, 2006, p. 78; see
also Margerison, 1969). We measure industrial relations risk in terms of the following four inter-
related industrial relations factors or situations: (1) actions of labor unions, (2) strikes/work
stoppages by labor unions, (3) conflicts between labor unions, and (4) linkages of labor unions
with national political parties (Hoque and Hopper, 1997). Drawing on Lawrence and Lorschs
(1967) contingency theory of Organizations and Environmentand following Donaldsons (2001)
ideas of Organisational Riskand Portfolio Theorywithin the contintgency tradition, we expect
that industrial relations risk is affected by the risk of each of the above four industrial relations
factors and also by the positive correlation or interaction among the factors. We argue that each
industrial relations factor has a certain degree of risk (i.e., variation over time) and interaction
with the other factors (Donaldson, 2001). Thus, the above industrial relations factors may cause
an increase in organizational risk which might thereby affect organizational control systems
designs and their effectiveness (Hyman, 1975). Budgetary participation, as measured in the
literature (Milani, 1975), is the process in which subordinates participate in deciding the budget
goals and possess some degree of influence on the final budget (Chenhall and Brownell, 1988;
3For comprehensive reviews of contingency studies in accounting, see Otley (1980), Langfield-Smith (1997);
Chapman (1997), Van der Stede (2000), Chenhall (2003), Luft and Shields (2003), Covaleski et al (2003),Chenhall and Chapman (2006), and Nixon (2006).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
5/48
4
Brownell and Dunk, 1991; see also Fisher et al., 2000; Fisher et al., 2002). Budget use refers to
the use of budgetary data when evaluating organizational as well as managerial performance
(Abernethy and Stoelwinder, 1991; Fisher et al., 2002).
We expect that when an organization faces a great deal of industrial relations risks,
higher levels of budgetary participation may result in greater use of budgets in performance
evaluation, which may lead to enhanced managerial performance. Thus, given the interactions
between organizational MCS and industrial relations risk, it follows that performance or
effectiveness is related to how well an organization understands, reacts to and influences its
industrial relations risk (Donaldson, 2001). We will discuss more about these and related issues
in the following section.
This study will contribute to contingency theory in management accounting in the
following manner. While the bulk of previous contingency studies4 conceived contingent or
situational variables as affecting MCS designs and their usage, in terms of market competition,
technology, or task interdependence, the industrial relations risk has not been recognized by
previous researchers as an important environmental variable to an organization and its MCS
designs and effectiveness. Despite their importance (Clegg, 1972; Owen and Lloyd, 1985;
Waring and Barry, 2001; Davidson and Griffin, 2006), contemporary studies of the impact of
labor unions and industrial relations on MCS are indeed sparse (Arnold, 1998; Ogden, 1997;
Panozzo, 1997). Prior industrial relations studies in accounting have been mainly focused on
the ways that financial accountants hide information, and confuse or mislead labor unions in
collective negotiations (for example, see Amernic, 1985; Ogden and Bougen, 1985; Brown,
2000; Owen and Lloyd, 1985). As Armstrong (1994) states: Accounts of post 1980s industrial
relations continue to parade the traditional dramatis personae of industrial relations:
4 Examples of such studies include Khandwalla (1972), Bruns and Waterhouse (1975), Otley (1978), Merchant(1981), Gordon and Naryanan (1984), Chenhall and Morris (1986), Govindarajan (1984, 1986, 1988),Govindarajan and Gupta (1985), Merchant and Simons (1986), Kim (1988), Abernethy and Stoelwinder (1991),Abernethy and Lillis (1995), Anderson and Young (1999), Hoque and James (2000), Henri (2006b), Van derStede, Chow and Lin (2006).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
6/48
5
management trade unionism and State intervention What is ignored in these scenarios is that
industrial relations in large British companies now takes place on a terrain defined by budgetary
planning and financial performance monitoring. On the accounting side, studies of trends in
British management accounting practice have been equally insular. In reality, the value of
information depends on the ability of management to act on it, and this may well be subject to
industrial relations constraints (Armstrong, 1994, p.190). These observations are borne out by
Berry et al.s (1985) study of the British National Coal Board, Miller and OLearys (1994) study
of vehicle manufacturing in the US, and Armstrong et al.s (1996) survey of 176 large UK
companies. The latter study found that budgeting is an important stimulus to employers seeking
labor force flexibility, particularly using part-time female labor, a phenomena of considerable
interest in the industrial relations literature (e.g., OReilly and Fagan, 1998). They found support
for the conventional proposition that budgetary systems as a tool of MCS were a response to
organizational size, product diversity, and problems of internal coordination. There was also
strong evidence supporting the view that they were used more when labor force resistance was
relatively weak, giving managers of business units greater freedom to act on budgetary
information (Amernic, 1985; Ogden and Bougen, 1985; Brown, 2000; Owen and Lloyd, 1985).
However, there is a lack of systematic empirical research literature examining how combining
budgetary participation with budgetary data under high levels of industrial relations risks might
affect managerial performance. We make a broader, more significant contribution to the MCS
literature by examining whether aligning industrial relations risks with budgetary participation
and budget use is likely to produce superior managerial performance.
Further, by searching for a good fit or misfit between the industrial relations risk,
budgetary participation and budget use, our study will also provide additional evidence on the
performance effects of the relationship between budgetary participation and budget use
identified previously (e.g. Brownell 1981, 1982, 1983, 1985; Brownell and McInnes 1986;
Brownell and Hirst 1986; Dunk, 1989; Brownell and Dunk, 1991; Mia, 1993).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
7/48
6
We provide the empirical analysis using survey data from a random sample of 55
Australian coal mining companies. We choose the coal mining sector for investigation for its
significance for the Australian economy. On average, the sector generates A$28 billion annual
turnover and is the single most important source of export revenue (Australian Bureau of
Statistics Industrial Disputes, 2000: Cat. 6322.0). Nevertheless, the focus on a single industry or
sector enables industry effects to be controlled (Feltham, 1977; Hilton, 1979; Gordon and
Naryanan, 1984; Kim, 1988; Foster and Sjoblom, 1996; Anderson and Young, 1999; Pizzini,
2006). Further, the evidence from the Australian mining industry will stimulate future research
studies in other settings.
The remainder of this paper is organized in the following manner. In Section II, we
develop our hypotheses. In Section III, we present the research method used. We present the
empirical results in Section IV. In the final section, we provide a summary, conclusion, and
limitations.
THEORY AND HYPOTHESIS DEVELOPMENT
Contingency theory suggests that the form of MCS choices made by organizations
contingent upon varied circumstances or situations of organizations. Drazin and Van de Ven
(1985) consider such a relationship between organizational MCS and environments as a
selection fit (see also Gerdin and Greeve, 2004; Chanhall and Chapman, 2006). This selection
fit notion, however, does not explicitly attempt to assess whether the relationship between
organizational context variables and the design and use of MCS is associated with performance
(Drazin and Van de Ven, 1985; Gerdin and Greve, 2004; Chanhall and Chapman, 2006). The
second conceptual root, bivariate interaction fit, suggests that performance depends
significantly upon the existence of fitor alignment between different MCS and organizational
contextual variables (Govindarajan, 1984; Chenhall and Chapman, 2006). The third notion of
contingency fit theory, systems approaches to fit, suggests a holistic combination of MCS
designs and multiple contextual variables to assess if such a fit has implications for performance
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
8/48
7
(Govindarajan, 1988; Kim, 1988; Chenhall and Chapman, 2006).5 In this study, we use the
bivariate interaction fit notion of contingency theory to develop our research hypotheses.
A tested proposition in the managerial accounting research literature is that a firm's
internal and external environments play a significant role in organizational operations and
performance. This is, in fact, one of the key tenets of contingency theory - that the effectiveness
of an organizations MCS design requires managements knowledge of the organizations
environment to determine the fit or alignment among the different organizational elements
(Lawrence and Lorsch, 1967; Miles and Snow, 1978; Donaldson, 2001; Gerdin and Greeve,
2004). Empirical evidence from managerial accounting studies within this tradition suggests
that the effectiveness, in terms of either managerial or organizational performance, of the design
and choice of MCS made by organizational business units depends on the level of
environmental unpredictibility or associated risks facing these units (Otley, 1980; Chapman,
1997; Chenhall, 2003). Consequently it is not surprising to find that organizations seek to
reduce risks from their environment so that they know how best to transact with it (Cummings
and Worley, 1997).
The work of Hoque and Hopper (1994 and 1997) examined industrial relations factors
impacting upon budgeting in state-owned jute6 goods manaufacturing organizations in
Bangladesh, where they found that when trade unions activities such as strikes and work
stoppages were perceived as great, then superior managers saw budgetary data as having less
importance in their organizational control processes. The argument of Hoque and Hoppers
5For further details on contingency-based interaction and fit models, refer to Kim (1988), Govindarajan (1988),
Donaldson (2001), Luft and Shields (2003), and Chenhall and Chapman (2006).
6Jute, a natural fibre used universally, is the bark of a slender plant of tropical and subtropical origin. Jute fibres are
generally used for making containers and as wrapping material. Over 80 per cent of the world's jute manufacturesare in the form of bags or cloth. Jute bags are conveniently suitable for the transport and storage of grains, flour,seeds, sugar, coffee, fertiliser, coal, and various minerals, and many other commodities. Cotton bales and manyindustrial products are invariably wrapped with jute covering to protect them while in transit or in storage. In addition,jute has a number of industrial uses. It is used for providing backing for high quality carpets and as a core materialfor electric and other cables.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
9/48
8
studies is that the effects of trade unions actions would lead to managers placing less
importance on traditional MCS such as budgets within their business units.
However, the use of budgeting information to monitor and control labor can be traced
back to the sixteenth century (Pollard, 1965; Armstrong, 1987; Edwards and Newell, 1991;
Fleischman and Parker, 1991; Carmona et al., 2003). In fact, Hopper and Armstrong (1991)
argue that accounting controls arose as an attempt to control the labor process, that is the way
in which work is organized in terms of task definition, conception and execution, and associated
measure such as effort and output. There is also the view that changes in control systems are
made not necessarily to increase efficiency, but to intensify the labor process and to redistribute
the product of that labor (Armstrong, 1987; Miller and OLeary, 1993; 1994). Armstrong (1994,
p. 203) suggest that where trade unions are strong pre-planned budgets may reduce the
ability of local managements to reach an accommodation. Where union organization is weak
a line manager ... may attempt to impose a pay settlement or a change in work practices which
will reduce labour costs. The seminal work by Hofstede (1967) also suggested that superior
managers used budgetary information in difficult economic environments to pressure workers
(cited in Covaleski et al., 1996, p. 7).
Our pilot study7 finds that mine management collects numerous statistics on production
and labor usage. They monitor raw labor costs and unit labor costs against budgetary targets.
During our interviews with mining managers, we reveal that return on investment (ROI) is used
as an overall performance indicator, and is able to be used to compare the performance of mine
managers, notwithstanding different mine technologies, age of the workings and favourableness
of the geology. This initial observation during our pilot study is in line with Hopper and
Armstrongs (1991) proposition that ROI is used to adjust the number employed in line with
fluctuating product markets. Nonetheless, the strength of the unions is such that managements
7To obtain background information about the mining industry and to test the validity and reliability of the survey
instrument, we conducted a pilot study, discussion of which follows in the research method section.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
10/48
9
capacity to act is limited by industrial relations constraints (Lee, 2002; Hampson and Morgan,
1998). The mining unions have always been ready to call industrial action if they believe that
management has overstepped the line of what they regard as reasonable behavior (Waring and
Barry, 2001; Barry et al., 1998). These stoppages are partly symbolic, usually lasting only a day
or two, but they do stop production and inconvenience management (Waring and Barry, 2001).
Their main achievement is to remind management that their powers are limited by the consent
of the work force mediated through the union (c.f. Ezzamel et al., 2004). Interviewees during our
pilot study also suggested that the political power of the unions was also strong in the industry.
One of the mine managers put it thus: Should they (labor unions) chose to exercise that power
via national stoppages, they can seriously affect a key component of Australias export trade
and in the process, substantially affect profitability in the industry.
Based on the above arguments, and drawing on the contingency selection fit theory
(Drazin and Van de Ven, 1985), we expect that if the organizational manager thinks there is an
increased level of industrial relations risk due to increased labor union activities and employee
work stoppages in his/her business unit or organization, then the manager is likely to use
budgetary data to a lesser extent when evaluating managerial performance. Because,
traditional budgetary measures of performance may not reflect true managerial performance
under conditions of high industrial relations risks.
More recently, Chapman (1998) argues that in an unpredictable environment, effective
organizations tend to employ formal accounting systems with greater employee involvement in
such processes.8 Shields and Shields (1998) suggest that if an organization is going to look at
budgetary participation there needs to be a clear reason why participation is being encouraged.
In this context, behavioral research theory suggests that greater budgetary participation leads to
greater use of budgets in performance evaluation. Budget participation allows suboridnates to
participate in setting their business goals and to have some degree of influence on the final
8For a critical commentary on this and relevant issues, see Chenhall (2003).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
11/48
10
budget (Hopwood, 1972, 1976; Milani, 1975; Shields and Shields, 1998; Glew et al., 1995).
Early behavioral studies suggest that personal relations among organizational members are
critical to the working of control systems design (Argyris, 1952, 1953). Hence, budgetary
participation serves an intense communication role between organizational members such as
line management, employees and trade unions (Chapman, 1998). Using such a behavioral
theory, in this study we expect that business unit managers are likely to use budgets largely in a
highly risky industrial relations environment if they are involved with setting their own plants
budgetary targets.
Further, examination of the relationship between environmental factors and MCS in
the managerial accounting literature has tended to focus on participative budgeting and the
performance evaluation function of budgets (Brownell, 1985; Abernethy and Stoelwinder,
1991; Merchant, 1981; Merchant and Manzoni, 1989; Kanodia, 1993; Hansen et al., 2003).
Brownell (1982) has shown that heavy reliance on budgets in performance evaluation needs
to be accompanied by high participation in setting budgets to elicit a favorable effect on
performance. Another study by Brownell (1983) shows that, in the absence of participation,
employees find budgets to be unacceptable for performance evaluation. Similarly,
participation without subsequent reference to the budget in performance evaluation is also
viewed as being unacceptable (Argyris, 1952, 1953; Ledford and Lawler, 1994).
Based on the above theoretical and prior empirical arguments, in this study we expect
that budgetary participation is likely to bear a significant relationship with industrial relations
risks in the use of budgets in performance evaluation. This reflected in the following
hypothesis:
H1: A positive association or interaction between industrial relations risk and higherlevels of budgetary participation is likely to be associated with greater use ofbudgets in performance evaluation.
Lawrence and Lorschs (1967) contingency theory focuses on the fit between
organizational arrangements and environments of organizations (Covaleski et al., 1996). As
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
12/48
11
outlined above, within this tradition of contingency theory, Drazin and Van de Ven, 1985)
developed the bivariate interaction fit notion of contingency theories of organizations that
suggests that organizational MCS and contextual factors are likely to fit or align to affect
performance (Otley, 1978; Govindarajan, 1984; Covaleski et al., 1986; Donaldson, 2001;
Chenhall and Chapman, 2006). Seen in such a context, we predict a significant interaction
between industrial relations risk, budgetary participation, and managers use of budgets
during performance evaluation affecting managerial performance. Stated formally:
H2: An alignment between industrial relations risks, budgetary participation, and budgetuse in performance evaluation is likely to be associated with superior managerialperformance.
RESEARCH METHOD
Sample and Data
We employ a mail-out survey involving a sample of 120 Australian coal mining
companies randomly selected from the Association of Mining and Exploration Companies
Database. As mentioned above, to test the construct validity and reliability of the self-reports
survey, we conducted a pilot study in three mining companies in Brisbane (in the State of
Queensland), and visited an open-cut mine in the state of New South Wales. The pilot study
involved face-to-face, open-ended interviews with three mining general managers, three chief
financial officers, and two labor union officials. The topics selected for discussion covered:
industrial relations environments; strategy; budgeting; performance measurement; decision
making styles; and organizational/managerial performance. On average each interview took one
hour.
Based on the results of the pilot study, we restricted the distribution of questionnaires to
general managers (mining heads) of each mining company. Table 1 shows the distribution of
the sample by size (in terms of number of employees and organizational types). The companies
ranged in size from 30 to 8,188 employees. On average, the respondents were 40.5 years old,
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
13/48
12
had worked in the mining industry for an average of 7 years, and had held their present position
for an average of 4.5 years.
INSERT TABLE 1 HERE
The Survey Instrument
We adapted the survey questions (see Appendix) from prior research in industrial
relations and MCS designs (Hoque and Hopper, 1997; Milani, 1975; Swieringa and Moncur,
1975; Mahoney et al., 1963). We pilot tested the survey with six mining managers and
accountants, which helped us refine and fine tune the survey. These six participants were
omitted from the main sample. Further, we sought comments on the mesures from several
accounting and industrial relations academics.
The mail-out survey package included a cover letter explaining the purpose of the
research, a copy of the survey, and two postage-paid envelopes one for returning the survey,
and the second to allow respondents to request a copy of the survey results. The first mailing
resulted in 39 responses of the 120 questionnaires distributed. We sent a reminder letter four
weeks after the initial mail-out. The second mail-out resulted in a further 21 returned
questionnaires. Five of the 60 respondents returned the survey without completing it, citing
reasons such as contravening company policy and staff constraints. Therefore, of the
questionnaires distributed, a total of 55 (45.8 percent) questionnaires were usable. To test for
the existence of possible response bias, we undertook t-tests for two independent samples by
testing the first and second mail-out as suggested by Oppenheim (1966). We find statistically no
significant differences (at p
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
14/48
13
Variables Measurement
Industrial Relations Risk
As previously discussed, we measure industrial relations risk using the instrument
developed by Hoque and Hopper (1997). The survey instrument asks managers, on a seven-
point Likert-type scale from one (of negligible impact) to seven (extreme impact), to measure
their perceptions about the impact of the following industrial relations situations on their mining
environments and operations: (a) actions of labor union officials; (b) internal conflicts among
labor unions; (c) strikes/work stoppages; and (d) linkages of labor unions with national political
parties. The correlation matrix produced (see Table 2) significant correlations between these
items, suggesting that they are highly correlated.9 Principal component analysis extracts one
factor with an eigenvalue greater than one that explain 71.53 percent of the total variance. We
compute the IR_RISK (industrial relations risk) construct by summing and averaging the
respondents scores of the four items. A reliability check for the instrument produces a
Cronbach alpha (Cronbach, 1951) of 0.87, which is considered to be well above the lower limits
of normal acceptability of 0.50 to 0.60 (Nunnally, 1978). Table 2 presents descriptive statistics
and correlation matrix of the four items of the measure, along with the factor loadings.
INSERT TABLE 2 HERE
Budgetary Participation
We use the Milani (1975) six-item instrument to assess budgetary participation, as prior
work has (e.g., Brownell, 1982; Brownell and Hirst, 1986; Dunk, 1989; Brownell and Dunk,
1991; Mia, 1993; Fisher et al., 2000). The instrument asks managers, on a seven-point scale,
to indicate the extent to which managers are involved in the six activities presented in Appendix.
9In this study, we compute a correlation matrix for each multi-item scale in deciding whether to carry out a factor
analysis. If there are no significant correlations between the variables under study, it means that they areunrelated and that one would not expect them to form one or more factors (Bryman and Cramer, 1990). In thisstudy, most items within the multi-item scale are significantly correlated at less than the 0.05 level with oneanother, which suggests that they may constitute one or more factors. For reasons of space, the correlation
matrices for the variables are not produced in this paper; however, they are available from the author.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
15/48
14
Table 3 presents the descriptive statistics and the correlation coefficients and factor matrix.
Factor analysis shown in Table 3 confirms a single factor for the measure. We compute a singe
variable, BDGT_PART (budgetary participation) by calculating the arithmetic average of the
respondents scores of each item within the factor.
INSERT TABLE 3 HERE
Budget Use
We measure managers use of budgets in performance evaluation using an instrument
derived from earlier work by Swieringa and Moncur (1975), and subsequently used by
Abernethy and Stoelwinder (1991), Hoque and Hopper (1997), and many other studies (for
details, see Fisher et al., 2002; Shields and Shields, 1998; Chenhall, 2003; Covaleski et al.,
2003). The instrument asks the respondents to indicate, on a 7-point scale, ranging from one
(to a very little extent) to seven (to a very great extent), the extent to which each of the following
five items relating to the use of budgets in performance evaluation describing managerial
behavior: a) Require submitting explanations concerning budget variances; b) Investigate items
that are overspent; c) Hold personally accountable for budget variances; d) Meeting budget
important to superior; e) Sub-units are evaluated on budget performance. Principal component
analysis yields one factor with an eigenvalue greater than one that explains 56.1 percent of the
total variance. A simple arithmetic average of the responses to these five items is interpreted as
an index of the budget use (BDGT_USE) in performance evaluation (Cronbach alpha = 0.78).
Table 4 presents descriptive data, correlations and factor loadings of the five items.
INSERT TABLE 4 HERE
Managerial Performance
We measure managerial performance using an instrument developed by Mahony,
Jerdee and Carroll (1963, 1965). This instrument is a self-rating measure comprising nine items.
Eight items in the measure pertain to performance on each of eight separate dimensions of
managerial activity, as follows: planning, investigating, coordinating, evaluating, supervising,
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
16/48
15
staffing, negotiating, and representing. The ninth item is the overall rating of performance.
Several prior accounting studies used this measure as a proxy for managerial performance
(e.g., Brownell, 1982 and 1985; Brownell and McInnes, 1986; Brownell and Hirst, 1986; Dunk,
1989; Brownell and Dunk, 1991). The instrument asks respondents to indicate their own
performance in each of the above managerial activities by rating it on a scale ranging from one
(significantly below average) to seven (significantly above average) with 4 being average.
Consistent with prior studies, the overall performance rating was regressed with the eight
performance dimensions, which explained 70.6 percent of the variance of the overall rating
score (adjusted R2 = 65.2%, F = 13.20, p = 0.00). These results are consistent with previous
research in this area (e.g. Brownell, 1985; Dunk, 1989; Govindarajan, 1984). The Cronbach
Alpha coffecient for the measure is 0.69. Table 5 shows descriptive statistics for the measure.
INSERT TABLE 5 HERE
Firm Size
Firm size is controlled for in statistical tests of the models. We measure firm size using the
natural log of the number of employees.
RESULTS
Descriptive Statistics
Table 6 presents descriptive statistics and Table 7 provides Pearson Zero Order
correlation coefficients.
INSERT TABLE 6 HERE
Correlation coefficients presented in Table 7 demonstrate significant associations
between the variables of the study. As can be seen from this table, IR_RISK is positively
associated with BDGT_PARTand negatively associated with BDGT_USEand MAN_PERF.
Furthermore, BDGT_PART is positively and significantly associated with BDGT_USE and
MAN_PERF, and BDGT_USE is positively and significantly associated with MAN_PERF.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
17/48
16
SIZEis positively and significantly associated with IR_RISK. The correlations between SIZE
and BDGT_USEand MAN_PERFare positive but not significant.
INSERT TABLE 7 HERE
Hypotheses Testing10
Our first hypothesis predicts that the use of budgets in performance evaluation
increases under conditions of high industrial relations risk only when superior managers
allow subordinates and business unit managers to participate largely in setting their business
units budgets. The tests consistent with this hypothesis would be a test of a two-way
interaction between budgetary participation and industrial relations risk influencing budget
use in performance evaluation. We test the hypothesis by comparing the variance explained
by two regression models (a) regression model without interaction term, and (b) regression
model with interaction term (Hartman and Moers, 1999; Boulianne, 2002).
INSERT TABLE 7 HERE
Table 8 presents the results. As we see in Panel B of this table, the standardized
beta coefficient (0.72) for regressions with interaction term is statistically significant (p =
0.02). The overall regression model for the experimental variables explained 26.6 percent
(Adjusted R2) of the variance in the dependent variable, budget use. The data in Panel C of
Table 8 show that the adjusted R2 is significantly higher (increased by 7 percent) with the
interaction term. Taken together, these results provide strong support for H1 that suggests
that a positive association or interaction between industrial relations risk and budgetary
participation leads to managers increased use of budgets in performance evaluation.
10We employed a series of preliminary statistical tasks before we embarked on our tests of hypotheses. Using
the SPSS14.0 programs, we conducted a detailed examination of the data through a variety of descriptivestatistics, the frequency distributions of values for various groups, and tests for normality and homogeneity ofvariance. Graphical representations of the data through histograms, Stem-and-Leaf Plots and Box plots werealso performed as detective work. The Levene Test and the tests of normality (through normal plots, kurtosis andskewness) were conducted to evaluate the assumptions for multiple regression analysis.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
18/48
17
INSERT TABLE 8 HERE
To test the performance effects of the alignment between IR_RISK, BDGT_PART
and BDGT_USE, as predicted in H2, we run the following multiple regression.
MAN_PERF = b0+ b1IR_RISK + b2BDGT_PART + b3BDGT_USE +b4IR_RISK*BDGT_PART + b5IR_RISK*BDGT_USE +
b6BDGT_PART*BDGT_USE+b7IR_RISK*BDGT_PART*BDGT_USE + b8Log (SIZE) + e
where MAN_PERF = managerial performance, IR_RISK = Industrial relations risk,
BDGT_PART = budgetary participation, BDGT_USE = Budget use; and Log (SIZE) = the
control variable (the log of the number of employees). The interaction term, b4, predicts the
positive association between IR_RISK and BDGT_PART affecting MAN_PERF. The
interaction term, b5, predicts a positive link between IR_RISK and BDGT_USE affecting
MAN_PERF. The interaction term, b6, suggests a positive link between BDGT_PARTand
BDGT_USE affecting MAN_PERF. The three-way interaction term, b7, predicts that a
positive association between IR_RISK, BDGT_PART, and BDGT_USE is likely to be
associated positively with MAN_PERF. In accepting or rejecting the hypotheses, our main
focus is on interaction coefficients (Southwood, 1978). However, we also explore the effects
without the interaction. The results of this exercise are presented in Table 9.
INSERT TABLE 9 HERE
The results appear in Panel A of Table 9 show that while budgetary participation has
a direct positive impact on MAN_PERF(Coefficient = 0.29, t = 2.02, p = 0.04), IR_RISK and
BDGT_USEhave no significant impact on managerial performance. The data in Panel B of
Table 9 reveal no significant interactions between (a) IR_RISK and BDGT_PART, (b)
IR_RISK and BDGT_USE, and (c) BDGT_PART and BDGT_USE to affect MAN_PERF.
However, consistent with our H2, the regression results presented in Panel B of Table 9
indicate a significant three-way interaction between IR_RISK, BDGT_PART, and
BDGT_USEon MAN_PERF (Coefficient = 0.49, t = 2.38, p = 0.02). The F value associated
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
19/48
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
20/48
19
participation is likely to result in a positive association between a high level of industrial
relations risk and managers increased use of budgets in performance evaluation.
INSERT TABLE 10 HERE
Fourth, with regard to H2, we run regression analyses between the dependent and
independent variables using each of the four industrial relations risk factors. Interestingly,
while not presented here, all industrial relations risk factors except linkage of trade unions
with national political parties produce consistent results throughout. This industrial relations
risk factor does not correlate with budget use.
Finally, we use ANOVA to test the interaction effects of industrial relations risk,
budgetary participation, and budget use on managerial performance, as predicted in H2. The
results presented in Table 11 indicate a significant three-way interaction between budgetary
participation, budget use, and industrial relations risk on managerial performance. The F
value associated with this interaction is 7.41 at a significance level (p = 0.01). These results
tally with the regression results presented in Table 9. However, contrary to the results in
Table 9, ANOVA reveals that budgetary participation and budget use interact significantly (F
= 2.58; p = 0.05) to affect managerial performance.
INSERT TABLE 11 HERE
DISCUSSION AND CONCLUSIONS
This paper sought to provide additional empirical evidence on the performance effects of
the association between budget-related behaviour and environmental factors. Prior
contingency-based research in an advanced country context neglected the industrial relations
model explained 21.4 percent (adjusted R2) of the budget use. Further, we found that a relatively high level of
budgetary participation in conditions of a relatively high level of industrial relations risk has the highest mean budgetuse (mean = 6.09). On the other hand, a relatively low level of budgetary participation in conditions of a relatively highlevel of industrial relations risk also has the lowest mean budget use (mean = 3.62). These additional results are alsoconsistent with our exopectation, as hypothesized.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
21/48
20
environment as a potential predictor of management control systems designs and performance.
The only contingency-based study research to include the industrial relations environment was
conducted in a developing country - Bangladesh (Hoque and Hopper, 1997). Using the results
obtained from a survey of 55 coal-mining companies in Australia, we attempted to redress this
apparent gap in prior research.
Our regression analysis indicated that under conditions of high industrial relations risk,
organizational managers would tend to use budgets to a lesser extent during performance
evaluation. Further, the results also revealed that under high industrial relations risk managers
would tend to use budgets to a greater extent only when they would be allowed to participate in
setting their organizations budgets. These results imply that where there is a high industrial
relations risk, business unit managers see budgetary participation as having a more important
role to play in organizational decision making and control processes. These results, however,
do not support Hoque and Hoppers (1997) results that where industrial relations risk is high,
budget participation is low. An explanation can be attributed to the nature of the industrial
relations environment in the two nations. For example, there are very substantial differences in
the industrial relations environments between Bangladesh and Australia. Bangladesh has a
long history of political instability, which is linked to a turbulent industrial relations climate. Most
national political parties have affiliated trade unions in the industrial sectors and the intimacy
between trade unions and politicians means that national politics have ramifications for the
economy. Workers frequently participate in violent demonstrations, strikes and work stoppages
called by the opposition parties. Bangladeshi managers often complain that politicians directly
intervene into the affairs of their organizations in contravention of formally agreed plans in order
to ameliorate labor crises and to foster their political ends thereby rendering budget plans
meaningless (Hoque and Hopper, 1994 and 1997). Politics and industrial relations in Australia,
however, interact differently. Although most unions affiliate to the Labour Party, the link is not a
strong one. The Labour Party does not call strikes, and whether it became involved in disputes
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
22/48
21
would depend on the degree to which the dispute itself had become political (Barry, Bowden
and Brosnan, 1998; Hampson and Morgan, 1998; Barry, 1999; Bowden, 2000).
The regression analysis provided evidence to suggest that under conditions of high
industrial relations risk, managers use of budgets in performance evaluation would result in
high managerial performance only when managers are highly involved in setting budgets for
their units. On the other hand, the data analysis revealed no significant interaction between
industrial relations risk and budget use affecting managerial performance. However, additional
ANOVA indicates that budgetary participation and budget use appeared to have a significant
combined (interaction) effect on managerial performance. That is, heavy reliance on budgets in
performance evaluation should be accompanied by high budget participation to enhance
managerial performance. These results are consistent with prior research on the performance
effects of the relation between budget participation and budget use (e.g. Brownell, 1982;
Brownell and Dunk 1991). Our results, however, do not support the Dunk (1989) study, which
suggested that high (low) participation together with high (low) budget use would lower
performance, rather than increasing it (Dunk, 1989, p. 323). Note the findings of our study and
that of previous studies need to be interpreted with caution, as performance may be dependent
on several other factors (Donaldson, 2001), which we have not measured in this study.
What have we learned from this study? An assumption underlying much of behavioral
literature is that employee involvement or managerial participation in decision-making will lead
to higher performance because employee involvement seeks to increase the input of members
of the organization into decisions that affect performance and employee well-being (Lawler,
1986; Lawler, et al., 1995; Glew, et al., 1995; in accounting Hopwood, 1972; Brownell, 1982; for
more references, see Shields and Shields, 1998). In this study, managerial participation in
budgeting appeared to be a significant factor under conditions of high industrial relations risk.
This result is consistent with the organization theory literature, which suggests that under
conditions of risky business environment, more organic forms of organization achieve high
levels of employee productivity (Burns and Stalker, 1961; Woodward, 1965).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
23/48
22
There is much contingency-based research (Chapman, 1997; Chenhall, 2003), which
finds that financial control tools such as budgets are ineffective in an unpredictable business
environment. While we do not debate such a fundamental theory, our results support the recent
argument (Shields and Shields, 1998; Chapman, 1998; Chenhall, 2003) that the budget can be
an important motivational tool when it is supported by high levels of participation via formal and
informal communication among organizational members. The results presented in this paper
suggest that organizations benefit from increasing their use of budgets under conditions of risky
industrial relations environment when there are high levels of employee involvement in setting
budgetary goals. In an unpredictable business environmental situation, Galbraith (1973), Van de
Ven (1976) and Macintosh and Daft (1987) suggest similar strategies for organizations.
As discussed above, the industrial relations environments in Bangladesh and Australia
are very different, but the Bangladeshi jute industry and Australian coal mining industry are both
key export industries, which are subject to industrial stoppages. We found only moderate levels
of labor union activities in this Australian study (see Table 2), and, as anticipated, the linkage of
trade unions with national political parties was of little concern (mean 2.65 out of a possible 7).
This contrasts with Hoque and Hoppers (1997) study that found a high level of industrial
relations activities with respect to each of the four industrial relations factors used in the current
study (mean scores ranged from 3.80 to 4.23 on a scale of 1-5).
This studys finding that industrial relations risks appeared to have significant effects on
performance through high levels of budgetary participation and high levels of budgets use in
performance evaluation in the Australian coal mining industry is an important one. It confirms
the view of Armstrong (1994) and other authors that industrial relations affects the design and
use of budgeting in organizations.
Limitations of the Study
The findings presented in this paper must be interpreted with caution because the current study
has limitations. One important limitation of this study is that it is constrained to coal mining
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
24/48
23
companies only. Therefore, generalizing the results of this study to other sectors should be
made cautiously. Nonetheless, the Australian mining industry is not a unique setting; the
industrial relations factors of concern can also be found in other settings in Australia and
overseas.
Like any self-reports survey research, the another limitation of this study is that it
collected data on measures from the same source (business heads) which is the well known
problem of common method or samesource variance (Campbell and Fiske, 1959; Fiske, 1982;
cited in Podsakoff and Organ, 1986, p.533). There is the view (Podsakoff and Organ, 1986,
p.533) that two measures obatined from same-source self-reports may each overlap with the
variance in their domain, therefore, the correlation between the two variables could erroneously
lead the researcher(s) to infer a substative relationship. However, in this study we attempt to
minimize such a common method variance by applying multiple techniques of data analyses
such as factor analysis, partial correlations, t-tests, regression analyses and ANOVA. Further,
the pilot study revealed that as this study was about management control and environmental
issues, heads of firms (General Managers) would be the most knowlegeable people to
participate in the survey.12
Implications for Future Research
The results presented in this paper have significant implications for future MCS research
studies. Many more issues and contexts need to be researched. While this study and Hoque
and Hoppers (1997) work show that industrial relations are important in determining budget
behavior in developing countries and advanced countries in industries with high levels of
industry disputation, how important are industrial relations in industries with lower levels of
industrial relations activity? Would the results be the same in both a developing country and
advanced country context? The other big question that arises, and which has not been
12For more details about the problems of self-report research, refer to Podsakoff and Organ (1986).
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
25/48
24
investigated here, is what is the role of trade unions? Is there a place for union participation in
budget setting too, and would that further improve managerial performance? Clearly, future
research may attempt to devlop and test theoretical models around these important topics that
have received relatively less attention by prior MCS research.
Additional research may be conducted to develop stories from the mines using the case
study approach as to how management control via budgeting and other type of performance
measurement and control work in organizational (and social) contexts. Future research could
also explore to find out whether a different finding would be revealed if contrasting companies in
the mining sector with those in another sector that is not so strike prone. As this study is based
on a single industry, future research also needs to develop and test a theoretical model using
cross sectional firms in multiple sectors to examine the extent that the alignment between the
organizations wider external and internal environments and use of multiple MCS components in
combination produces superior performance. Industries in other countries differ from their
Australian counterparts. This may be so because of legal and regulatory constraints and
industrial relations policies that might differ among countries. Therefore, future research also
may be designed to compare the findings in this study with findings that relate to industries in
other countries.
Notwithstanding these limitations, this study is the first to empirically examine the
performance effects of the alignment between the industrial relations environment, budgetary
participation, and budget use. The findings of this study contribute significantly to future studies
on the design and effectiveness of MCS in organizations.
REFERENCES
Abernethy, M. A. and Stoelwinder, J. U. 1991. Budget use, task uncertainty, system goalorientation and subunit performance: a test of the fit hypothesis in not-for-profithospitals. Accounting, Organizations and Society. 16, 105-120.
Amernic, J.H. 1985. The role of accounting in collective bargaining. Accounting, Organizationsand Society. 10, 227-253.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
26/48
25
Anderson, S. W. and Young, S.M. 1999. The impact of contextual and process factors on the
evaluation of activity-based costing systems. Accounting, Organizations and Society.24,525-559.
Argyris, C. 1952. The Impact of Budgets on People. New York, NY: Controllership Foundation.
Argyris, C. 1953. Human problems with budgets. Harvard Business Review31 (1), 97-110.
Armstrong, P. 1987. The rise of accounting controls in British capitalist enterprises. Accounting,Organizations and Society. 12, 415-436.
Armstrong, P. 1994. Corporate control in large British large British companies: the intersectionof management accounting and industrial relations in postwar Britain. In A. G. Hopwoodand P. Miller. (Eds.), Accounting as social and institutional practice: 190-210.Cambridge: Cambridge University Press.
Armstrong, P., Marginson, P., Edwards, P. and Purcell J. 1996. Budgetary control and the laborforce: findings from a survey of large British companies. Management AccountingResearch. 7, 1-23.
Arnold, P.J. 1998. The limits of postmodernism in accounting history: the Decatur experiment.Accounting, Organizations and Society. 23, 665-684.
Barry, M. 1999. Employer associations in coal mining. In P. Sheldon and L. Thornthwaite(Eds.), Catalysts and captives: employer associations and industrial relations change inAustralia:115-137. Sydney: Allen and Unwin.
Barry, M., Bowden, B. and Brosnan, P. 1998. The fallacy of flexibility: workplace reform in the
Queensland open cut coal industry. Sydney: Allen and Unwin.
Berry, A. J., Capps, T., Cooper, D. J., Ferguson, P., Hopper, T. M. and Lowe, E. A. 1985.Management control in an area of the NCB: rationales of accounting practices in apublic enterprise. Accounting, Organizations and Society. 10, 3-28.
Boulianne, E. 2002. Linking strategic choices and management accounting systems scope: anempirical analysis, In Epstein, M. J. and Manzoni, J-F (eds), Performance Measurementand Management Control: A Compendium of Research, Studies in Managerial andFinancial Accounting, Vol. 12, pp. 49-60, JAI-Elsevier.
Bowden, B. 2000. A collective catastrophe: productivity maximisation and workplace bargaining
in the Australian coal industry. Journal of Industrial Relations. 42, 364-382.
Brown, J. 2000. Labour perspectives on accounting and industrial relations: a historical andcomparative review. Labour Studies Journal. 25, 40-74.
Brownell, P. 1981. Participation in budgeting, locus of control and organizational effectiveness.Accounting Review. 56, 844-860.
Brownell, P. 1982. The role of accounting data in performance evaluation, budgetaryparticipation and organizational effectiveness. Journal of Accounting Research. 20, 12-27.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
27/48
26
Brownell, P. 1983. Leadership style, budgetary participation and managerial behaviour.Accounting, Organizations and Society. 8, 307-321.
Brownell, P. 1985. Budgetary systems and the control of functionally differentiatedorganizational activities. Journal of Accounting Research. 23, 502-512.
Brownell, P. and Dunk, A. S. 1991. Task uncertainty and its interaction with budgetaryparticipation and budget emphasis: some methodological issues and empiricalinvestigation. Accounting, Organizations and Society. 16, 693-703.
Brownell, P. and Hirst, M. 1986. Reliance on accounting information, budget participation andtask uncertainty: test of a three-way interaction. Journal of Accounting Research. 24,24-49.
Brownell, P. and McInnes, J. M. 1986. Budgetary participation and managerial performance.The Accounting Review. 61, 587-600.
Bruns, W.J., Jr. and Waterhouse, J.H. 1975. "Budgetary Control and Organization Structure",Journal of Accounting Research, 13(2), pp.177-203
Burns, T. and Stalker, G. M. 1961. The management of innovation. London: Tavistock.
Campbell, J. P. and Fiske, D. W. 1959. Convergent and discriminant validation by the multitrait-multimethod matrix. Psychological Bulletin, 56, 81-105.
Carmona, S., Ezzamel, M. and Gutirrez. 2003. Control and cost accounting practices in theSpanish Royal Tobacco Factory. Accounting, Organizations and Society. 22, 411-446.
Chandler, A.D. Jr. 1962. Strategy and Structure. Boston, MA: M.I.T.
Chapman, C. S. 1997. Reflections on a contingent view of accounting. Accounting,Organizations and Society. 22, 189-205.
Chapman, C. S. 1998. Accountants in organizational networks. Accounting, Organizations andSociety. 23, 737-766.
Chenhall, R. H, and Brownell, P. 1988. The effect of participative budgeting on job satisfactionand performance: role ambiguity as an intervening variable. Accounting, Organizationsand Society, 13, 225-233.
Chenhall, R. H. 2003. Management control systems design within its organizational context:
findings from contingency based research and directions for the future. Accounting,Organizations and Society. 28, 127-168.
Chenhall, R. H. and Chapman, C. 2006. Theorising and testing fit in contingency research onmanagement control systems. In Hoque, Z. (ed), Methodological Issues in AccountingResearch: Theories and Methods. Chapter 4, 35-52. Spiramus, London.
Clegg, H. A. 1972. The system of industrial relations in Great Britain. Oxford: Blackwell.
Covaleski, M.A., Dirsmith, M.W. and Samuel, S. 1996. Managerial accounting research: Thecontributions of organizational and sociological theories. Journal of ManagementAccounting Research. 8, 1-35.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
28/48
27
Covaleski, M. A., Evans III, J. H., Luft, J. L. and Shields, M. D. 2003. Budgeting research: three
theoretical perspectives and criteria for slective integration. Journal of ManagementAccounting Research. 15, 3-50.
Cummings, T. G. and Worely, C. G. 1997. Organization development and change. Cincinnati:South-Western College Publishing.
Davidson, p. and Griffin, R. W. 2006. Management, 3rd Australian Edition, John Wiley & Sons,Queensland, Australia.
Donaldson, L. 2001. The Contingency Theory of Organizations. Sage Publications, London.
Drazin, R. and Van de Ven, A. H. 1985. Alternative forms of fit in contingency theory.Administrative Science Quarterly. 30, 514-539.
Dufty, N. F. and Fells, R. E. 1989. Dynamics of industrial relations in Australia. Burwood:
Prentice Hall.
Dunk, A. 1989. Budget emphasis, budgetary participation and managerial performance: A note.Accounting, Organizations and Society. 14, 321-324.
Edwards, J. R. and Newell, E. 1991. The development of industrial cost and managementaccounting before 1850: a survey of the evidence, Business History. 33(1), 35-57.
Ezzamel, M. 1990. The impact of environmental uncertainty, managerial autonomy and size onbudget characteristics. Management Accounting Research. 1, 181-197.
Ezzamel, M. Wilmott, H. and Worthington, F. 2004. Accounting and management-labour
relations; the politics of production in the factory with a problem. Accounting,Organizations and Society29(3-4), 269-302.
Feltham, G. A. 1979. Cost aggregation: an information economic analysis. Journal ofAccounting Research, 15, 42-70.
Fisher, J. G., Fredrickson, J. R., and Pfeffer, S. A. 2000. Budgeting: an experimentalinvestigation of the effects of negotiation. The Accounting Review, 75 (January), 93-114.
Fisher, J. G., Maines, L. A., Pfeffer, S. A. and Sprinkle, G. B. 2002. Using budgets forperformance evaluation: effects of resource allocation and horizontal informationasymmetry on budget proposals, budget slack, and performance. The Accounting
Review, 77(4), 847-865.
Fiske, D. W. 1982. Convergent-discriminant validation in measurements and researchstrategies. In D. Brinberg and L. Kidder (Eds.), New Directions for methodology of socialand behavioral science: Forms of validity in research (No. 12, pp. 77-92). SanFrancisco: Jossey-Bass.
Fleischman, R. K. and Parker, L. D. 1991. British entrepreneurs and pre-industrial revolution:evidence of cost management. The Accounting Review. 66(2), 361-375.
Foster, G. and Sjoblom, L. 1996. Quality improvement drivers in the electronics industry.Journal of Management Accounting Research8, 55-86.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
29/48
28
Galbraith, J. R. 1973. Designing Complex Organizations. Reading: Addison-Wesley.
Galbraith, J.K. 1977. Organization Design. Reading:Addison-Wesley.
Glew, D., OLeary-Kelly, A., Giffin, R. and Van Fleet, D. 1995. Participation in organizations: Apreview of the issues and proposed framework for future analysis. Journal ofManagement. 21, 395-421.
Gerdin, J. and Greeve, J. 2004. Forms of contingency fit in management accounting research a critical review. Accounting, Organizations and Society29(3-4), 303-326.
Golembiewski, R. T. 1964. Accountancy as a function of organization theory. The AccountingReview39, 333-341.
Gordon, L.A. and Narayanan, V.K. 1984. Management Accounting Systems, PerceivedEnvironmental Uncertainty and Organizational Structure: An Empirical Investigation,
Accounting, Organizations and Society 9(1), 330-348.
Govindarajan, V. 1984. Appropriateness of accounting data in performance evaluation: anempirical examination of environmental uncertainty as an intervening variable.Accounting Organizations and Society. 9, 125-136.
Govindarajan, V. 1986. Impact of participation in the budgetary process on managerial attitudesand performance: Universalistic and contingency perspectives. Decision Science, 17,496-516.
Hampson, I. and D. E. Morgan. 1998. Continuity and change in Australian industrial relations:recent developments. Industrial Relations/Industrielle. 53, 564-589.
Hansen, S. C., Otley, D. T. and Vad der Stede, W. A. 2003. Practice developments inbudgeting: an overview and research perspective. Journal of Management AccountingResearch, 15, 95-116.
Hartmann, F. G. H. and F. Moers. 1999. Testing contingency hypotheses in budgetary research:an evaluation of the use of moderated regressional analysis. Accounting, Organizationsand Society. 24, 291-315.
Hilton, R. 1979. The determinants of cost information value: an illustrative analysis. Journal ofAccounting Research, 17, 411-435.
Hofstede, G. H. 1967. The Game of Budget Control. London: Tavistock.
Hopper, T. and Armstrong, P. 1991. Cost accounting, controlling labour and the rise ofconglomerates. Accounting, Organizations and Society. 16, 105-120
Hopwood, A. G. 1973. An Accounting System and Managerial Behaviour. London: SaxonHouse.
Hopwood, A. G. 1976. Accounting and Human Behavior. Englewood Cliffs, NJ: Prentice Hall.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
30/48
29
Hoque, Z. and Hopper, T. 1994. Rationality, accounting and politics: a case study ofmanagement control in a Bangladeshi jute mill. Management Accounting Research. 5,5-30.
Hoque, Z. and Hopper, T. 1997. Political and industrial relations pressure, competition andbudgeting in the nationalized jute mills of Bangladesh. Accounting and BusinessResearch. 27(2), 125-143.
Hoque, Z. and James, W. 2000. Linking size and market factors to balanced scorecards: impacton organizational performance. Journal of Management Accounting Research. 12, 1-17.
Hyman, R. 1975. Industrial Relations: A Marxist Introduction. Macmillan, London.
International Labour Office. 2001. Yearbook of labour statistics. Geneva: International LabourOffice.
Kanodia, C. 1993. Participative budgets as coordination and motivational devices. Journal of
Accounting Research31 (2): 172-189.
Kim, K. K. 1988. Organizational coordination and performance in hospital accountinginformation systems: an empirical investigation. The Accounting Review, LXIII (3), 472-489.
Lawler III, E. 1986. High involvement management. San Francisco: Jossey-Bass.
Lawler III, E., Mohrman, S., and Ledford, G. 1995. Creating high performance organization. SanFrancisco: Jossey-Bass.
Lawrence, P. R. and Lorsch, J. 1967. Organizations and environment. Boston: Division of
Research, Harvard Business School.
Ledford, G., and Lawler, E. 1994. Research on employee participation: beating a dead horse?Academy of Management Review. 19, 633-636.
Lee, M. 2002. The Gordonstone coal dispute: rights, remedies and union exclusion under theWorkplace Relations Act. Griffith Law Review11,169-197.
Libby, T. and Waterhouse, J. H., 1996. Predicting Change in Management AccountingSystems, Journal of Management Accounting Research, Volume 8, pp. 137-150.
Macintosh, N. and Daft, R. 1987. Management control systems and departmental
interdependencies: an empirical study. Accounting, Organizations and Society. 12, 49-64.
Mahoney, T. A., Jerdee, T. H. and Carroll, S. J. 1963. Development of managerial performance:a research approach. Cincinnati: South-Western Publishing.
Margerison, C. J. 1969. What do we mean by industrial relations. British Journal of IndustrialRelations, 8, 273-286.
Merchant, K. 1981. The design of the corporate budgeting system: Influences on managerialbehavior and performance. The Accounting Review56 (4), 813-829.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
31/48
30
Merchant, K. A. 1984. Influences on Departmental Budgeting: An Empirical Examination of aContingency Model, Accounting, Organizations and Society. 291-310.
Merchant, K. and Manzoni, J-F. 1989. The achievability of budget targets in profit centers: a fieldstudy. The Accounting Review. 64(3), 539-558.
Mia, L. 1993. The Role of MAS Information in Firms: An Empirical Study, The British AccountingReview25: 269-285.
Milani, K. W. 1975. The relationship of participation in budget-setting to industrial supervisorperformance and attitudes: a field study. The Accounting Review. 50, 274-284.
Miles, R. E. and Snow, C. C. 1978. Organizational strategy, structure and process. New York:McGraw Hill.
Miller, P. and OLeary, T. 1993. Accounting expertise and the politics of the product: economiccitizenship and modes of corporate governance. Accounting, Organizations and Society.
18(2/3), 187-206.
Miller, P. and OLeary, T. 1994. Accounting, economic citizenship and the spatial reordering ofmanufacture. Accounting, Organizations and Society. 19, 15-43.
Nunnally, J. D. 1978. Psychometric theory(2nd ed.). New York: McGraw-Hill Book Co.
OReilly, J. and Fagan, C. 1998. Part-time prospects. London: Routledge.
Ogden, S. 1997. Accounting for organizational performance: the construction of the customer inthe privatised water industry. Accounting, Organizations and Society. 22(6), 529-556.
Ogden, S. and Bougen, P.D. 1985. A radical perspective on the disclosure of accountinginformation to trade unions. Accounting, Organizations and Society. 10, 211-224.
Otley, D. T. 1978. Budget Use and Managerial Performance. Journal of Accounting Research.16, 122-49.
Otley, D. T. 1980. The contingency theory of management accounting: achievement andprognosis. Accounting, Organizations and Society. 5, 413-428.
Owen, D.L. and Lloyd, A.J. 1985. The use of financial information by trade union negotiators inplant level collective bargaining. Accounting, Organizations and Society. 10, 329-350.
Panozzo, I. 1997. The making of the good academic accountant. Accounting, Organizations andSociety. 22(5), 447-480.
Pizzini, M. J. 2006. The relation between cost-system design, managers evaluations of therelevance and usefulness of cost data, and financial performance: an empirical study ofUS hospitals. Accounting, Organizations and Society. 31, 179-210.
Podsakoff, P. M. and Organ, D. W. 1986. Self-reports in organizational research: problems andprospects, Journal of Management, 12(4), 531-544.
Pollard, S. 1965. The Genesis of Modern Management. Cambridge, MA: Harvard UniversityPress.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
32/48
31
Shields, J. F., and Shields, M. D. 1998. Antecedents of participation budgeting. Accounting,
Organizations and Society. 23, 49-76.
Stedry, A. 1960. Budget Control and Cost Behavior. Englewood Cliffs, NJ: Prentice Hall.
Swieringa, R. and Moncur, R. 1975. Some effects of participative budgeting on managerialbehavior. New York: National Association of Accountants.
Thompson, J.D. 1967. Organizations in action. New York: McGraw Hill.
Van de Ven, A. H. and Drazin, R. 1985. The concept of fit in contingency theory. In Staw, B. M.and Cummings, L. L. (Eds.), Research in Organizational Behavior. 7, 333-365.Greenwich, Conn.: JAI Press.
Van de Ven, A. H., Delbecq, A. L. and Koenig, R. Jr. 1976. Determinants of co-ordinationmodes within organizations. American Sociological Review. 41, 322-338.
Waring, P. and Barry, M. 2001. The changing frontier of control in coal: evidence from a decadeof enterprise bargaining in the Australian black coal industry. Australian Bulletin ofLabour. 27, 216-237.
Woodward, J. 1958. Management and Technology. Her Majestys Printing Office, London.
Woodward, J. 1965. Industrial organization: theory and practice. London: Oxford UniversityPress.
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
33/48
32
APPENDIX
SURVEY INSTRUMENT
Questions about Industrial Relations Environment [Source: Hoque and Hopper, 1997]
This section focuses on your plants (mining) industrial relations environment relative to otherplants in the mining industry. Please indicate how much impact has each of the followingindustrial relations activities on your plants operations and business environment, on a 7-point Likert scale ranging from 1 (of negligible impact) to 7 (very large impact):
1. Action of elected labor union officials,
2. Internal conflicts among labor unions,
3. Strikes/work-stoppages,
4. Linkage of labor unions with national political parties.
Questions about Budgetary Participation [Source: Milani, 1975]
The following items can be used to describe the role that you play in the development of thebudget for your plant. Please respond by circling the appropriate number on each of thecontinuums provided to which extent you believe is your involvement in the budget process.
a) Which category below best describes your activity in setting the budget? I am/wasinvolved in setting(none of the budget = 1 to all of the budget = 7)
b) Which category below best describes the reasoning provided by your superior whenbudget revisions are made? The reasoning is ... (very arbitrary and/or illogical = 1 tovery sound and/or logical = 7)
c) How often do you state your requests, opinions and/or suggestions about the budget toyour superior without being asked? (Never = 1 to Very frequently = 7)
d) How much influence do you feel you have on the final budget? (Very low = 1 to Veryhigh = 7)
e) How do you view your contribution to the budget? My contribution is ... (Unimportant =
1 to Very important = 7)
f) How often does your superior seek your requests, opinions, suggestions etc when thebudget is being set? (Never = 1 to Very frequently = 7)
Questions about the use of Budgetary Information [Source: Swieringa and Moncur(1975); Abernethy, M. A. and Stoelwinder, J. U. 1991]
This section focuses on your plants use of budgetary information during performanceevaluation. Please indicate, by placing one number (1, 2, or 3 etc) in the boxes provided, theextent to which each of the following five items relating to the use of budgets in performance
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
34/48
33
evaluation is describing managerial behavior. Please use the following response options as aguide.
Response options:
1 2 3 4 5 6 7
To a very littleextent
Moderate To a very greatextent
1. Require submitting explanations concerning budget variances,
2. Investigate items that are overspent,
3. Hold personally accountable for budget variances,
4. Meeting budget important to superior,
5. Sub-units are evaluated on budget performance.
Questions about Managerial Performance [Source:Mahoney, T. A., Jerdee, T. H. andCarroll, S. J. 1963]
Please indicate, on a 7-point Likert scale, as shown below, ranging from 1 (significantlybelow average) to 7 (significantly above average), your performance in the last 3 years inthe following areas:
Planning: Determining goals, policies and courses of action, workscheduling.
1 2 3 4 5 6 7
Investigating: Collecting and preparing information for records,reports and accounts measuring output or service qualityinventorying
1 2 3 4 5 6 7
Coordinating: Exchanging information with people in otherdepartments and divisions in the organizations in theorganization I order to relate and adjust programs.
1 2 3 4 5 6 7
Evaluating: Assessment and appraisal of proposal or of reported/observed performance, records/financial reports.
1 2 3 4 5 6 7
Supervising: Directing, leading and developing your subordinatescounseling training and explaining work rules to subordinatesassigning work and handling complaints
1 2 3 4 5 6 7
Staffing: Maintaining the work force of your department recruitinginterviewing and selecting new employees, placing, promotingand transferring employees.
1 2 3 4 5 6 7
Negotiation: Purchasing, selling or connecting for goods and
services, contacting, suppliers, dealing with sales
1 2 3 4 5 6 7
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
35/48
34
representatives.
Representating: Attending conventions, business club meetings,community drives, advancing the general interests of yourorganization
1 2 3 4 5 6 7
Overall performance 1 2 3 4 5 6 7
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
36/48
35
TABLE 1
Profile of the Responding Firms
Number of employees Frequency Percentage
0 149 12 21.82
150 299 10 18.18
300 449 9 16.36
450 999 15 27.28
1000 and above 9 16.36
Total 55 100.00
Ownership pattern:
Privately owned
Government owned
Joint venture
Total
49
2
4
55
89.09
3.64
7.27
100.00
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
37/48
36
TABLE 2Descriptive Statistics, Correlation, and Factor Analysis of the Industrial
Relations Risk Variables
Variable ObservedRange* Mean Median
StandardDeviation
FactorLoadings**
Descriptive Statistics:
Actions of labor unionofficials (IR_UNION)
1 7 4.16 4 1.82 0.89
Strikes/work-stoppages(IR_STRIKES)
17 4.49 3 1.98 0.87
Internal conflicts among
labor unions(IR_CONFLICT)
1 7 3.91 2 1.83 0.86
Linkage of labor unions withnational political parties(IR_LINK)
1 7 2.65 2 1.65 0.76
Correlation Matrix: IR_UNION IR_STRIKES IR_CONFLICT IR_LINKIR_UNION 1.00IR_STRIKES 0.60** 1.00IR_CONFLICT 0.77** 0.69** 1.00IR_LINK 0.49** 0.66** 0.51** 1.00
*Theoretical range, 1 7; ** Principal component analysis: Percentage of total varianceexplained = 71.53; N = 55
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
38/48
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
39/48
38
TABLE 3 Contd
Panel B: Correlations between budgetary participation variables and Factor Matrix (N = 55)
Variables 1 2 3 4 5 6
1. Which category below bestdescribes your activity insetting the budget? I am/wasinvolved in setting
1.00
2. Which category below bestdescribes the reasoningprovided by your superiorwhen budget revisions are
made. The reasoning is....
.22* 1.00
3. How often do you state yourrequests, opinions and/orsuggestions about the budgetto your superior without beingasked?
.31* 22* 1.00
4. How much influence do youfeel you have on the finalbudget?
.58** .40** .44** 1.00
5. How do you view yourcontribution to the budget? .57** .27* .42** .73**
1.00
6. How often does your superiorseek your requests, opinions,suggestions etc when thebudget is being set?
Factor LoadingsPercentage of variance explained =52.37
.38*
.73
.13
.46
.35**
.62
.54**
.88
.56**
.86
1.00
.71
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
40/48
39
TABLE 4Descriptive Statistics, Correlation, and Factor Analysis Results for the Budget
Use Variables
Variable ObservedRange* Mean Median
StandardDeviation
FactorLoadings**
Descriptive Statistics:
You are required to submit anexplanation in writing of thecauses of budget variances(BDGT_EXP)
1 7 4.67 5.00 1.74 0.80
You are required to investigateitems which are overspent(BDGT_SPENT)
1 7 5.07 5.00 1.50 0.85
You are held personallyaccountable for budgetvariances (BDGT_ACC)
1 7 4.20 4.00 1.78 0.43
Meeting the budget isimportant to your superior(BDGT_MEET)
1 7 5.87 6.00 1.07 0.75
Sub-units are evaluated onbudget performance
(BDGT_SU)
1 7 4.98 5.00 1.66 0.83
Correlation Matrix:
Variables BDGT_EXP BDGT_SPENT BDGT_ACC BDGT_MEET BDGT_SU
BDGT_EXP1.00
BDGT_SPENT0.65** 1.00
BDGT_ACC0.36** 0.20 1.00
BDGT_MEET 0.37** 0.58** 0.15 1.00
BDGT_SU0.55** 0.60** 0.25* 0.59**
1.00
*Theoretical range, 1 7; ** Principal component analysis: Percentage of total varianceexplained = 56.05; N = 55
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
41/48
40
TABLE 5Summary Descriptive Statistics of Managerial Performance Variables (N = 55)
Components TheoreticalRange
ObservedRange
Mean Median StandardDeviation
Planning related performance 1 - 7 1 - 7 5.60 6.00 1.03
Investigating related performance 1 - 7 1 - 7 5.51 6.00 0.94
Coordinating related performance 1 - 7 1 - 7 5.18 5.00 1.00
Evaluating related performance 1 - 7 1 - 7 5.15 5.00 1.11
Supervising related performance 1 - 7 1 - 7 5.20 6.00 1.48
Staffing related performance 1 - 7 1 - 7 4.80 5.00 1.63
Negotiating related performance 1 - 7 1 - 7 4.27 4.00 1.60
Representing related performance 1 - 7 1 - 7 3.93 4.00 1.54
Overall managerial performance 1 - 7 1 - 7 5.44 6.00 0.88
Note: Scale, 1-7; 1, significantly below average; 7, significantly above average
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
42/48
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
43/48
TABLE 7Correlation Matrix (Pearson Zero-Order Correlation Coefficients) for Summed
Variable IR_RISK BDGT_PART BDGT_USE MAN_PERF
IR_RISK1.00
BDGT_PART 0.37** 1.00
BDGT_USE -0.26* 0.38** 1.00
MAN_PERF -0.19 0.24* 0.29* 1.00
Log (SIZE) 0.33* 0.07 0.23 0.22** p < 0.05; * p < 0.10 (Two-tailed).Definitions of variables: IR_RISK= Industrial relations risk; BDGT_PART= Budgetary puse; MAN_PERF =Managerial performance; Log (SIZE) = Firm size (log of the number of
-
8/7/2019 Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance - Impact on Ma
44/48
43
TABLE 8Hypothesis 1
Regression Results(Dependent Variable = Budget Use)
Panel A: Without Interaction Terms
Variables Coefficient StandardError
t-value Sig.(p-value)
Constant 1.60 1.04 1.54 0.12
IR_RISK 0.01 0.04 0.16 0.87BDGT_PART 0.05 0.03 0.21 0.12Log(SIZE) 1.05 0.39 2.65 0.01
Panel B: With Interaction Terms
Variables Coefficient Standarderror
t-value Sig.(p-value)
Constant 2.74 1.93 1.42 0.08
IR_RISK -0.02 0.05 -0.48 0.63BDGT_PART -0.02 0.06 -0.40 0.69IR_RISK*BDGT_PART 0.72 0.31 2.32 0.02
Log (SIZE) 0.01 0.01 0.57 0.57
Panel C: ANOVA
Adj. R2 F Sig. Sum ofSquare
Mean ofSquare
Estimate
Regression results:
Without InteractionTerms
0.201 3.86 0.01 28.97 9.65 1.60
With InteractionTerms
0.266 2.26