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 author’s 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: z.hoque@latrobe.edu.au

Acknowledgements: We gratefully acknowledge the financial support provided by the

Australian Research Council for this research. We appreciate the helpful comments and
suggestions of Michael Barry, Robert Chenhall, Kim Langfield-Smith, Ken Merchant, Wim
Van der Stede, Chris Chapman, Trevor Hopper, and seminar participants at Monash
University on an earlier draft.
Aligning Industrial Relations Risk, Budgetary Participation,
and Budgeting Measures of Performance: Impact on
Managerial Performance

ABSTRACT: While previous contingency studies in managerial accounting conceived

environmental or contextual factors as affecting control systems design such as
budgeting in terms of markets, technology, or task environment, not much prior
empirical research considered the industrial relations environment as an important
contextual factor affecting the design and functioning of organizational control systems.
In this study, industrial relations is a type of organizational risk arising from industrial
relations related actions such as employee work stoppages, actions of trade union
officials, conflicts between trade unions, and linkage of trade unions with national
political parties, which could be expected to play a significant role in an organization’s
control systems design and use.
Using Lawrence and Lorsch’s (1967) contingency theory of Organizations and
Environment, we extend the contingency management accounting research literature
by empirically assessing the performance consequences of the fit or alignment
between industrial relations risk, budgetary participation, and budgetary measures of
performance. More specifically, drawing from Drazin and Van de Ven’s (1985)
Alternative Forms of Fit in Contingency Theory this paper seeks to achieve two goals.
First, we examine whether greater use of budgetary information for performance
evaluation is likely to be dependent on the positive association between industrial
relations risks and budgetary participation. Second, we assess whether managerial
performance enhances when there is an alignment or fit between industrial relations
risk, budgetary participation, and budget use. The results from a sample of 55
Australian coal mining companies provide strong support for the hypotheses
developed. The results suggest that managerial performance improves with increasing
use of budgets in performance evaluation under increased industrial relations risk only
when there is a provision for high levels of employee budgetary participation. This
study adds to the limited knowledge of the interaction of accounting and industrial
relations in organizations.

Keywords: Contingency “fit” theory; mining industry; industrial relations; manageemnt

control 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,

1
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 management’s 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).

1
For recent evidence on budgeting research, refer to the “Forum on Budgeting” published in the issue 15 of the
Journal of Management Accounting Research (2003).
2
For a review of this literature, see Greenberg et al. (1993), Shields and Young (1993), Covaleski et al (1996),
and Shields and Shields (1998).

2
 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 Lorsch’s

(1967) contingency theory of Organizations and Environment and following Donaldson’s (2001)

ideas of Organisational Risk and Portfolio Theory within 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;

3
For 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).

3
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 1980’s 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 der
Stede, Chow and Lin (2006).

4
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 O’Leary’s (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., O’Reilly 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).

5
 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 fit or 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
6
(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 organization’s MCS design requires management’s knowledge of the organization’s

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 Hopper’s

5
For 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).
6
Jute, 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 manufactures
are 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 many
industrial 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 material
for electric and other cables.

7
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 O’Leary, 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

Armstrong’s (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 management’s

7
To 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
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 Australia’s 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

8
For a critical commentary on this and relevant issues, see Chenhall (2003).

9
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 plant’s

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 higher
levels of budgetary participation is likely to be associated with greater use of
budgets in performance evaluation.

Lawrence and Lorsch’s (1967) contingency theory focuses on the fit between

organizational arrangements and environments of organizations (Covaleski et al., 1996). As

10
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 budget
use in performance evaluation is likely to be associated with superior managerial
performance.

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,

11
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 <0.05) in the mean scores on the firm size (employment and sales

revenues) and type of organizations between the early and late responses. Similarly, t-tests

indicate no significant differences (at p < 0.01) between the responding and non-responding

firms on the basis of the size and the type of organizations. Taken together, these results

indicate no significant concern for the non-response bias.

12
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.

9
In 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 are
unrelated and that one would not expect them to form one or more factors (Bryman and Cramer, 1990). In this
study, most items within the multi-item scale are significantly correlated at less than the 0.05 level with one
another, 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.
13
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,

14
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_PART and negatively associated with BDGT_USE and 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.

15
SIZE is positively and significantly associated with IR_RISK. The correlations between SIZE

and BDGT_USE and MAN_PERF are 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

unit’s 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.

10
We 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 descriptive
statistics, the frequency distributions of values for various groups, and tests for normality and homogeneity of
variance. Graphical representations of the data through histograms, Stem-and-Leaf Plots and Box plots were
also performed as detective work. The Levene Test and the tests of normality (through normal plots, kurtosis and
skewness) were conducted to evaluate the assumptions for multiple regression analysis.

16
 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_PART and

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_USE have 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_USE on MAN_PERF (Coefficient = 0.49, t = 2.38, p = 0.02). The F value associated

17
with this interaction is 2.30 for the overall rating, at a significance level (p = 0.03). The

adjusted R2 is significantly higher (increased by 6 percent) with the interaction term.

Together, these results provide strong support for our hypothesis 2, suggesting that a

positive association or interaction between higher industrial relations risk, higher levels of

budgetary participation and increased use of budgets in performance evaluation is likely to

produce superior managerial performance.

Further Tests - Sensitivity Analysis

In order to validate the results presented above and to further explore the hypothesized

relationship, we perform several sensitivity analyses.

First, in our main analysis presented above, for multi-items variables we use arithmetic

averaged scores. We repeat our multiple regressions using factor scores and we find no

discernible differences between the two sets of results.

Second, although we measure firm size using number of employees, annual

revenues, and total assets employed, consistent with previous studies we report in this paper

only those results obtained using the number of employees as a proxy for size (Bruns and

Waterhouse, 1975; Merchant, 1981; 1984; Ezzamel, 1990; Libby and Waterhouse, 1996;

Hoque and James, 2000). We repeat the statistical analyses using each of the three

measures as a proxy for size, one at a time. The tests produce similar results throughout.

Third, with regard to H1, we run regression analysis using each of the four industrial

relations risk factors. The results appear in Table 10 indicate that the R2s for all four

regressions are significantly higher with the interaction terms than without the interaction

terms. In general, these results are consistent with the main regressions presented in Table

8.11 Based on these consistent results throughout we suggest that increased budgetary

11
We also performed regressions using the high/low budgetary participation by dichotomising budgetary participation
at the median. While not presented, the results demonstrate that the interaction between industrial relations risk and
budget use is not significant in conditions of low budgetary participation; whereas, the two-way interaction effect of
industrial relations risk and budgetary participation on budget use is significant. In this case the overall regression
18
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 budget
use (mean = 6.09). On the other hand, a relatively low level of budgetary participation in conditions of a relatively high
level of industrial relations risk also has the lowest mean budget use (mean = 3.62). These additional results are also
consistent with our exopectation, as hypothesized.

19
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 organization’s 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 Hopper’s (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

20
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).

21
 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 Hopper’s (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 study’s 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
22
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 same–source 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 Hopper’s (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

12
For more details about the problems of self-report research, refer to Podsakoff and Organ (1986).

23
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

organization’s 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.

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31
 APPENDIX

SURVEY INSTRUMENT

Questions about Industrial Relations Environment [Source: Hoque and Hopper, 1997]

This section focuses on your plant’s (mining) industrial relations environment relative to other
plants in the mining industry. Please indicate how much impact has each of the following
industrial relations activities on your plant’s 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 the
budget for your plant. Please respond by circling the appropriate number on each of the
continuums 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/was
involved 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 when
budget revisions are made? The reasoning is ... (very arbitrary and/or illogical = 1 to
very sound and/or logical = 7)

c) How often do you state your requests, opinions and/or suggestions about the budget to
your 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 Very
high = 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 the
budget 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 plant’s use of budgetary information during performance
evaluation. Please indicate, by placing one number (1, 2, or 3 etc) in the boxes provided, the
extent to which each of the following five items relating to the use of budgets in performance
32
 evaluation is describing managerial behavior. Please use the following response options as a
guide.

Response options:

1 2 3 4 5 6 7

To a very little Moderate To a very great

extent extent

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. and

Carroll, S. J. 1963]

Please indicate, on a 7-point Likert scale, as shown below, ranging from 1 (“significantly
below average”) to 7 (“significantly above average”), your performance in the last 3 years in
the following areas:

Planning: Determining goals, policies and courses of action, work 1 2 3 4 5 6 7

scheduling.

Investigating: Collecting and preparing information for records, 1 2 3 4 5 6 7

reports and accounts measuring output or service quality
inventorying

Coordinating: Exchanging information with people in other 1 2 3 4 5 6 7

departments and divisions in the organizations in the
organization I order to relate and adjust programs.

Evaluating: Assessment and appraisal of proposal or of reported/ 1 2 3 4 5 6 7

observed performance, records/financial reports.

Supervising: Directing, leading and developing your subordinates 1 2 3 4 5 6 7

counseling training and explaining work rules to subordinates
assigning work and handling complaints

Staffing: Maintaining the work force of your department recruiting 1 2 3 4 5 6 7

interviewing and selecting new employees, placing, promoting
and transferring employees.

Negotiation: Purchasing, selling or connecting for goods and 1 2 3 4 5 6 7

services, contacting, suppliers, dealing with sales
33
representatives.

Representating: Attending conventions, business club meetings, 1 2 3 4 5 6 7

community drives, advancing the general interests of your
organization

Overall performance 1 2 3 4 5 6 7

34
 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 49 89.09
Government owned 2 3.64
Joint venture 4 7.27
Total 55 100.00

35
 TABLE 2
Descriptive Statistics, Correlation, and Factor Analysis of the Industrial
Relations Risk Variables

Variable Observed Standard Factor

Range* Mean Median Deviation Loadings**

Descriptive Statistics:
Actions of labor union 1–7 4.16 4 1.82 0.89
officials (IR_UNION)
Strikes/work-stoppages 1–7 4.49 3 1.98 0.87
(IR_STRIKES)

Internal conflicts among 1– 7 3.91 2 1.83 0.86

labor unions
(IR_CONFLICT)

Linkage of labor unions with 1– 7 2.65 2 1.65 0.76

national political parties
(IR_LINK)

Correlation Matrix: IR_UNION IR_STRIKES IR_CONFLICT IR_LINK

IR_UNION 1.00
IR_STRIKES 0.60** 1.00
IR_CONFLICT 0.77** 0.69** 1.00
IR_LINK 0.49** 0.66** 0.51** 1.00
*Theoretical range, 1 – 7; ** Principal component analysis: Percentage of total variance
explained = 71.53; N = 55

36
 TABLE 3

Descriptive Statistics, Correlation, and Factor Analysis Results for the

Budgetary Participation Variables
Panel A: Descriptive statistics of budget participation related variables (N = 55)
Variables Theoretical Observed Mean Median Standard
Range Range Deviation
Which category below best 1 – 7 1-7 5.31 6.00 1.49
describes your activity in
setting the budget? I am/was
involved in setting…

Which category below best 1 – 7 2-7 5.35 6.00 1.17

describes the reasoning
provided by your superior
when budget revisions are
made. The reasoning is....

How often do you state your 1 – 7 1-7 5.35 5.00 1.31

requests, opinions and/or
suggestions about the budget
to your superior without being
asked?

How much influence do you 1 - 7 1-7 4.98 5.00 1.55

feel you have on the final
budget?

How do you view your 1 - 7 2-7 5.64 6.00 1.27

contribution to the budget?

How often does your superior 1 - 7 1 -7 5.29 6.00 1.49

seek your requests, opinions,
suggestions etc when the
budget is being set?

37
TABLE 3 Cont’d

Panel B: Correlations between budgetary participation variables and Factor Matrix (N = 55)

Variables 1 2 3 4 5 6

1. Which category below best

describes your activity in
setting the budget? I am/was 1.00
involved in setting…

2. Which category below best

describes the reasoning
provided by your superior
when budget revisions are .22* 1.00
made. The reasoning is....

3. How often do you state your

requests, opinions and/or
suggestions about the budget
to your superior without being .31* 22* 1.00
asked?

4. How much influence do you

feel you have on the final .58** .40** .44** 1.00
budget?

5. How do you view your 1.00

contribution to the budget? .57** .27* .42** .73**

6. How often does your superior

seek your requests, opinions,
suggestions etc when the .38* .13 .35** .54** .56** 1.00
budget is being set?

Factor Loadings .73 .46 .62 .88 .86 .71

Percentage of variance explained =
52.37

38
 TABLE 4
Descriptive Statistics, Correlation, and Factor Analysis Results for the Budget
Use Variables

Variable Observed Standard Factor

Range* Mean Median Deviation Loadings**

Descriptive Statistics:

You are required to submit an 1–7 4.67 5.00 1.74 0.80

explanation in writing of the
causes of budget variances
(BDGT_EXP)

You are required to investigate 1–7 5.07 5.00 1.50 0.85

items which are ‘overspent’
(BDGT_SPENT)

You are held personally 1–7 4.20 4.00 1.78 0.43

accountable for budget
variances (BDGT_ACC)

Meeting the budget is 1–7 5.87 6.00 1.07 0.75

important to your superior
(BDGT_MEET)

Sub-units are evaluated on 1–7 4.98 5.00 1.66 0.83

budget performance
(BDGT_SU)

Correlation Matrix:

Variables BDGT_EXP BDGT_SPENT BDGT_ACC BDGT_MEET BDGT_SU

BDGT_EXP
1.00
BDGT_SPENT
0.65** 1.00
BDGT_ACC
0.36** 0.20 1.00
BDGT_MEET
0.37** 0.58** 0.15 1.00
BDGT_SU 1.00
0.55** 0.60** 0.25* 0.59**
*Theoretical range, 1 – 7; ** Principal component analysis: Percentage of total variance
explained = 56.05; N = 55

39
 TABLE 5
Summary Descriptive Statistics of Managerial Performance Variables (N = 55)

Components Theoretical Observed Mean Median Standard

Range Range Deviation

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

40
 TABLE 6
Descriptive Statistics for Summed Variables
Variable No. of Theoretical Observed Mean Median Standard Cronbach
Items Range Range Deviation Alpha
Used

IR_RISK 4 4 – 28 4 – 26 11.34 9.00 5.99 0.87

BDGT_PART 6 6-42 6-42 31.98 5.98 0.81

BDGT_USE 5 5 – 35 11 – 35 24.80 25.00 5.71 0.78

MAN_PERF 8 8 – 56 19 – 56 39.81 38.00 5.87 0.69

SIZE (Employees) NA NA 30 - 8188 930.20 302.50 1831.45 NA

Definitions of variables: IR_RISK = Industrial relations risk; BDGT_PART = Budgetary participation; BDGT_USE = Budgets use;
MAN_PERF = Managerial performance; SIZE = Firm size (log of the number of employees).

41
 TABLE 7
Correlation Matrix (Pearson Zero-Order Correlation Coefficients) for Summed Variables
Variable IR_RISK BDGT_PART BDGT_USE MAN_PERF SIZE

IR_RISK 1.00

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 1.00

** p < 0.05; * p < 0.10 (Two-tailed).
Definitions of variables: IR_RISK = Industrial relations risk; BDGT_PART = Budgetary participation; BDGT_USE = Budgets
use; MAN_PERF = Managerial performance; Log (SIZE) = Firm size (log of the number of employees);

42
 TABLE 8
Hypothesis 1
Regression Results
(Dependent Variable = Budget Use)

Panel A: Without Interaction Terms

Variables Coefficient Standard t-value Sig.

Error (p-value)

Constant 1.60 1.04 1.54 0.12

IR_RISK 0.01 0.04 0.16 0.87

BDGT_PART 0.05 0.03 0.21 0.12
Log(SIZE) 1.05 0.39 2.65 0.01

Panel B: With Interaction Terms

Variables Coefficient Standard t-value Sig.

error (p-value)

Constant 2.74 1.93 1.42 0.08

IR_RISK -0.02 0.05 -0.48 0.63

BDGT_PART -0.02 0.06 -0.40 0.69
IR_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 of Mean of Estimate

Square Square
Regression results:
Without Interaction 0.201 3.86 0.01 28.97 9.65 1.60
Terms
With Interaction 0.266 2.26 0.04 15.27 3.81 2.73
Terms
Two-tailed test, n = 55
Definitions of variables: IR_RISK = Industrial relations risk; BDGT_PART = Budgetary
participation; BDGT_USE = Budgets use; Log (SIZE) = Firm size (log of the number of
employees);

43
 TABLE 9
H2: Regression Results
Performance Effects of the Interaction between Industrial Relations Risk,
Budgetary Participation, and Budget Use

MAN_PERF = b0 + b1IR_RISK + b2BDGT_PART + b3BDGT_USE +

b4IR_RISK*BDGT_PART + b5IR*BDGT_USE + b6BDGT_PART*BDGT_USE+
b7IR_RISK*BDGT_PART*BDGT_USE + b8Log (SIZE) + e

Panel A: Regression results without interaction

Variable Standard Estimate t-value p-value
Error

Constant 4.59 26.87 5.85 0.00

IR_RISK 0.43 0.19 1.41 0.16

BDGT_PART 0.14 0.29 2.02 0.04

BDGT_USE 0.73 0.08 0.56 0.57

Log (SIZE) 1.13 0.02 0.15 0.88

F(4, 50) = 2.54, p = 0.05

R2 = 0.169; Adj. R2 = 0.103

44
TABLE 9 Continued

Panel B: Regression results with interaction

Variable Standard Estimate t-value p-value

Error

Constant 6.70 25.58 3.82 0.00

IR_RISK 2.69 0.80 0.95 0.35

BDGT_PART 0.15 0.16 1.04 0.30

BDGT_USE 1.62 0.11 0.35 0.72

IR_RISK*BDGT_PART (Interaction) 0.36 0.22 0.37 0.70

IR_RISK*BDGT_USE (Interaction) 0.35 0.83 -1.44 0.16

BDGT_PART*BDGT_USE 0.22 0.23 0.77 0.45

(Interaction)

IR_RISK*BDGT_PART*BDGT_USE 0.01 0.49 2.38 0.02

(Interaction)

Log (SIZE) 1.102 -0.01 -0.04 0.97

R2 = 0.285

Adjusted R2 = 0.161

F(8, 46) = 2.30; p = 0.03

Definitions of variables: MAN_PERF = Managerial performance IR_RISK = Industrial

relations risk; BDGT_PART = Budgetary participation; BDGT_USE = Budgets use; Log
(SIZE) = Firm size (log of the number of employees).

45
 TABLE 10
Additional Regressions
Panel A: Results of Regressing Budget Use on Actions of Trade Union Officials,
Budgetary Participation and the interaction
R2 F Sig. Sum of Mean of Estimate
Square Square
Regression results:
Without interaction 0.108 1.538 0.220 11.368 3.789 4.101
terms
With interaction 0.181 1.490 0.233 11.935 2.984 5.820
terms

Panel B: Results of Regressing Budget Use on Strikes/Work-Stoppages, Budgetary

Participation and the interaction

R2 F Sig. Sum of Mean of Estimate

Square Square
Regression results:
Without interaction 0.110 1.567 0.213 11.559 3.853 3.992
terms
With interaction 0.260 2.195 0.099 14.936 3.734 2.460
terms

Panel C: Results of Regressing Budget Use on Internal Conflicts among Trade Unions,
Budgetary Participation, and the interaction

R2 F Sig. Sum of Mean of Estimate

Square Square
Regression results:
Without interaction 0.099 1.317 0.284 9.791 3.264 4.021
terms
With interaction 0.219 1.891 0.141 14.445 3.611 4.633
terms

Panel D: Results of Regressing Budget Use on Linkage of Trade Unions with National
Political Parties, Budgetary Participation and the interaction
R2 F Sig. Sum of Mean of Estimate
Square Square
Regression results:
Without interaction 0.094 1.311 0.285 9.846 3.282 4.269
terms
With interaction 0.183 1.517 0.225 12.109 3.027 4.715
terms
Two-tailed test, N = 55

46
 TABLE 11
ANOVA Results
(Dependent Variable = Managerial Performance)

Source Sum of D. F. Mean F-value Sig. of F

square square

IR_RISK 1.02 1 1.02 1.96 0.08

BDGT_PART 3.60 1 3.60 6.91 0.01

BDGT_USE 1.76 1 1.76 3.37 0.07

IR_RISK*BDGT_PART 0.28 1 0.28 0.54 0.47

IR_RISK*BDGT_USE 0.54 1 0.54 1.04 0.31

BDGT_PART*BDGT_USE 1.34 1 1.34 2.58 0.05

IR_RISK*BDGT_PART*BDGT_USE 3.86 1 3.86 7.41 0.01

Explained 18.12 8 2.27 4.35 0.00

Residual 22.90 44 0.52

Adj. R2 =0.340

Definitions of variables: IR_RISK = Industrial relations risk; BDGT_PART = Budgetary

participation; BDGT_USE = Budgets use

47