The British Accounting Review 37 (2005) 115133 www.elsevier.

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Research Note

The impact of market competition and budgetary participation on performance and job satisfaction: a research note
Vincent K. Chonga,*, Ian R.C. Eggletona,b, Michele K.C. Leonga
a

The University of Western Australia, 35 Stirling Highway, Crawley, WA 6009, Australia b The University of Waikato, Private Bag 3105, Hamilton, New Zealand Received 11 August 2003; revised 4 March 2004; accepted 30 June 2004

Abstract This paper examines the impact of the intensity of market competition and budgetary participation on performance and job satisfaction. The responses of 77 senior managers, drawn from a crosssection of the Australian nancial services sector, to a questionnaire survey were analysed using a multiple regression technique. The results of our global analysis, which was based on the composite score of budgetary participation as the independent variable, showed that the higher the intensity of market competition, the more positive is the relationship between budgetary participation and performance and job satisfaction. In addition, the results of our dimensional analysis, which was based on the involvement and inuence dimensions of budgetary participation as the independent variables, revealed that it was the involvement dimension of budgetary participation, which was principally responsible for the results of our global analysis. More specically, our results revealed that the higher the intensity of market competition, the more positive is the relationship between the involvement dimension of budgetary participation and performance and job satisfaction. Our results, however, suggested that the inuence dimension of budgetary participation and the intensity of market competition do not interact to affect performance and job satisfaction. q 2004 Elsevier Ltd. All rights reserved.
Keywords: Market competition; Budgetary participation; Performance; Job satisfaction

* Corresponding author. Address: Accounting and Finance, UWA Business School, The University of Western Australia, 35 Stirling Highway, Crawley, WA 6009, Australia. Tel.: C61 8 6488 2914; fax: C61 8 6488 1047. E-mail address: vincent.chong@uwa.edu.au (V.K. Chong). 0890-8389/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.bar.2004.06.007

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1. Introduction The effect of budgetary participation on the performance of subordinates and their job satisfaction has been the subject of considerable research in management accounting. Early empirical studies used a universalistic approach to examine the effect of budgetary participation on performance and job satisfaction. However, the results have been mixed (see Kren and Liao, 1988; Murray, 1990 for a comprehensive discussion).1 Subsequent studies have attempted to reconcile the conicting results by adopting a contingency approach (e.g. Brownell, 1981, 1982a, 1985; Govindarajan, 1986; Gul et al., 1995; Chong and Bateman, 2000). The empirical evidence generated by these studies suggests that contingency factors such as locus of control (Brownell, 1981, 1982a), perceived environmental uncertainty (Brownell, 1985; Govindarajan, 1986), leadership style (Brownell, 1983), decentralization (Gul et al., 1995), role ambiguity and role conict (Chong and Bateman, 2000), and feedback (Chong and Chong, 2002a) have an impact on budgetary participation-performance and job satisfaction relationships. The present study aims to extend this line of research by examining another contingent variable, namely intensity of market competition, which is an important external environmental factor. Intensity of market competition has been identied as a major reason for service organizations, such as those in the nancial services sector, to choose a customer-focused strategy for gaining a competitive edge (see Porter, 1979; Schlesinger and Heskett, 1991). It has been suggested that managers will always be confronted with problems associated with market conditions in their day-to-day planning and controlling activities. A typical problem faced by managers in the service industries is summed up by Banker et al. (1996, p. 925) as follows: .Service organizations such as those in the nancial services sector need to differentiate themselves from one another through different levels of customer service. If a service organization located in a highly competitive geographical area offers a low level of customer service, it risks customers walking away to a nearby competitor. Conversely, a service organization enhancing the level of its customer service stands to win customers away from its competitors (italics added). Prior studies (e.g. Rolfe, 1992; Mia and Clarke, 1999) have argued that rms faced with increasing product ranges often experience decreasing product life cycles, and increased market sensitivity as market competition intensies. It is further argued that managers in rms facing intense market competition are more likely to make greater use of multiple performance measures in their attempt to trace the various market factors and achieve competitive advantage (Hoque et al., 2001, p. 28; Lynch and Cross, 1991).
1 For example, some studies (e.g. Bass and Leavitt, 1963; Brownell, 1982a) have found a strong positive relationship between budgetary participation and performance, while other studies (e.g. Stedry, 1960; Bryan and Locke, 1967) have found a negative relationship. With respect to job satisfaction, some studies (e.g. Cherrington and Cherrington, 1973; Milani, 1975; Kenis, 1979; Chenhall, 1986) have found that budgetary participation improves job satisfaction, while other studies (e.g. Brownell, 1981, 1982a) have found that budgetary participation does not improve job satisfaction. Several studies (Milani, 1975; Kenis, 1979) have found no relationship.

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Consequently, these managers require additional and different types of information from their management accounting systems before making crucial decisions (see Libby and Waterhouse, 1996). This view is similar to that of Khandwalla (1972, p. 275) who suggests that the greater the intensity of market competition, the greater the need to control costs, and to evaluate whether marketing, nance, etc. are operating according to expectations (emphasis added in italics). Thus, in order for managers to deal with the threats and challenges from intense market competition, it is important for them to develop effective strategic responses. By allowing subordinates to participate in the budget setting process managers are provided with an opportunity to gather and use job-relevant information to formulate effective strategic alternatives, and to enhance the quality of their job-related decisions when market competition intensies (see Leblebici and Salancik, 1981). This view is consistent with numerous prior studies (see e.g. Kren, 1992; Magner et al., 1996; Chong and Chong, 2002b). Prior studies (e.g. Brownell, 1981, 1982a, 1985; Govindarajan, 1986; Gul et al., 1995; Chong and Bateman, 2000) have tended to use the psychometric denition, and operationalisation of budgetary participation as a process whereby subordinates are given the opportunity to get involved in and have inuence on the budget setting process (see Brownell, 1982b). These studies have relied on the use of Milanis (1975) six-item scale to measure the extent of managers budgetary participation, and have viewed it as a unidimensional construct. Milani (1975), however, suggested the possibility of two distinct dimensions, i.e. inuence and involvement. In fact, some studies (e.g. Hassel and Cunningham, 1993, 1996; OConnor, 1995) have found that Milanis budgetary participation scale has two underlying dimensions. Thus, another purpose of our study was to conduct a dimensional analysis (i.e. where budgetary participation is viewed as having two distinct dimensions), and to explore the impact of market competition on the relationships between the two dimensions of budgetary participation and the performance of subordinates and their job satisfaction. The remainder of this paper is organized as follows. Section 2 develops the theoretical foundation for the hypotheses. Subsequent sections, in turn, address the method, results, limitations and conclusions.

2. Hypotheses development Intensity of market competition is broadly characterized by a number of factors faced by an organization. Such factors include (1) the number of major competitors operating in the market, (2) the frequency of technological changes in the industry, (3) the frequency with which new products are introduced, (4) the extent of price cuts, (5) the extent of package deals for customers offered by competitors, and (6) changes in government regulations and policies (see Khandwalla, 1972; Libby and Waterhouse, 1996; Hoque and Hopper, 1997; Mia and Clarke, 1999; Hoque et al., 2001). Under low market competition conditions, it is suggested that an organization can concentrate on current operations, and long-term planning is not needed (Javidan, 1984; Powell, 1992; Daft, 1998). Thus, it follows that there is less need for managers to

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gather market-related information for planning purposes when market competition is low. This view is consistent with that of Hopwood (1974), who argued that a participative management style may have little to offer in situations of low market competition. Govindarajan (1986) argued that when intensity of market competition is low, decisions become more routines and involving managers in decisions with obvious solutions may be viewed as a waste of time. Consequently, these managers are likely to feel more dissatised with their jobs if they are asked to participate (French et al., 1960; Lorsch and Morse, 1974; OConnell et al., 1976; Ilgen and Klein, 1988; Shields and Shields, 1998). Numerous studies (Aronson and Mills, 1959; Cardozo, 1965; Deci and Ryan, 1985) concluded that if the job itself does not provide fulllment of managers intrinsic needs to be competent and effective, then they are likely to feel less job satisfaction. It can be concluded that under low market competition situations, there is less need for managers to participate in the budget setting process. A high level of participation in such situations is likely to be incompatible with the organizations structure and related climate, resulting in lower performance (due to wasteful use of managers time and effort) and lower job satisfaction. When the intensity of market competition is high, however, managers may require additional job-relevant information to cope with the complexities of the external market environment (Brownell, 1985; Kren, 1992). Empirical studies (e.g. Kren, 1992; Magner et al., 1996; Chong and Chong, 2002b) which examined the impact of the cognitive role of budgetary participation on performance, have found that budgetary participation provides a useful avenue for managers to gather job-relevant information for decision making. Thus, it can be concluded that when the intensity of market competition is high, managers who are allowed to participate in the budget setting process will have the opportunity to gather job-relevant information, which may enhance their performance (Kren, 1992; Chong and Chong, 2002b). Furthermore, these managers are more likely to have higher morale and to feel greater levels of satisfaction as participation allows them to experience self respect and feelings of equality arising from the opportunity to express their values (italic added, Shields and Shields, 1998, p. 59). In contrast, managers who lack the opportunity to participate and gather the information necessary to deal with competitive threats and challenges, will perform less well and be less satised in their jobs. In summary, we expect the relationships between budgetary participation and the performance of subordinates and their job satisfaction to be contingent upon an appropriate t between the level of budgetary participation and the intensity of market competition. It is hypothesized that budgetary participation will have a stronger impact on performance and job satisfaction when the intensity of market competition is high. Accordingly, the following hypotheses were tested. H1: The higher the intensity of market competition, the more positive is the relationship between budgetary participation and performance. H2: The higher the intensity of market competition, the more positive is the relationship between budgetary participation and job satisfaction.

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Recall that one of the purposes of this study is to conduct a dimensional analysis (i.e. where budgetary participation is viewed as having two distinct underlying dimensions),2 and to explore the impact of the two dimensions of budgetary participation on performance and job satisfaction. It has been suggested that participation in the budget setting process can occur at both the planning; and control and performance evaluation stages, of the budgetary cycle (see OConnor, 1995).3 Our study focuses on the planning phase of the budget setting process. Planning .serves as a powerful form of action control, which forces managers to think about the future and to make decisions in advance. (Merchant, 1997, p. 332). It directs a managers attention towards the rms preparedness to meet the challenges of its competitors and to take advantage of otherwise unforeseen opportunities. In order for a rm to plan its operations effectively, there must be good communication and coordination amongst all subunit managers. Prior studies (Miller and Monge, 1986; Vroom and Jago, 1988; Hassel and Cunningham, 1993, 1996; Comerford and Abernethy, 1999) suggest that the benets of having managers involvement in the budget setting process derive primarily from the exchange and dissemination of job-relevant information so as to facilitate decisionmaking. As noted earlier, it is suggested that budgetary participation is positively associated with job-relevant information (e.g. Kren, 1992; Magner et al., 1996; Chong and Chong, 2002b; Shields and Shields, 1998). It has been suggested that job-relevant information is ex ante information which can assist the subordinates in choosing the appropriate courses of action. Existing evidence supports the positive effect of the cognitive role of budgetary participation on the performance of subordinates. In addition, Shields and Shields (1998) have argued that allowing subordinates to get involved in the budget setting process enhances their motivation and job satisfaction. In contrast, other studies (Hassel and Cunningham, 1993, 1996) have found that there are no benets to be derived from subordinates having the ability to exert budgetary inuence. In summary, we suggest that it is the involvement rather than the inuence dimension of budgetary participation that is more likely to enhance the performance of subordinates and their job satisfaction in the planning stage of budgeting. Consequently, we would expect the two hypotheses (i.e. H1 and H2), which state that the higher the intensity of market competition, the more positive is the relationship between budgetary participation and performance (For H1) and job satisfaction (For H2), will be statistically signicant
The two dimensions are: involvement and inuence. For the purpose of this study, the involvement dimension of budgetary participation is dened as the extent to which information is exchanged between managers about factors that affect their budget, while the inuence dimension of budgetary participation refers to the extent to which managers have command over the budget setting process that established the criteria under which they may be evaluated (Hassel and Cunningham, 1993, 1996). 3 The control and performance evaluation stage of budgeting serves as a managerial monitoring and motivational tool. The control and performance evaluation aspect of budgeting was subsumed under the superiors reliance on performance measure styles (RAPM) or budget emphasis construct (see Hopwood, 1972). For an excellent review of the methodological and theory development issues in this area, see Briers and Hirst (1990), Hartmann and Moers (1999), Hartmann (2000), Otley and Fakiolas (2000) and Otley and Pollanen (2000). A budget serves as a useful benchmark against which actual results can be compared. It provides feedback for corrective action and performance evaluation.
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for the involvement rather than the inuence dimension of budgetary participation. Accordingly, we advance the following hypotheses: H3: The higher the intensity of market competition, the more positive is the relationship between the involvement dimension of budgetary participation and performance. H4: The inuence dimension of budgetary participation and the intensity of market competition do not interact to affect performance. H5: The higher the intensity of market competition, the more positive is the relationship between the involvement dimension of budgetary participation and job satisfaction. H6: The inuence dimension of budgetary participation and the intensity of market competition do not interact to affect job satisfaction.

3. Method This study employed a questionnaire survey method to collect data. A total of 141 senior managers from rms in the nancial services sector were randomly drawn from the Kompass Australia (1999) business directory.4 Most prior studies in participative budgeting have tended to rely on samples drawn from the manufacturing sector. We chose the nancial services sector because little research attention has been given to this sector. The nancial services sector is becoming an increasingly important component in major world economies. The use of a sample drawn from the nancial services sector will provide a different setting to examine the relationship between budgetary participation and job-related outcomes. An initial telephone call to each of the senior managers was made to ensure that they were the appropriate person to receive the questionnaire, and would be the person involved in answering the questionnaire. Most importantly, the call was to ensure that the manager held budget responsibilities in his or her respective rm or branch ofce. The administration of the survey questionnaire consisted of the following steps. First, a questionnaire with a cover letter explaining the objective of the study and a reply paid self-addressed envelope were mailed to each manager. The survey questionnaire asked them to provide data for four variables namely, intensity of market competition, budgetary participation, performance and job satisfaction. To enhance our response rate, each respondent was promised a gift voucher of $15.00 Australian dollars for returning the completed questionnaires. In addition, each questionnaire was pre-coded to enable non-respondents to be traced, so that after four weeks, a reminder letter and another copy of the questionnaire would be sent. Of the 141 questionnaires sent, 77 questionnaires were returned, giving a response rate of 54.61%.5
The job titles of the senior managers included branch manager, chief accountant, chief nancial ofcer (CFO), chief executive ofcer (CEO), chief operating ofcer, general manager, managing director, and state manager. 5 We tested for non-response bias utilising the approach suggested by Oppenhiem (1992). We found no statistically signicant differences in the mean scores between the early and late responses.
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The respondents had held their current positions for a mean of 4.6 years and had been employed by their respective companies for a mean of 10.3 years. They averaged 10.5 years experience in their area of management and the mean number of employees in their area of responsibility was 99. 3.1. Measurement of variables This study conceptualized the intensity of market competition in terms of (1) price, (2) product differentiation, and (3) product distribution or marketing. For the purpose of this study, the intensity of market competition is dened as the intensity of market competition faced by a rm on each of the above three items. These items were adapted from Khandwalla (1972). Respondents were asked to indicate the intensity of market competition in their organizations market on a seven-point Likert-type scale anchored at (1) very low competition and (7) very high competition. The results of a factor analysis indicated that the three items in the measure loaded on a single factor which explained 75.89% of the total variance. The Cronbach alpha coefcient (Cronbach, 1951) was 0.84, which indicates satisfactory internal reliability for the scale (Nunnally, 1967). Budgetary participation was measured by Milani (1975) six-item, seven-point Likert-type scaled instrument. This instrument has been used extensively and validated in many accounting studies (e.g. Lau et al., 1995; Chong and Bateman, 2000; Chong and Chong, 2002b). However, most of these studies have viewed budgetary participation as a unidimensional construct even though Milani (1975) suggested the possibility of two underlying dimensions (see Hassel and Cunningham, 1993, 1996). A factor analysis was conducted. Three items were loaded on the rst factor (Factor I), which accounted for 45.59% of the total variance explained. The remaining three items were loaded on the second factor (Factor II), which accounted for 30.36% of the total variance explained. Factor I may be interpreted as reecting the inuence dimension of budgetary participation and Factor II may be interpreted as reecting the involvement dimension of budgetary participation. The Cronbach alpha coefcients for the inuence and involvement dimensions of budgetary participation were 0.89 and 0.71, respectively, which indicate satisfactory internal reliability for both dimensions of the budgetary participation construct. The Cronbach alpha coefcient for the composite score of budgetary participation was 0.84, which indicates a satisfactory internal reliability for the scale. A single global rating was used to measure performance. This approach was similar to prior accounting studies (see Merchant, 1981, 1984; Chenhall and Brownell, 1988; Mia and Chenhall, 1994; Dunk, 1995). Respondents were asked to rate their overall performance from well below average to well above average on a fully anchored, seven-point Likert-type scale. Job satisfaction was measured by a two-item, seven-point Likert-type scale developed by Dewar and Werbel (1979). This instrument has been used by prior accounting studies (see, e.g. Mia, 1993; Abernethy and Stoelwinder, 1995). The results of a factor analysis revealed satisfactory construct validity (Kerlinger and Lee, 2000) in which the two items were loaded on a single factor which explained 89.15%

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Table 1 Descriptive statistics Variable X1 X1(a) X1(b) X2 Budgetary participation Inuence Involvement Intensity of market competition Job satisfaction Performance Mean 4.898 5.113 4.684 5.217 Standard deviation 1.289 1.604 1.320 1.391 Theoretical range 17 17 17 17 Actual range 2.17.0 1.37.0 1.77.0 1.07.0

YJS YPerf

5.539 6.058

1.210 0.827

17 17

1.07.0 4.07.0

of the total variance. The Cronbach alpha coefcient was 0.88 which indicates satisfactory internal reliability for the scale.

4. Results Table 1 presents the descriptive statistics and Table 2 shows the correlation matrix for the variables used in this study. The hypotheses were tested using moderated regression analysis based on the following multiplicative model Y Z b0 C b1 X1 C b2 X2 C b3 X1 X2 C e; (1)

where, depending on the hypothesis being tested, Y, performance or job satisfaction; X1, budgetary participation (composite measure), the inuence dimension of budgetary participation, or the involvement dimension of budgetary participation; X2, intensity of market competition; and e, the error term.
Table 2 Correlation matrix X1 X1 X1(a) X1(b) X2 YJS YPerf Budgetary participation Inuence Involvement Intensity of market competition Job satisfaction Performance 1.000 0.904** 0.854** 0.101 0.415** 0.104 1.000 0.549** 0.128 0.359** 0.147 X1(a) X1(b) X2 YJS YPerf

1.000 0.043 0.373** 0.025

1.000 0.046 0.145 1.000 0.313**

1.000

**Correlation is signicant at the 0.01 level (2-tailed).

V.K. Chong et al. / The British Accounting Review 37 (2005) 115133 Table 3 Results of regression Variables Coefcient Standard error t-Value P

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Panel A: performance on budgetary participation and intensity of market competition 8.132 1.400 5.808 Constant b0 Budgetary particib1 K0.533 0.289 K1.845 pation (X1) Intensity of market K0.458 0.263 K1.738 b2 competition (X2) X1!X2 b3 0.114 0.054 2.114 R2Z0.085; adjusted R2Z0.048; F3,73Z2.266; P!0.088

0.001 0.069 0.087 0.038

Panel B: performance on the involvement dimension of budgetary participation and intensity of market competition 8.381 1.133 7.399 0.001 Constant b0 Involvement dimenK0.625 0.242 K2.579 0.012 b1 sion of budgetary participation (X1) Intensity of market K0.470 0.213 K2.205 0.031 b2 competition (X2) X1!X2 b3 0.125 0.045 2.742 0.008 R2Z0.113; adjusted R2Z0.076; F3,73Z3.094; P!0.032 Panel C: performance on the inuence dimension of budgetary participation and intensity of market competition 6.212 1.106 5.615 0.001 Constant b0 Inuence dimension K0.112 0.211 K0.532 0.596 b1 of budgetary participation (X1) Intensity of market K0.103 0.213 K0.482 0.632 b2 competition (X2) X1!X2 b3 0.036 0.040 0.886 0.378 R2Z0.048; adjusted R2Z0.009; F3,73Z1.230; P!0.305

4.1. Test of hypothesis H1 Table 3, Panel A shows the results of the global analysis, which used the composite score of budgetary participation as the independent variable. As shown in Table 3, Panel A, the results showed that the coefcient b3 was positive and signicant (t-valueZ2.114, P!0.038), providing support for hypothesis H1, which states that the higher the intensity of market competition, the more positive is the relationship between budgetary participation and performance. The prediction model in Eq. (1) accounts for 8.5% of the variance (R2Z0.085) in performance.6 To assist in the interpretation of the signicant results pertaining to the two-way interaction between budgetary participation and intensity of market competition on performance, both budgetary participation and intensity of market competition were dichotomized at their respective means. Table 4, Panel A shows the mean performance
Except for b3, the coefcients in Eq. (1) are not interpretable since they can be altered by shifting the origin points of X1 and X2 (Allison, 1977; Southwood, 1978; Govindarajan and Fisher, 1990; Brownell and Dunk, 1991).
6

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Table 4 Mean performance and job satisfaction scores across low/high budgetary participation and low/high intensity of market competition Cell Budgetary participation Market competition Low High Low High Low High Low High n 17 17 17 26 17 17 17 26 Performance score 5.941 5.912 5.882 6.346 5.382 4.735 5.529 6.173

Panel A: performance 1 Low 2 Low 3 High 4 High Panel B: job satisfaction 1 Low 2 Low 3 High 4 High

scores for the two levels of budgetary participation and intensity of market competition. As expected, the highest performance score (6.346) was in Cell 4 (i.e. high budgetary participation/high intensity of market competition cells). These results suggested that a high budgetary participation strategy, in the presence of high intensity of market competition, was benecial to the performance of subordinates. The steep high intensity of the market competition line in Fig. 1 supported this conclusion.

Fig. 1. Two-way interaction graph between budgetary participation and intensity of market competition on performance.

V.K. Chong et al. / The British Accounting Review 37 (2005) 115133 Table 5 Results of regression Variables Coefcient Standard error t-Value P

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Panel A: job satisfaction on budgetary participation and intensity of market competition 7.574 1.886 4.015 Constant b0 B1 K0.452 0.389 K1.163 Budgetary participation (X1) Intensity of market competition (X2) b2 K0.764 0.355 K2.151 X1!X2 b3 0.162 0.072 2.233 R2Z0.225; adjusted R2Z0.193; F3,73Z7.056; P!0.001

0.001 0.249 0.035 0.029

Panel B: job satisfaction on the involvement dimension of budgetary participation and intensity of market competition Constant b0 8.317 1.526 5.451 0.001 K0.676 0.327 K2.070 0.042 Involvement of budgetary participation b1 (X1) Intensity of market competition (X2) b2 K0.860 0.287 K3.000 0.004 X1!X2 b3 0.199 0.061 3.248 0.002 R2Z0.249; adjusted R2Z0.218; F3,73Z8.048; P!0.001 Panel C: job satisfaction on the inuence dimension of budgetary participation and intensity of market competition 5.536 1.539 3.598 0.001 Constant b0 K0.006 0.294 K0.021 0.984 Inuence dimension of budgetary b1 participation (X1) Intensity of market competition (X2) b2 K0.276 0.297 K0.931 0.355 b3 0.055 0.056 0.983 0.329 X1!X2 R2Z0.140; adjusted R2Z0.105; F3,73Z3.973; P!0.011

4.2. Test of hypothesis H2 Similar to hypothesis H1, hypothesis H2 was tested by examining the sign and signicance of the coefcient of the interaction term b3 in Eq. (1). As can be seen in Table 5, Panel A, the coefcient b3 was positive and signicant (t-valueZ2.233, P!0.029), thus providing support for hypothesis H2, which states that the higher the intensity of market competition, the more positive is the relationship between budgetary participation and job satisfaction. The prediction model in Eq. (1) accounts for 22.5% of the variance (R2Z0.225) in job satisfaction. In addition, as shown in Table 4, Panel B, the results indicated that the highest job satisfaction score (6.173) was in Cell 4 (i.e. high budgetary participation/high intensity of market competition cells). These results suggested that a high budgetary participation and high intensity of market competition combination increases subordinates job satisfaction. The steep high intensity of the market competition line in Fig. 2 supports this conclusion, and lends further support for hypothesis H2. 4.3. Tests of hypotheses H3 and H4 To test hypotheses H3 and H4, two separate sets of results are reported from the tting of Eq. (1). Table 3, Panels B and C show the results of the dimensional analysis, which

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Fig. 2. Two-way interaction graph between budgetary participation and intensity of market competition on job satisfaction.

Fig. 3. Two-way interaction graph between the involvement dimension of budgetary participation and market competition on performance.

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Table 6 Mean performance and job satisfaction scores across low/high market competition and low/high involvement dimension of budgetary participation Cell Involvement dimension of budgetary participation Market competition Low High Low High Low High Low High N Performance score 6.053 6.025 5.733 6.304 5.421 4.900 5.500 6.217

Panel A: performance 1 Low 2 Low 3 High 4 High Panel B: job satisfaction 1 Low 2 Low 3 High 4 High

19 20 15 23 19 20 15 23

used the involvement and inuence dimensions of budgetary participation, respectively, as the independent variables. The results showed that coefcient b3 was positive and signicant (t-valueZ2.742, P!0.008, see Table 3, Panel B), when the involvement dimension of budgetary participation interacted with intensity of market competition, thus providing support for H3, which states that the higher the intensity of market competition, the more positive is the relationship between the involvement dimension of budgetary participation and performance. As can be seen from Table 3, Panel C, the results showed that coefcient b3 was positive, but not signicant (t-valueZ0.886, P!0.378), when the inuence dimension of budgetary participation interacted with intensity of market competition. This non-signicant result supported hypothesis H4, which states that the inuence dimension of budgetary participation and intensity of market competition do not interact to affect performance. Taken together, the results suggested that it was the involvement dimension of budgetary participation, which was principally responsible for the results that support hypothesis H1. As with hypotheses H1 and H2 above, both the involvement dimension of budgetary participation and the intensity of market competition were dichotomized at their respective means. Table 6, Panel A shows the mean performance scores for the two levels of the involvement dimension of budgetary participation and intensity of market competition. As expected, Table 6, Panel A reveals that Cell 4 (6.304) was greater than Cells 1 (6.053), 2 (6.025), and 3 (5.733). The results suggested that a high budgetary participation strategy (in terms of involvement) in the presence of high intensity of market competition enhanced the performance of subordinates. In addition, the steep high intensity of the market competition line in Fig. 3 supports this conclusion. It is noteworthy that these results were consistent with the results obtained based on the global analysis, thus providing evidence of the robustness of our results. 4.4. Tests of hypotheses H5 and H6 The results presented in Table 5, Panel B show that coefcient b3 was positive and signicant (t-valueZ3.248, P!0.002), when the involvement dimension of budgetary

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Fig. 4. Two-way interaction graph between involvement dimension of budgetary participation and intensity of market competition on job satisfaction.

participation interacted with the intensity of market competition. This result provided strong support for hypothesis H5, which states that the higher the intensity of market competition, the more positive is the relationship between the involvement dimension of budgetary participation and job satisfaction. On the other hand, the results presented in Table 5, Panel C show that coefcient b3 was positive, but not signicant (t-valueZ0.983, P!0.329), when the inuence dimension of budgetary participation interacted with the intensity of market competition. These results provided support for hypothesis H6, which states that the inuence dimension of budgetary participation and the intensity of market competition do not interact to affect job satisfaction. Taken together, these results suggest that it was the involvement dimension of budgetary participation which was principally responsible for the results that support hypothesis H2. As with the above, both the involvement dimension of budgetary participation and the intensity of market competition were dichotomized at their respective means. Table 6, Panel B showed the mean job satisfaction scores for the two levels of the involvement dimension of budgetary participation and the intensity of market competition. Note that the highest mean job satisfaction score (6.217) was in Cell 4 (i.e. high involvement dimension of budgetary participation/high intensity of market competition cells). The results suggest that a high budgetary participation strategy (in terms of involvement), in the presence of high intensity of market competition enhanced job satisfaction. In addition, the steep high intensity of the market competition line in Fig. 4 supports this conclusion.

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5. Concluding remarks This study examined the impact of market competition and budgetary participation on the performance of subordinates and their job satisfaction. It proposes that a combination of high budgetary participation and high market competition leads to improvement of the performance of subordinates and their job satisfaction. Furthermore, it is suggested that it is the involvement rather than the inuence dimension of budgetary participation which was principally responsible for the improved performance of subordinates and their job satisfaction. In general, the results support the hypotheses developed in this study. The results of our study extend the existing literature and provide important theoretical and practical implications. From a theoretical perspective, the results of global analysis (i.e. where the composite score of budgetary participation is used as the independent variable), provide additional evidence to support the theory that a combination of high budgetary participation and high market competition contributes to improved performance and job satisfaction. In addition, the results of the dimensional analyses (i.e. where budgetary participation is viewed as having two distinct dimensions) reveal that it is the involvement dimension of budgetary participation, which was principally responsible for the results that support the hypotheses H1 and H2. More specically, the results of our study suggest that high involvement by subordinates in the budget setting process contributes to improved performance and job satisfaction under high market competition conditions, while low involvement by subordinates in the budget setting process in similar circumstances, would result in lower performance and job satisfaction. A plausible explanation for this conclusion is that when the intensity of market competition is low, there is less need to process additional information, as under these more predictable conditions, it is possible to apply predetermined rules, policies, and standards for the performance of many tasks (Galbraith, 1973, 1977; Tushman and Nadler, 1978; Ewusi-Mensah, 1981). However, when the intensity of market competition is high, there is a greater need to monitor the external environment. Subordinates involvement in budget setting provides them with the opportunity to gather, exchange, and disseminate job-relevant information to facilitate their decision-making process (Chong and Chong, 2002b). Taken together, participative budgeting enables subordinates to improve their action choices through better informed effort, and consequently enhanced their performance. Furthermore, it also enable subordinates to fulll their needs, better understanding the budget setting process, and consequently increasing their levels of job satisfaction. From a practical perspective, the results of this study imply that managers of the nancial services sector respond to higher market competition conditions by increasing their involvement in budget setting. Their involvement in the budget setting process allows them to communicate more recent budgetary information for planning purposes, thus enhance their performance. Furthermore, these managers have higher levels of morale and job satisfaction as involvement in the budget setting process allows them to experience self respect and feelings of equality arising from the opportunity to express their values (italic added Shields and Shields, 1998, p. 59). Our study, therefore, provides evidence of the importance of understanding the relationship between market competition and budgetary participation on the performance of subordinates and their job satisfaction in the nancial

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services sector. There are a number of important implications. First, since the results reveal that a high budgetary participation and high market competition combination enhances the performance of managers and their job satisfaction, a wider adoption of a high participative budgeting management style should be strongly encouraged in the nancial services sector given that this sector faces increasingly intense market competition. Second, such understanding may be important in assisting rms in the nancial services sector to design and implement effective budgetary planning and control systems, which will allow managers to experience greater job satisfaction, and to develop appropriate strategies that will generate greater protability in an increasingly competitive environment. Our study is subject to several limitations. First, as our sample was selected from the nancial services sector, caution should be exercised in generalizing our results to other industries. Further studies to compare two or more industries such as the manufacturing and the nancial services sectors may be worthwhile. Second, the regression models of performance and job satisfaction explained a low level of variance, particularly for the former, indicating other contingent variables may be affecting the performance of managers and their job satisfaction. Third, the use of a self-rating scale to measure the performance of managers and their job satisfaction are likely to have a higher leniency error (higher mean value) and a lower variability error (a restrictive range) in the observed score than would superiors ratings of the same managers (see Prien and Liske, 1962; Thornton, 1968; Lau et al., 1995). Future research may also consider employing more objective measures of performance such as return-on-investment (ROI) or return-on-assets (ROA) to measure performance. Finally, this study is only able to demonstrate associations amongst the variables studied. While existing evidence and theory suggests that the independent variable (i.e. budgetary participation) precedes the dependent variables (i.e. performance and job satisfaction), such an assumption is entirely theory-driven and cannot be imputed from the cross-sectional survey method. Therefore, the potential for reverse causality cannot be ruled out (see e.g. Nouri et al., 1999). Future research could employ different research methods (e.g. longitudinal eld studies, case studies and laboratory experiments) to investigate more systematically the causal relationships implicit in our study.

Acknowledgements We would like to thank Alan Dunk, Chong Man Lau, David Smith, Mark Tippett (the Editor), the two anonymous reviewers and participants of the 2001 Accounting Association of Australia and New Zealand (AAANZ) Annual Conference, Auckland, New Zealand for their comments. We would also like to thank I Bee Gan for her excellent research assistance. This project was funded by a research grant from the Faculty of Business and Public Management at Edith Cowan University.

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