Accounting Review Journal, Izzetin Kenis. 1979. Effect of Budgetary Goal Characteristics

Effects of Budgetary Goal Characteristics on Managerial Attitudes and PerformanceAuthor(s): Izzettin KenisSource: The Accounting Review, Vol. 54, No. 4 (Oct., 1979), pp. 707-721Published by: American Accounting AssociationStable URL: http://www.jstor.org/stable/245627Accessed: 08/04/2010 15:56

Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available athttp://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unlessyou have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and youmay use content in the JSTOR archive only for your personal, non-commercial use.

Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained athttp://www.jstor.org/action/showPublisher?publisherCode=aaasoc.

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to TheAccounting Review.

http://www.jstor.org

http://www.jstor.org/stable/245627?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp

http://www.jstor.org/action/showPublisher?publisherCode=aaasoc

THE ACCOUNTING REVIEW Vol. LIV, No. 4 October 1979

Effects of Budgetary Goal

Characteristics on Managerial

Attitudes and Performance

Izzettin Kenis

ABSTRACT: This study examines some effects of budgetary goal characteristics of participation, clarity, feedback, evaluation, and difficulty on job-related attitudes (job satisfaction, job involvement, job tension), budget-related attitudes (attitude towards budgets, budgetary motivation), and self-rated performance (budgetary performance, cost efficiency, job performance) for 169 department managers at the plant level who have budget responsibility. The results show that budgetary participation and budget goal clarity tend to have positive and significant effects on job-related and budget-related attitudes of managers. Participation and goal clarity, furthermore, were found to have significant influence on budgetary performance of managers. High level of budget goal difficulty was found to have an adverse effect on attitudes and performance of managers. Effects of budgetary evaluation and feedback on attitudes and performance of managers, on the other hand, were found to be weak or insignificant.

A BUDGET is not only a financial plan that sets forth cost and revenue goals for responsibility centers

within a business firm, but also a device for control, coordination, communication, performance evaluation, and motivation. Knowledge of the budgeted goals (feedforward) and information about the extent to which those goals have been achieved (feedback) provides managers a basis for measuring efficiency, indenti- fying problems, and controlling costs. In terms of timing and magnitude, coordination of various functional activi- ties in the firm (sales, production, pur- chasing, cash flows, etc.) is also accom- plished through the process of budget preparation and application.

Communication of budgeted goals downward in an organization informs members of lower management about what upper management expects of them; conversely, upper management learns

about the accomplishments and problems of lower management through up- ward-flowing reports comparing budgeted goals with actual performance. Furthermore, budget information helps upper management to evaluate the performance of lower managers and dis- tribute rewards and punishments. In this context, budgets represent an important part of the organization's motivational system designed to improve managerial attitudes and performance.

The author wishes to thank three anonymous re- viewers for their valuable comments and suggestions on earlier drafts of this paper. This research was supported by a grant from the Research Council of Rutgers Uni- versity.

Izzettin Kenis is Associate Professor of Accounting, Rutgers, The State Univer- sitv of New Jersey, Camden.

Manuscript received October, 1977. Revisions received February, July and November, 1978. Accepted December, 1978.

707

708 The Accounting Review, October 1979

FIGURE 1

A FRAMEWORK OF BUDGETARY RELATIONSHIPS

Budgetary Goal Characteristics Internal Environment Variables (Dimensions of Budgeting Style) End Variables

Job-Related Attitudes Job Satisfaction

Managerial Philosophy Job Involvement and Leadership Style of Budgetary Participation Job Tension Upper Level Management Budget Goal Clarity Other Variables Organizational Structure Budgetary Feedback Organizational Level Budgetary Evaluation Organization Size Budget Goal Difficulty Other Variables

Budget-Related Attitudes Attitudes Toward Budgets Budgetary Motivation Other Variables

Performance Budgetary Performance Cost Efficiency Job Performance

All of these aspects suggest that budgets potentially may be a useful managerial tool. However, improperly applied budgets can lead to dysfunctional behavior and negative attitudes among organizational members [Argyris, 1952; Wallace, 1966; Schiff and Lewin, 1970].

Most of the positive and negative effects of budgets on the attitudes, behavior, and performance of lower managers can be traced to the budgeting style of upper management. The concept of budgeting style includes such budgetary goal characteristics as participation, goal clarity, feedback, bugetary evaluation, and goal difficulty. Indeed, upper management, with the help of the con- troller and the accounting department, can influence the amount and form of participation of lower managers in budget goal setting, the extent of clarity of budget goals, the frequency and amount

of feedback, the fashion in which budgets are used in performance evaluation, and the degree of budget goal difficulty. Budgeting style in an organization often reflects the leadership style and managerial philosophy of upper management [Argyris, 1952; DeCoster and Fertakis, 1968; Hopwood, 1972]. In addition, such organizational variables as structure (cen- tralized versus decentralized), size, and level may influence the budgeting style of upper management [Searfoss and Monczka, 1973; Bruns and Waterhouse, 1975; Swieringa and Moncur, 1975]. These relationships can be illustrated in a framework as presented in Figure 1.

This study presents an empirical ex- amination of some effects of budgetary goal characteristics (dimensions of budgeting style) on job-related attitudes (job satisfaction, job involvement, job tension), budget-related attitudes (attitude

Kenis 709

toward budgets, budgetary motivation), and performance (budgetary performance, cost efficiency, job performance) of lower level managers in industry. The following is a brief review of literature related to the goal characteristics included in the study.

BUDGETARY GOAL CHARACTERISTICS

Budgetary Participation Budgetary participation refers to the

extent to which managers participate in preparing the budget and influence the budget goals of their responsibility centers. Many authors have suggested that participation in setting budgetary goals encourages managers to identify with the goals, accept them more fully, and work toward their achievement [Argyris, 1952; Becker and Green, 1962; Wallace, 1966; Hanson, 1966; Dunbar, 1971]. Partici- pation in task-goal setting and decision making has also been encouraged and promoted by such behavioral scientists as McGregor, Likert, Argyris, and Locke. The results of many empirical studies have supported the positive effects of such participation on subordinates' attitudes; with respect to performance, however, the findings generally have been inconclusive [Vroom, 1964; Lowin, 1968; Yukl, 1971 ].

Steers [1976] found positive and significant relationships between participation in task-goal setting and job satisfaction and job involvement, but no relationship between participation and employee performance. Many other studies reported little or no relationship between subordinates' participation in goal setting and their performance, goal acceptance, or goal attainment [French et al., 1966; Carroll and Tosi, 1970- Latham and Yukl, 1976; Ivancevich, 1976].

The few budgetary studies in this area have reported similar results. Milani [1975], for example, found positive and significant correlations between partici-

pation in budget setting and attitudes toward the job and company; but the relationship between participation and job performance was very weak. Swier- inga and Moncur [1975] found higher need satisfaction among managers who were consulted on their budgets than those who were not consulted. Similarly, Hofstede [1967] reported positive attitudes among subordinates who partici- pated in budgeting.

Budget Goal Clarity

Budget goal clarity refers to the extent to which budget goals are stated specifi- cally and clearly, and are understood by those who are responsible for meeting them. Locke [1968] suggested that setting specific goals is more productive than not setting goals and urging employees to do the best they can. He claimed that conscious goals regulate behavior. Am- biguously stated goals can lead to the confusion, tension, and dissatisfaction of employees. Several research studies support the positive effects of task-goal clarity and specificity on the goal com- mitment, goal achievement, and satisfaction of employees [Latham and Yukl, 1975; Steers, 1976; Ivancevich, 1976]. Studies dealing with goal clarity in budgeting, however, have been lacking.

Budgetary Feedback Feedback about the degree to which

budget goals have been achieved is an important motivational variable. If members of an organization do not know the results of their efforts, they have no basis for feelings of success or failure and no incentive for higher performance; furthermore, they might become dissatisfied [Becker and Green, 1962]. The few empirical studies on the effects of feedback on performance, however, give inconclusive results. Carroll and Tosi [1970], for example, found feedback to


be positively correlated with self-rated goal attainment, but not with self-rated effort level. Steers [1975] and Kim and Hamner [1976] also reported positive and significant correlations between feedback and performance. Studies by Cha- panis [1964] and by Hackman and Lawler [1971], on the other hand, failed to support these findings. Budgetary Evaluation

Budgetary evaluation refers to the extent to which budget variances are traced back to individual department heads and used in evaluating their performance. The fashion in which budgets are used in performance evaluation tend to influence the behavior, attitudes, and performance of the participants. A punitive approach, for example, can lead to lower motivation and negative attitudes; a supportive approach, on the other hand, may result in positive attitudes and behavior [Welsch, 1976].

Budget Goal Difficulty Budget goals may range from very

loose and easily attainable to very tight and unattainable. Easily attainable goals fail to present a challenge to participants and, therefore, have little motivational effect. Very tight and unattainable goals, on the other hand, lead to feelings of failure, frustration, lower aspiration levels, and rejection of the goals by the participants [Becker and Green, 1962; Dunbar, 1971]. Most budgeting text- books suggest that for motivational purposes budgetary goals should be tight but attainable. Hofstede [1967] stated that tighter budget goals lead to higher motivation; beyond a certain limit, however, tightening budget goals reduces motivation. Locke [1968] also claimed that difficult task goals lead to better performance than easy goals.

Findings of several studies failed to provide such clear evidence. Carroll and

Tosi [1970], for example, found a positive and significant correlation between perceived task-goal difficulty of managers and their self-rated performance. Blumenfeld and Leidy [1969] also reported that the performance of salesmen and servicemen who were assigned more difficult goals was higher than the performance of those who were assigned easy goals. But results of studies by Stedry and Kay [1966] and Steers [1975] failed to support the positive effects of goal difficulty on motivation and performance.

HYPOTHESES

This study will examine the following hypotheses:

1. Budgetary participation, budget goal clarity, and budgetary feedback will have a positive effect on job satisfaction and job involvement, and will decrease job tension; budgetary evaluation and budget goal difficulty, on the other hand, will have a negative effect on job satisfaction and job involvement, and will increase job tension.

2. Budgetary participation, budget goal clarity, and budgetary feedback will lead to better attitude toward budgets and higher budgetary motivation, whereas budgetary evaluation and budget goal difficulty will lead to negative attitude toward budgets and lower budgetary motivation.

3. Budgetary participation, budget goal clarity, and budgetary feedback will have a positive effect on budgetary performance, cost efficiency, and job performance; budgetary evaluation and budget goal difficulty, however, will have a negative effect on budgetary performance, cost efficiency, and job performance.

Kenis 711

METHOD

The Sample The sample of the study consisted of

department managers and supervisors of plants located in the New Jersey-Phila- delphia area. Twenty-eight plants em- ploying over 500 persons were asked to participate in this study, and 19 plants belonging to 16 manufacturing companies agreed. Two hundred and ninety- eight questionnaires were distributed to department heads in these plants who were identified by the plant managers and controllers as having budget responsibility. The main criteria used for inclusion in the sample were whether the manager had a clearly defined responsibility for meeting his budget and whether variances were computed and reported to plant management for performance evaluation. Top plant managers and assistant managers were excluded from the sample. Because complete lists of managers who met these criteria were not made available, a random selection of the subjects was not possible. Plant manage- ments determined the participants.

In order to minimize response bias, the participants were provided with return envelopes to send the completed questionnaires directly to the researcher. A cover letter explaining the purpose of the study assured the subjects of the confidentiality of their responses.

Of the 298 questionnaires distributed, 178 were returned, and these yielded 169 usable questionnaires for this analysis (a 56 percent response rate). Sixty-three percent of the respondents reported holding college degrees; the remaining 37 percent held high school degrees, and usually reported some college education. Sixty-nine percent of the respondents reported being in their forties or fifties and 31 percent in their thirties. The respondents reported that they had been

working an average of 16.8 years for their present employer and 5.5 years in their present position. The companies represented in the sample were in the food, electronics, fiberglass, kitchen ap- pliances, and various metal products industries. The Measurements

Measurements of Budgetary Goal Char- acteristics. Twenty-six Likert-type questionnaire items, scored from one to five, were used to measure the budgetary goal characteristics. These included 10 items from the budget-induced pressure questionnaire [Fertakis, 1967] derived by Searfoss and Monczka [1973]; 14 items from the task-goal attributes (participation, goal clarity, feedback, goal difficulty) questionnaires developed by Steers [1976], which were reworded to fit the budgetary goal setting environment; and two items which appeared to have face validity.

Factor analysis, using the Statistical Package for Social Sciences [Nie et al., 1975], was employed to identify the patterns of relations among the 26 questionnaire items. Six factors with eigen- values greater than one were extracted. These six factors accounted for 65 percent of the common variance of the 26 items. The initial principal factor matrix was rotated orthogonally (Varimax) to reach a final solution. The Varimax- rotated factor matrix is presented in Appendix A; the descriptions of the questionnaire items are presented in Appendix B.

The names assigned to the factors and the meaning of higher scores on each factor are: (1) budgetary participation- greater participation and influence by managers in setting their budgetary goals; (2) budget goal difficulty-higher budget goal difficulty as perceived by the managers; (3) budgetary evaluation, general-use of budgets in performance


TABLE 1

CORRELATIONS BETWEEN BUDGETARY GOAL CHARACTERISTICS VARIABLES (INDEPENDENT VARIABLES)

1 2 3 4 5 6

1. Budgetary Participation 1.00 -.008 -.023 -.01 .019 .068 2. Budget Goal Difficulty 1.00 -.002 .04 .05 -.009 3. Budgetary Evaluation-General 1.00 .11 .05 .03 4. Budgetary Evaluation-Punitive 1.00 .06 -.03 5. Budgetary Feedback 1.00 .05 6. Budgetary Goal Clarity 1.00

All correlations not significant at .05 level.

evaluation in general to a higher degree; (4) budgetary evaluation, punitive greater use of budgets in performance evaluation in a punitive fashion; (5) budgetary feedback greater amount of feedback about budgetary performance received by the managers; (6) budget goal clarity greater clarity of budget goals and better understanding of the goals by the managers.

In order to study the effects of these six budgetary goal characteristics on the job-related and budget-related attitudes and performance of managers, standard factor scores were computed for each manager on each of the six factors [Nie et al., 1975]. As the interscale correlations on Table 1 show, the resulting measurements appear to be relatively independent; none of the correlations reached the .05 significance level.

Measurements of Job-Related Atti- tudes. Job satisfaction was measured by the Job Descriptive Index (JDI) which is a combination of five subscales measuring satisfaction with work, supervision, pay, promotion, and co-workers [Smith et al., 1969]. Each subscale consists of positive and negative statements about an aspect of the job. The respondents answer either "yes," "undecided," or "no." A "yes" answer to a positive item receives a score of 3, "undecided" a score of 1, and a "no" answer is scored zero. The negative items are scored in the

opposite fashion. The overall job satisfaction score for a respondent, which can range from zero to 216, is obtained by adding all the scores for the five dimensions. This scale is one of the most widely used and carefully constructed measures of job satisfaction in existence today; it consistently has demonstrated high reliability and validity.

Job involvement is measured by a six- item scale developed by Lodahl and Kejner [1965]. This scale measures the degree to which individuals identify psychologically with their jobs and the importance of the job to their self-image. The internal reliability [Cronbach, 1951] of the scale was computed as .93. Job tension, which represents tension arising from psychologically stressful circum- stances in the job environment, was measured by nine items chosen from the job-related tension index developed by Kahn et al. [1964]. This scale demonstrated .85 internal reliability. Even though these three variables correlated significantly with each other, as many other studies have demonstrated, they are considered by behavioral scientists as independent dimensions of job-related attitudes.

Measurements of Budget-Related Atti- tudes. Attitude toward budgets was measured by a four-item scale from Swieringa and Moncur [1975]. The scale, which demonstrated .77 internal reliability,

Kenis 713

TABLE 2

MEANS, STANDARD DEVIATIONS AND INTERCORRELATIONS OF THE ATTITUDE

AND PERFORMANCE (DEPENDENT) VARIABLES

Intercorrelations

n=169 Mean S.D. 1 2 3 4 5 6 7 8

1-Job Satisfaction (0-216) 158.7 29.4 1:00 .21* -.33* .23* .20* .18** .18** .11 2-Job Involvement (1-5) 2.91 .57 1:00 -.04 .18** .17** .12 .07 .14 3-Job Tension (1-5) 2.51 .66 1:00 -.19* -.09 -.28* -.28* -.13 4-Attitude Toward Budgets (1-5) 3.13 .76 1:00 .41 * .25* .11 .15 5-Budgetary Motivation (1-5) 3.65 .72 1:00 .16 .04 .14 6-Budgetary Performance (1-7) 5.19 1.11 1:00 .37* .05 7-Cost Efficiency (1-5) 4.07 .67 1:00 .17** 8-Job Performance (1-5) 4.44 .52 1:00

Significant at .01 level. ** Significant at .05 level.

measures the feelings of the participants about the usefulness of budgeting to themselves as managers. The three-item scale used by Hackman and Lawler [1971] to measure intrinsic motivation was reworded to fit the budgetary situa- tion and used here to measure budgetary motivation. This scale, which demonstrated an internal reliability of .79, measures the extent that the participants feel personal satisfaction and self-esteem when they achieve their budget goals. Even though these two variables correlated significantly with each other, factor analysis of the inter-item correlations demonstrated that they can be used as separate dimensions of budget-related attitudes.

All of the above-mentioned attitude scales, with the exception of the job satisfaction scale, were five-point Likert- type scales scored from one to five. Scores on all items of each scale were averaged to arrive at a set of summary scores from each respondent.

Measurements of Performance Vari- ables. The self-rated budgetary performance was measured by asking the respondents to indicate on a seven-point scale how often they have met their budget goals (have favorable variances).

The responses ranged from never to always. The respondents were also asked to rate the cost efficiency of their departments and their overall job performance; both used a five-point scale ranging from very poor to very good. The means, standard deviations, and intercorrelations of the dependent attitude and performance variables discussed above are presented in Table 2.

The hypotheses of the study were tested by using regression analysis (step- wise). t-statistics were used to test the significance level of the regression coefficients and F-values were used to test significance level of the overall regressions. R2, which represents the percentage of variation of the dependent variables (attitude and performance) explained by the six independent variables (budget goal characteristics), and R2-Change which shows the contribution of the individual independent variables, were computed for each of the eight regressions (Table 3). t-statistics were also used to test the significance level of differences between mean attitude and performance scores computed for different levels of goal difficulty (Table 4), and F-values were used to test the significance level of the differences between subsample atti-

TABLE 3

RELATIONSHIPS BETWEEN BUDGETARY GOAL CHARACTERISTICS (INDEPENDENT VARIABLES) AND ATTITUDES AND PERFORMANCE OF MANAGERS (DEPENDENT VARIABLES)

Independent Variables

Budgetary Budgetary Goal Evaluation Evaluation Goal

Dependent Variables Participation Difficulty -General -Punitive Feedback Clarity

Job Satisfaction Constant Regression Coefficients 158.78 7.810 -4.602 -2.426 -2.323 7.701 10.579 t value 3.76* 2.11** 1.14 1.02 3.53* 4.97* R2 change (R2=.28) .07 .02 .007 .005 .05 .13 Adjusted R2 =.25 F value= 10.47*

Job Involiement Regression Coefficients 2.92 .093 .068 .070 .075 .076 .074 t value 2.05** 1.43 1.46 1.51 1.59 1.60 R2 change (R =.09) .026 .010 .012 .010 .015 .017 Adjusted R2=.06 F value = 2.73**

Job Tension Regression Coefficients 2.51 -.121 .135 .018 .174 -.073 -.318 t value 2.69* 2.83* .39 3.52* 1.54 6.86* R2 change (R =.34) .03 .03 .00 .054 .01 .215 Adjusted R2=.32 F value= 13.97*

A attitude Toward Bwchtets Regression Coefficients 3.13 .275 .105 .142 .078 .090 .238 t value 5.16* 1.87 2.54** 1.34 1.61 4.36* R2 change (R2- .29) .13 .02 .03 .008 .01 .09 Adjusted R2 =.26 Fvalue= 10.97*

Budgetary Motitvation Regression Coefficients 3.65 .149 .128 .127 .158 .153 .195 t value 2.87* 2.35** 2.33** 2.78* 2.83* 3.67* R2 change (R 2= .25) .04 .025 .025 .05 .04 .07 Adjusted R2= 22 F value = 9.21*

Budgetary Per/br mance Regression Coefficients 5.20 .374 -.167 .249 -.276 .060 2.70 t value 4.75* 2.02** 3.03* 3.21* .73 3.35* R2 change (R2 =.27) .11 .02 .04 .04 .002 .06 Adjusted R2 =.24 Fvalue= 10.07*

Cost Efficiency Regression Coefficients 4.07 .095 -.063 -.050 -.141 .084 .170 t value 1.83 1.15 .92 2.50** 1.54 3.19* R2 change (R2 =.14) .018 .007 .004 .03 .013 .066 Adjusted R2 =.11 F value = 4.34*

Job Performance Regression Coefficients 4.44 .052 .031 .011 -.106 .000 .078 t value 1.25 .70 .24 2.31** 1.81 R2 change (R2=.06) .008 .003 .000 .03 .000 .02 Adjusted R2=.04 F value = 2.24**

* Significant at .01 level. ** Significant at .05 level.

Kenis 715

tude and performance score variances [Snedecor and Cochran, 1968].

RESULTS

Budgetary Goal Characteristics and Job-Related Attitudes

The regression coefficients testing the significance of the hypothesized relationships are presented in Table 3. The results support Hypothesis 1 for the effects of budgetary participation, feedback, and goal clarity on job satisfaction; however, the results fail to support the hypothesized negative effects of budgetary evaluation (general and punitive) and goal difficulty on job satisfaction of managers. Participation, goal clarity, and feedback were positively and significantly related to job satisfaction (R2> .05, p<.01, dof.=162).1 The relationships of budgetary evaluation and goal difficulty to job satisfaction were in the expected direction but were not statistically significant. The combined influence of the budgetary goal characteristics on job satisfaction of managers, on the other hand, appeared to be relatively strong (R2=.28, p<.01, d.f.=6, 162).

The results generally fail to support Hypothesis 1 on job involvement. The relationships between the individual budgetary goal characteristics and job involvement were either weak or insignificant. Overall, the goal characteristics explain only a small percentage of the variation in job involvement (R2 =.09, p<.01, d.f.=6, 162).

On the other hand, a relatively strong association appeared to exist between the budgetary goal characteristics as a whole and job tension (R2=.34, p<.01, d.f. = 6, 162). Hypothesis 1 on the effects of the goal characteristics on job tension is supported in all cases, except for budgetary evaluation-general and feedback. Of the six variables, however,

budget goal clarity emerged as the strongest predictor of job tension; in fact, goal clarity alone accounted for 22 percent of the variation in job tension. The contributions of participation, goal difficulty, and budgetary evaluation- punitive in explaining the variance of job tension, on the other hand, ranged between three and five percent (p<.01).

Budgetary Goal Characteristics and Bud- get-Related Attitudes

The results suggest that budgetary goal characteristics, taken as a whole, may play an important role in improving the attitudes of managers toward budgets (R2 = .29,p<.01, d.f. =6, 162). Of the six goal characteristics, only budgetary participation and goal clarity were positively and significantly related to the managers' attitudes toward budgets (R2 > .09, p<.01, d.f.=162). Hypothesis 2, therefore, is supported only for the positive effects of participation and goal clarity on the attitude toward budgets.

The results also reveal that the goal characteristics tend to improve the budgetary motivation of managers (R2 = .25, p<.01, d.f.=6, 162). The relationships between budgetary motivation and all of the individual goal characteristics variables were positive and, except for budgetary evaluation-general and goal difficulty, significant (R2 > .04, p < .01, d.f. = 162). The results, therefore, support Hypothesis 2 for the positive effects of budgetary participation, feedback, and goal clarity on budgetary motivation. Contrary to Hypothesis 2, however, a positive relationship appeared to exist between budgetary evaluation-punitive and budgetary motivation (R2 =.05, p<.O1, d.f.= 162).

1 In other words, the regression coefficients related to participation, goal clarity, and feedback were all positive and significant at .01 level (162 degrees of freedom) and each of these variables explain at least five percent of the variation in job satisfaction of managers.


Budgetary Goal Characteristics and Performance

As predicted in Hypothesis 3, budgetary participation and goal clarity were related positively (R2> .06, p < .01, d.f. = 162), and budgetary evaluation- punitive was related negatively (R2 =.04, p<.01, d.f.=162) to budgetary performance; contrary to the hypothesis, however, the relationship between budgetary evaluation-general and budgetary performance appeared to be positive rather than negative (R2=.04, p<.01, d.f.= 162). Neither feedback nor goal difficulty, on the other hand, were significant in predicting budgetary performance scores. The results suggest that the budgetary goal characteristics, as a whole, tend to have a relatively strong influence on budgetary performance of managers (R 2=.27, p< .01, d.f. = 6, 162).

The overall influence of the budgetary goal characteristics on the self-rated cost efficiency of managers appears relatively weak (R2 =.14, p<.01, d.f.=6, 162). Only one goal characteristic, goal clarity, was found to have a positive and significant relationship with cost efficiency (R2=.066, p <.01, d.f.= 162). Hypothe- sis 3 is supported by the results only for the positive effect of goal clarity on cost efficiency.

The association between the budgetary goal characteristics and job performance appears even weaker (R2 =.06, p<.05, d.f. = 6, 162). In fact, none of the regression coefficients reached the .01 significance level. Therefore, the results fail to support Hypothesis 3 for the effects of the goal characteristics on job performance of managers.

Budget Goal Difficulty: A Closer Look Overall, the relationships between bud-

get goal difficulty, as a continuum, and the attitude and performance variables discussed above were found to be very

weak. However, when the trends of mean scores of the attitude and performance variables are examined at different levels of goal difficulty (about right, tight but attainable, too tight), non-linear relationships seem to exist between budget goal difficulty and job satisfaction, job tension, attitude toward budgets, budgetary motivation, budgetary performance, and cost efficiency.

The data presented on Table 4 reveal that while managers who felt their budget goals were "about right" or "tight but attainable" reported similar levels of job satisfaction and job tension, managers who felt their budget goals were "too tight" reported significantly lower job satisfaction (t= 3.19, p <.01, d.f. = 128) and higher job tension (t=3.35, p<.O1, d.f. = 128). Similarly, managers who felt they had "too tight" budget goals reported lower frequency of meeting their budgets (t=2.52, p<.O1, d.f.=22) and lower self-rated cost efficiency in their departments (t = 2.75, p < .01, d.f. = 22) than those who felt their budget goals were "tight but attainable" or "about right." The mean scores of budgetary motivation and attitude toward budgets variables, however, increase significantly (p <.01) and then decline slightly as the range of goal difficulty increases from "about right" to "tight but attainable" to "too tight" levels.

In conclusion, this analysis suggests that the "too tight" level of budget goal difficulty has adverse effects on the attitude and budgetary performance of managers. The "tight but attainable" range appears to be the optimum level of budget goal difficulty.

SUMMARY AND DISCUSSION

The results presented above suggest that variations in the budgeting style of upper management as reflected in the budgetary goal characteristics can have a

Kenis 717

TABLE 4

MEAN SCORES OF ATTITUDE AND PERFORMANCE VARIABLES AT DIFFERENT

LEVELS OF BUDGET GOAL DIFFICULTY

Tight But About Right Attainable Too Tight Otverall

Difficulty Mean Score Range (5-Points) 2-3 3-4 4-5

n=39 n= 109 n=21 n= 169

Job Satisfaction (0-216) 160.33 161.58a, 138.90a2 158.68 Job Involvement (1-5) 2.80 2.99 2.86 2.91 Job Tension (1-5) 2.34 2.48b1 2.99b2 2.51

Attitude Toward Budgets (1-5) 2.93c' 3.26c2 2.90c3 3.13

Budgetary Motivation (1-5) 3.4Idl 3.76d2 3.62 3.65

Budgetary Performance (1-7) 5.46 5.27el 4.35e2 5.19 Cost Efficiency (1-5) 4.08 4.18f1 3.55-2 4.07

Job Performance (1-5) 4.36 4.48 4.30 4.44

Note: Significant differences between means (results are the same whether t tests based on pooled variance or separate variances are applied):

p<.OI al vs. a2; bI vs. b2; cI vs. c2; dl vs. d2; el vs. e2; fl vs. f2.

p <.05 c2 vs. c3.

significant impact on the attitudes and performance of lower level managers. The budgetary goal characteristics as a whole appeared to have relatively strong influence on such managerial attitude and performance variables as job satisfaction, job tension, budgetary motivation, attitude toward budgets, and self-rated budgetary performance. The effects of the goal characteristics on job involvement, cost efficiency, and job performance, on the other hand, were found to be relatively weak.

In particular, the findings suggest that managers react positively and relatively strongly to increased clarity of budget goals. Upper level management, with the help of the accounting department, can increase job satisfaction, decrease job tension, and improve budget-related attitudes, budgetary performance, and cost efficiency of lower level managers significantly by increasing the clarity and specificity of their budget goals. These results confirm the findings of various task-goal setting studies with respect to

the positive effects of goal clarity on attitudes and performance [Locke, 1968; Latham and Yukl, 1975; Steers, 1976; Ivancevich, 1976].

The results of the study also support the findings of many studies conducted in budget-goal setting environments [Hof- stede, 1967; Milani, 1975; Swieringa and Moncur, 1975] as well as task-goal setting environments [Locke, 1968; Steers, 1976] as to the positive effects of participation in goal setting on the attitudes of participants. Significant relationships were found between budgetary participation and both job-related attitudes (job satisfaction, job tension) and budget-related attitudes (budgetary motivation, attitude toward budgets). Furthermore, the results reveal that budgetary participation tends to improve budgetary performance of budgeted managers. However, con- sistent with Milani's [1975] results, participation was unrelated to job performance.

Only job satisfaction and budgetary motivation were found to have signifi-


cant though somewhat weak relationships to budgetary feedback. The results imply that feedback about the degree of budget goal achievement is ineffective in improving performance and only margi- nally effective in improving the attitudes of managers. These findings fail to clarify the mixed results of various studies which dealt with feedback-attitude-performance relationships in task-goal setting [Cha- panis, 1964; Carroll and Tosi, 1970; Hackman and Lawler, 1971; Steers, 1975; Kim and Hamner, 1976]. Various mediating variables, such as timeliness and content of feedback and other environmental factors might be the cause of these conflicting findings.

The results related to the effects of budget goal difficulty, as a continuum, on the attitudes and performance of managers were also inconclusive; all the relationships were either weak or insignificant. The positive effects of goal difficulty reported by Locke [1968], Blumenfeld and Leidy [1969], and Car- roll and Tosi [1970] are not supported. However, further analysis of the data seems to confirm the contention that "too tight" budget goals have negative effects [Hofstede, 1967; Becker and Green, 1962; Dunbar, 1971]. Managers who reported having "too tight" budget goals also reported significantly higher job tension and lower job satisfaction, budgetary performance, and cost efficiency as compared to those who reported having "about right" or "tight but attainable" budget goals. The results also indicate that "tight but attainable" is the optimum level for budget goal difficulty.

Finally, the budgeted managers appeared to react unfavorably to using budgets in performance evaluation in a punitive fashion (increasing job tension, decreasing budgetary performance). However, this tendency can be dis-

counted because of the apparently weak relationships between the variables. Bud- getary evaluation-general also appeared ineffective.

Taken together, the findings suggest that upper level management may be able to improve the attitudes and budgetary performance of lower level budgeted managers by emphasizing clarity of budget goals, by soliciting participation of the managers in the determination of goals, and by stating the goals at a "tight but attainable" level. Providing feedback about budget goal achievement and using budgets in performance evaluation seem to have limited consequences.

The findings of this study, however, should be considered in the light of its limitations. The scope of the study is limited by its sample size, organizational level, and industrial coverage; only mid- dle management at the plant level in manufacturing companies was covered. The results might have been different if managers from other manufacturing and service industries and other levels of management had been included in the sample. Also, response bias might have arisen from the self-selection of the respondents. The responses of the non- respondents might have been different. Another bias might come from the fact that performance was self-rated; measurements based on formal performance reports or evaluations by superiors might have given different results. The Likert- type attitude measurements used might also have produced some response bias. Finally, no mediating situational variables were included; personality and needs of the managers, goal acceptance, reward expectancy, and some organizational and environmental variables are capable of influencing the relationships studied here.

Therefore, future research in this area might be directed to studying the relation-

Kenis 719

ships presented in this study in other industries. The influence of managerial, organizational, and other environmental variables on budgeting style of manage-

ment should also be investigated, as well as the influence of mediating variables on goal characteristics-attitude-performance relationships.

APPENDIX A

VARIMAX ROTATED FACTOR MATRIX OF BUDGETARY GOAL CHARACTERISTICS ITEMS

Factor Loadings (Rounded)

Commu- Factors I II III IV V VI nality

I. Participation 1 .88 -.06 -.01 -.11 .06 .14 .82 2 .80 -.07 -.14 -.03 .07 .18 .71 3 .83 -.02 -.10 -.02 .00 .17 .74 4 .53 -.03 .08 .05 .16 .20 .36 5 .65 .04 -.02 -.07 .08 .10 .45

II. Budget Goal 1 -.06 .68 -.06 .08 .12 .02 .49 Difficulty 2 .09 .76 -.02 .08 .09 -.01 .60

3 .12 .70 .15 -.04 .05 -.03 .53 4 .21 .60 - .18 .13 .06 .04 .45 5 -.18 .59 .03 -.12 .14 -.12 .43

III. Budgetary 1 -.15 .04 .75 .30 .14 .04 .71 Evaluation- 2 -.12 .08 .82 .17 .20 .01 .77 General 3 -.18 .13 .67 .19 .19 .05 .58

4 .19 .17 .27 .18 .20 .02 .21

IV. Budgetary 1 .02 -.11 .20 .62 -.15 -.09 .47 Evaluation- 2 -.05 .20 .07 .60 .14 .08 .43 Punitive 3 -.09 .12 .15 .68 -.17 .02 .51

4 -.07 .09 .26 .63 .10 -.06 .49 5 -.06 .08 .17 .67 -.04 -.11 .50 6 .18 .22 .17 .31 .08 .01 .23

V. Budgetary 1 .10 .09 .16 .17 .74 .15 .64 Feedback 2 .09 .13 .16 .12 .84 -.09 .78

3 .06 .17 .13 .16 .58 .19 .44

VI. Budget Goal 1 .37 -.03 .08 -.06 .14 .81 .83 Clarity 2 .28 -.07 .13 -.05 .17 .79 .76

3 .25 .07 .15 .08 .05 .69 .57

Eigenvalue 5.31 4.62 1.94 1.15 .84 .76 Percent of variance 36.36 31.6 13.3 7.9 5.7 5.2

APPENDIX B

QUESTIONNAIRE ITEMS OF THE BUDGETARY GOAL CHARACTERISTICS

I. Budgetary Participation 1. I am allowed a high degree of influence in the determination of my budget goals. 2. I really have little voice in the formulation of my budget goals (reverse item). 3. The setting of my budget goals is pretty much under my control. 4. My superior usually asks for my opinions and thoughts when determining my budget goals. 5. My budget is not finalized until I am satisfied with it.

II. Budget Goal Difficulty 1. I should not have too much difficulty in reaching my budget goals. They appear to be fairly easy (reverse item). 2. My budget goals are quite difficult to attain.


3. My budget goals require a great deal of effort from me to achieve them. 4. It takes a high degree of skill and know-how on my part to attain fully my budget goals. 5. In general, how would you characterize the budgetary goals of your unit? __ too loose; fairly loose;

just right; tight but attainable; to tight. III. Budgetary Evaluation-General

1. My superior has mentioned budgets while talking to me about my efficiency as a supervisor. 2. Budget variances in my unit have been mentioned during performance evaluation interviews by my superior. 3. Budget variances in my unit have been mentioned by my superiors as factors in considering me for pay raises. 4. My superior has held me personally accountable for budget variances in my department (unit).

IV. Budgetary Evaluation-Punitive 1. My superior has been dissatisfied with my explanation of budget variances in my unit. 2. My superior has spoken to me about increasing production to meet budget goals. 3. My superior has expressed dissatisfaction to me about results in my unit (dept.) when the budget has not been

met. 4. Large budget variances in my unit have brought comments from my superior to the effect that my performance

has been poor. 5. My superior has become angry about budget variances in my unit. 6. I have had to explain to my superior budget items over which I have no control.

V. Budgetary Feedback 1. I receive a considerable amount of feedback about my achievement concerning my budget goals. 2. I am provided with a great deal of feedback and guidance about my budget variances. 3. My boss lets me know how well I am doing in terms of achieving my budget goals.

VI. Budget Goal Clarity 1. My budget goals are very clear and specific. I know exactly what my budget goals are. 2. I think my budget goals are ambiguous and unclear (reverse item). 3. I understand fully which of my budget goals are more important than others. I have a clear sense of priorities

on these goals.

REFERENCES

Argyris, Chris, The Impact of Budgets on People (Controllership Foundation, 1952). Becker, Selwyn and D. Green, "Budgeting and Employee Behavior," Journal of Business (October 1962),

pp. 392-402. Blumenfeld, W. S. and T. R. Leidy, "Effectiveness of Goal Setting as a Management Device: Research

Note," Psychological Reports (June 1969), p. 752. Bruns, W. J. and J. H. Waterhouse, "Budgetary Control and Organization Structure," Journal of Ac-

counting Research (Autumn 1975), pp. 177-203. Carroll, S. J. and H. L. Tosi, "Goal Characteristics and Personality Factors in a Management by Ob-

jectives Program," Administrative Science Quarterly (September 1970), pp. 295-305. Chapanis, A., "Knowledge of Performance as an Incentive in Repetitive, Monotonous Tasks," Journal

of Applied Psychology (August 1964), pp. 263-267. Cronbach, Lee J., "Coefficient Alpha and the Internal Structure of Tests," Psychometrika (September

1951), pp. 297-334. DeCoster, Don T. and J. P. Fertakis, "Budget-Induced Pressure and its Relationship to Supervisory Be-

havior," Journal of Accounting Research (Autumn 1968), pp. 237-246. Dunbar, R. L. M., "Budgeting for Control," Administrative Science Quarterly (March 1971), pp. 88-96. Fertakis, John P. "Budget-Induced Pressure and Its Relationship to Supervisory Behavior in Selected

Organizations" (Doctoral Dissertation, University of Washington, 1967). French, J. R. P., E. Kay, and H. H. Meyer, "Participation and the Appraisal System," Human Relations

(February 1966), pp. 3-19. Hackman, J. R. and E. E. Lawler, "Employee Reactions to Job Characteristics," Journal of Applied

Psychology (June 1971), pp. 259-286. Hanson, Ernest I., "The Budgetary Control Function," TiIE ACCOUNTING REVIEW (April 1966), pp.

239-243. Hofstede, G. H., The Game of Budget Control (The Netherlands: Koninklijke Van Gorcum and Comp.

N. V. Assen, 1967).

Kenis 721

Hopwood, Anthony G., "An Empirical Study of the Role of Accounting Data in Performance Evalua- tion," Empirical Research in Accounting: Selected Studies, 1972 Supplement to Journal of Accounting Research, pp. 156-182.

Ivancevich, John, "Effects of Goal Setting on Performance and Job Satisfaction," Journal of Applied Psychology (October 1976), pp. 605-612.

Kahn, R. L., D. M. Wolfe, R. P. Quinn, J. D. Snoek, and R. A. Rosenthal, Organizational Stress: Studies in Role Conflict and Ambiguity (John Wiley and Sons, Inc., 1964).

Kim, J. S. and W. C. Hamner, "Effects of Performance Feedback and Goal Setting on Productivity and Satisfaction in an Organizational Setting," Journal of Applied Psychology (February 1976), pp. 48-57. Latham, G. P. and G. A. Yukl, "A Review of Research on the Application of Goal Setting in Organiza-

tions," Academy of Management Journal (December 1975), pp. 824-845. "Effects of Assigned and Participative Goal Setting on Performance and Job Satisfaction,"

Journal of Applied Psychology (April 1976), pp. 166-171. Locke, E. A., "Toward a Theory of Task Motivation and Incentives," Organizational Behavior and

Human Performance (May 1968), pp. 157-189. Lodahl, T. M. and M. Kejner, "The Definition and Measurement of Job Involvement," Journal of

Applied Psychology (February 1965), pp. 24-33. Lowin, A., "Participative Decision Making: A Model, Literature Critique, and Prescriptions for Re-

search," Organizational Behavior and Human Performance (February 1968), pp. 68-106. Milani, Ken, "The Relationship of Participation in Budget-Setting to Industrial Supervisor Performance

and Attitudes: A Field Study," THE ACCOUNTING REVIEW (April 1975), pp. 274-284. Nie, N. H., C. H. Hull, J. G. Jenkins, K. S. Brenner, and D. H. Bent, Statistical Package for the Social

Sciences (McGraw-Hill, 1975). Schiff, M. and A. Y. Lewin, "The Impact of People on Budgets," THE ACCOUNTING REVIEW (April 1970),

pp. 259-268. Searfoss, D. G., and R. M. Monczka, "Perceived Participation in the Budget Process and Motivation to

Achieve the Budget," Academy of Management Journal (December 1973), pp. 541-554. Smith, P. C., L. M. Kendall, and C. L. Hulin, The Measurement of Satisfaction in Work and Retirement:

A Strategyfor the Study of Attitudes (Rand McNally and Co., 1969). Snedecor, G. W., and W. G. Cochran, Statistical Methods (The Iowa State University Press, 1968). Stedry, A. C. and E. Kay, "The Effects of Goal Difficulty on Performance: A Field Experiment, "Be-

havioral Science (November 1966), pp. 459-470. Steers, R. M., "Task-Goal Attributes, Achievement, and Supervisory Performance," Organizational

Behavior and Human Performance (June 1975), pp. 392-403. "Factors Affecting Job Attitudes in a Goal-Setting Environment," Academy of Management

Journal (March 1976), pp. 6-16. Swieringa, R. J. and R. H. Moncur, Some Effects of Participative Budgeting on Managerial Behavior

(National Association of Accountants, 1975). Vroom, V. H., Work and Motivation (John Wiley and Sons, Inc., 1964). Wallace, M. E., "Behavioral Considerations in Budgeting," Management Accounting (August 1966), pp.

3-8. Welsch, G. A., Budgeting: Profit Planning and Control (Prentice-Hall, 1976). Yukl, G., "Toward a Behavioral Theory of Leadership," Organizational Behavior and Human Performance

(July 1971), pp. 414-440.