The Mediating Effect of Psychological Capital on the Budget Participation – Job

Performance Relationship

Roopa Venkatesh, Ph.D.*

Assistant Professor
Department of Accounting
University of Nebraska at Omaha
Mammel Hall 228V
Omaha NE 68178
Email: rvenkatesh@unomaha.edu
Phone: 402-554-3062
Fax: 402-554-3747

Jennifer Blaskovich, Ph.D., CPA

Assistant professor
Department of Accounting
University of Nebraska at Omaha
Mammel Hall 228R
Omaha, NE 68182
jblaskovich@unomaha.edu
Phone: 402-554-3984
Fax: 402-554-3747

*Contact author

We are grateful to the Institute of Management Accountant (IMA) Foundation for Applied
Research (FAR) grant for support with the data collection.

Electronic copy available at: http://ssrn.com/abstract=1659126

 The Mediating Effect of Psychological Capital on the Budget Participation – Job
Performance Relationship

ABSTRACT: This study draws from the literature in positive psychology and organizational
behavior, and is the first to examine the mediating effect of an individual‘s positive
Psychological Capital (PsyCap) on the budget participation- job performance relationship.
Positive PsyCap is an emerging construct in the organizational behavior literature that represents
an individual‘s positive state of psychological development, and is characterized by the
individual‘s hope, efficacy, optimism, and resiliency. PsyCap focuses on developing and
building on individuals‘ strengths instead of concentrating on reducing or eliminating
individuals‘ weaknesses. Responses to a survey of 113 employees working in organizations
across the United States and who are actively involved in the budget setting process or have
budgetary responsibilities were used to test the hypotheses of this study. The results show that
budget participation is significantly and positively associated with employees‘ levels of PsyCap,
which is in turn significantly and positively associated with higher levels of job performance.
More importantly, the results provide strong support for the full mediation effect of PsyCap on
the budget participation – job performance relationship. The results of this study contribute to the
literature in budgeting by addressing the scholarly calls for research to examine the positive
effects of budgeting practices such as, budget participation. Further, in the current challenging
work environment, the results of this study allows us to inform organizations about the potential
extent to which budget participation can be used as a tool to develop employees‘ strengths to
perform successfully at challenging tasks, instead of focusing on the dysfunctional behaviors
caused by budget participation.

Key Words: Budget Participation; Psychological Capital; PsyCap

Electronic copy available at: http://ssrn.com/abstract=1659126

 INTRODUCTION

Organizations allow employees to participate in the budget-setting process expecting, but

not always achieving, positive outcomes such as a greater level of job performance or job

satisfaction (Argyris 1952; Becker and Green 1962; Chenhall and Brownell 1988; Kren 1992;

Douglas and Wier 2000; Covaleski et al. 2003; Marginson and Ogden 2005; Sheely and Brown

2007). The extant literature in managerial accounting on the effects of budget participation on

job performance has failed to establish a direct relationship between budget participation and job

performance (Murray 1990). Nevertheless, managerial accounting researchers have maintained

the notion that involving employees in the budget-setting process should positively influence

their level of motivation and performance (Argyris 1952; Murray 1990; Chong and Chong 2002),

and have examined motivational factors that mediate and moderate the budget participation – job

performance relationship (Murray 1990; Wagner 1994; Chong and Chong 2002; Covaleski et al.

2003). Empirical results on the motivational role of budget participation on performance

however, have been inconsistent (Ronen and Livingstone 1975; Ferris 1977; Brownell and

McInnes 1986; Kren and Liao 1988; Murray 1990; Chong and Chong 2002; Covaleski et al.

2003). One variable with a motivational propensity that might explain the inconsistent results of

prior research but has not yet been examined in a budget participation context is an individual‘s

Psychological Capital or ―PsyCap‖ (Luthans et al. 2007).

PsyCap draws from the research and theory in positive psychology and is defined as ―An

individual‘s positive state of psychological development that is characterized by (1) having

confidence (efficacy) to take on and put in the necessary effort to succeed at challenging tasks;

(2) making a positive attribution (optimism) about succeeding now and in the future; (3)

persevering towards goals, and when necessary, redirecting paths to goals (hope) in order to

1
Electronic copy available at: http://ssrn.com/abstract=1659126
succeed; and (4) when beset by problems and adversity, sustaining and bouncing back and even

beyond (resiliency) to attain success‖ (Luthans et al. 2007, 3.). Thus, PsyCap is positive in nature

and includes the development of an individual‘s level of efficacy, optimism, hope, and

resiliency. PsyCap focuses on developing and building on individuals‘ strengths instead of

concentrating on reducing or eliminating individuals‘ weaknesses. Luthans et al. (2007) provided

initial evidence that the four factors have a synergistic effect when combined. The study of

PsyCap is gaining prominence in the organization sciences, and research in organizational

behavior provides evidence that PsyCap is a core construct that predicts performance better than

any one of the individual strengths that make it up (Luthans et al. 2008; Gooty et al. 2009). This

study is the first to examine the mediating effect of an individual‘s PsyCap on the budget

participation – job performance relationship.

Responses to a survey of 113 employees or managers working in organizations across the

United States and who are actively involved in the budget setting process or have budgetary

responsibilities were used in this study. The results show that budget participation is significantly

and positively associated with employees‘ levels of PsyCap, which in turn is positively

associated with higher levels of job performance. More importantly, the results provide strong

support for the full mediation effect of PsyCap on the budget participation – job performance

relationship.

Our work contributes to the literature in budgeting, and specifically, the research on

budget participation. The results of this study also have the potential to inform practitioners

about improving business performance. With regard to the literature in budgeting, this study

answers the scholarly calls for research to examine the ‗positive‘ aspects of budgeting and the

potential for budgets to play a more functional role in individuals‘ work-related experiences (e.g.

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Marginson and Ogden 2005). Moreover, the current business environment or workplace is

experiencing changes at a more dramatic pace than ever before (Larson and Luthans 2006). In

such an environment, we expect the results of this study to inform managers about the extent to

which budget participation has the potential to build employees‘ strengths to perform

successfully at challenging tasks, instead of focusing on the dysfunctional behaviors caused by

budget participation.

This paper is organized as follows. The next section discusses the prior literature and

theoretical foundation for our research hypotheses, followed by a section on the research method.

The paper concludes with a discussion of the results and opportunities for future research.

HYPOTHESES DEVELOPMENT

The psychology-based scholarly research on budgeting has focused on the effect of

budget practices on employees‘ mental states, their behavior, and performance (Covaleski et al.

2003). Budget participation is one such budget practice that has received considerable attention

in the literature (see Shields and Shields 1998 for a review). Consistent with prior research,

budget participation is defined in this study as a process in which an employee is involved with,

and has influence on the determination of his or her budget (Shields and Shields 1998; Chong

and Chong 2002). Employees have influence on the setting of their budget goals which then

become one of their primary performance assessment criteria. In addition to having an influence

on their budgetary goal levels, employees‘ involvement in the budget participation process also

enables them to negotiate or renegotiate for the resources needed to accomplish their budget

goals or revise their goal levels when faced with unforeseen circumstances. Ideally, the act of

participating in such a budget will positively impact the employee‘s mental state and improve

their performance (Argyris 1953).

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 Although substantial effort has been devoted to studying this relationship, the findings

have been inconclusive. The effect of participation on performance has been shown to be

positive, negative, or insignificant (see Shields and Shields 1998 for a review). One conclusion

that can be drawn from this research is the lack of a clear, direct relationship between

participation and performance. Instead, research indicates an intervening-variables model, which

presumes that individuals‘ mental states mediate the relationship between participation and

performance (Covaleski et al. 2003). Studies in this vein have found support for several

intervening variables, including stress (Shields et al. 2000), resource adequacy and

organizational commitment (Nouri and Parker 1998), goal commitment and information

acquisition (Chong and Chong 2002), and goal commitment and fairness perceptions (Wentzel

2002).

Following this model, we propose PsyCap as an intervening variable between

participation and performance. PsyCap is an emerging higher order, core construct that

encompasses underlying dimensions of an individual‘s mental state (e.g., Luthans et al. 2007;

Luthans et al. 2008). Thus, we build on the foundation of prior psychology-based budgeting

research by examining the relationship between budget practices, mental states, and

performance, capturing employees‘ mental states through their level of PsyCap. Drawing from

research in budgeting and Positive Organizational Behavior (POB), we propose that a greater

level of budget participation is associated with greater levels of employees‘ PsyCap. This in turn

is associated with higher levels of performance.

Psychological Capital

POB is ―the study and application of positive oriented human resource strengths and

psychological capacities that can be measured, developed, and effectively managed for

4
performance improvement in today‘s workplace‖ (Luthans 2002b p. 59). PsyCap, a derivative of

POB, is a core, higher-order construct made up of four individual constructs: hope, efficacy,

resiliency and optimism. Although each of these four constructs is unique in their own right, they

share certain characteristics which are represented by the core, higher order construct with a

motivational propensity, PsyCap. The literature in positive psychology (Snyder 2000; Snyder

and Lopez 2002) and POB (Luthans et al. 2007) clearly differentiates these four positive

constructs and provides evidence for the discriminant validity among them. PsyCap can vary

within individuals on the basis of contextual conditions (e.g. a budget participation context) and

can vary on the basis of individual characteristics such as traits or physical health (Luthans et al.

2007; Gooty et al. 2009). The following paragraphs discuss the association between the budget

participation context and each of the four PsyCap constructs.

The Linkage between Budget Participation and Psychological Capital

Hope: Hope is a motivational state that includes an individual‘s desire to get started towards a

goal and to remain committed to that goal (willpower), and the ability to develop alternative

pathways (way power) to achieve those goals when faced with obstacles (Snyder 2000; Luthans

and Youssef 2004). The budget participation process encompasses approaches that enrich the

willpower and way power dimensions of hope such as enabling employees to participate in the

determination of their budget goals; enabling employees to break down long-term goals into

manageable sub-goals to experience gradual progress or ―small wins‖; providing positive

feedback to employees on their progress and enabling them to develop alternative ways to

achieve their self-set goals when faced with adverse situations (see Luthans and Youssef 2004

for approaches that enrich the willpower and way power dimensions of hope). Therefore,

5
employees‘ extent of participation in the budget setting process should be positively related to

their levels of hope.

Efficacy: Efficacy draws from Bandura‘s social learning theory (Bandura 1982; 1986) and is ―an

individual‘s confidence in his or her ability to mobilize the motivation, cognitive resources and

courses of action necessary to successfully complete a task within a specific context‖ (Stajkovic

and Luthans 1998). Social persuasion and feedback, task mastery, and actual performance

attainments for challenging, but achievable, concrete goals have been identified as contexts that

nurture and grow employees‘ levels of efficacy (Luthans et al. 2007). During budget

participation, employees have the opportunity to self-set challenging, but achievable goals,

receive guidance and feedback from their supervisors towards achieving those goals and also

experience the success of achieving challenging goals, all of which nurture employees‘ levels of

efficacy. Thus, the extent of employees‘ participation in the budget-setting process should be

positively related to their levels of efficacy.

Optimism: Optimism is an individual‘s favorable assessment of good or bad events (Luthans et

al. 2008; Gooty et al. 2009). Work environments in which employees are encouraged to reframe

and accept their past failures or setbacks, encouraged to view uncertainties in the future as

opportunities for growth and advancement, and encouraged to appreciate the positive aspects of

their jobs that they can and cannot control are said to develop and grow employees‘ levels of

optimism (Luthans and Youssef 2004). Budget participation is a budgeting practice

characterized by interpersonal relations between the supervisor and the subordinate in which

subordinates should be able to communicate to their supervisors the difficulties they face while

attempting to accomplish their self-set goals, and resolve them. Supervisors in a budget

participation context are also in a position to influence subordinates‘ favorable assessments of

6
good or bad events. Organizations employ budgeting practices such as budget participation in the

hope of providing an optimistic and encouraging work environment for their employees (Argyris

1952; Covaleski et al. 2003). Therefore, greater levels of budget participation will be associated

with higher levels of employee optimism.

Resiliency: Resiliency is a ―developable capacity to rebound or bounce back from adversity,

conflict, failure, or even positive events, progress, and increased responsibility‖ (Luthans 2002a

p.702). The other PsyCap constructs of hope, efficacy, and optimism may act as pathways to

developing resiliency in an individual. Work environments which focus on reducing the

probability of undesired outcomes or focus on enhancing the resources that increase the

probability of positive outcomes despite the presence of risks facilitate the resilience of their

employees (Luthans et al. 2007). Organizations choose to allow employees to participate in the

budget-setting process to increase the probability of positive outcomes when faced with risks or

uncertainties.

Thus, we propose that employees‘ participation in the budget-setting process will provide

a positive psychological context for employees intended to set challenging, but achievable goals,

a belief in accomplishing them and overcoming adversity, and a belief in a positive future as

represented by PsyCap. All in all, greater levels of budget participation, when perceived as such

by employees, is a contextual condition which enables each of the four constructs represented by

PsyCap to strengthen.

The Linkage between Psychological Capital and Job Performance

Several studies in the organizational behavior literature (Luthans et al. 2005a; 2005b;

Larson and Luthans 2006; Luthans et al. 2007; Gooty et al. 2009; Luthans and Avolio 2009)

have found PsyCap to be positively related to job performance. Although the budget context was

7
not specifically represented in these studies, the findings indicate strong support for this

relationship. Following this lead, and based on the literature reviewed above, we expect that

PsyCap will be positively related to job performance in a budget participation context. We

propose the following hypotheses:

H1: Budget participation is positively related to PsyCap.

H2: PsyCap is positively related to employees’ job performance.

H3: Budget participation is positively related to employees’ job performance.

The psychology-based budget research reviewed above is based on the predicted link between

budget practices, employees‘ mental states, and performance. The intervening variables model

further predicts that individuals‘ mental states mediate the relationship. We propose PsyCap as a

mediating variable. Prior research has not specifically addressed this expectation. However,

Luthans et al. (2008) examined the influence of PsyCap on the relationship between supportive

organizational climate and performance, and found evidence that PsyCap fully mediates this

relationship. Accordingly, there is research evidence to support the expectation that PsyCap

represents an intervening variable in an organizational practice – performance context. The

following hypothesis tests the mediating role of PsyCap in the budget participation – job

performance relationship:

H4: PsyCap mediates the relationship between budget participation and job
performance.

Figure 1 represents the research model of the study.

<Insert Figure 1 here>

8
 RESEARCH METHOD

Participants

An online survey questionnaire was used to gather data for this study. Upper level

executives are no longer the privileged few with opportunities to participate in the budget setting

process. Instead, employees at different levels from chief financial officer to accounts payable

clerks are involved in or participate in the budget-setting process to some extent (Sheely and

Brown, 2007). Therefore, keeping in mind the main aim of this study, we invited employees or

managers who currently occupy low, mid, or upper-level positions, have held these positions for

at least two years, and have budgetary responsibilities, to participate. The online questionnaire

gathered data regarding: (1) individuals‘ level of budget participation; (2) individuals‘ job

performance; (3) data regarding individuals‘ level of PsyCap, (4) attitudes concerning the

budgeting process, and (5) demographic data.

The survey was sent to 2500 employees working in a variety of industries in the United

States with the main criteria being that individuals be involved in the budgeting process. 133

individuals participated in the survey of which we received 113 completed usable responses. For

the overall sample, the participants‘ average age was 39.5 years (s.d.=15.5) and average tenure in

their current positions was just over four years (s.d.= 4.2). Additional demographic information

is presented in Table 1.

<Insert Table 1 here>

Measures

Job-Performance (Dependent Variable) - A self-rated measure of performance (Mahoney et al.

1965) used effectively in prior budget participation research (e.g., Brownell and McInnes 1986;

Govindarajan 1986; Kren 1992) was used. Individuals were asked to rate themselves on eight

9
dimensions of performance: planning, investigating, coordinating, evaluating, supervising,

staffing, negotiating, and representing. Similar to Kren (1992) an overall measure of

performance was also included. The eight sub-scale items were summed up and averaged to

construct a composite performance scale. The combined scale was significantly correlated

(r=.614; p <.01) with the overall performance rating. Following Kren (1992), this provides

support for the combined scale as a reasonable measure of job performance, and thus, we use the

combined scale in our statistical testing.

Psychological Capital (PsyCap) – The PsyCap questionnaire (PCQ) (Luthans et al., 2007) was

used in this study. This PCQ has been found both reliable and predictive of performance across

diverse samples (Luthans et al. 2008). The four standard measures from which the PCQ was

drawn from include: (1) hope (Synder et al. 1996); (2) resiliency (Wagnild and Young 1993); (3)

optimism (Scheier and Carver 1985); and (4) self-efficacy (Parker 1998). Each of the original

standardized scales has considerable psychometric support and has been used in previous

workplace studies alone (Peterson and Luthans 2003) and in combination (Luthans et al. 2005a;

2005b; Luthans et al. 2008). Responses to each of the four subscales were summed and averaged

to determine a subscale composite. Then, the averages for each of the four subscales were added

together and averaged to get a composite average for each participant‘s PsyCap score.

Budget Participation – A three-item version of a participation measure employed by Milani

(1975) was used. This measure has been used effectively in prior budgeting research (Kren

1992). An overall measure of budget participation was calculated by summing and averaging the

responses to the three individual items.

10
 ANALYSIS AND RESULTS

Given that PsyCap is a relatively new construct not yet addressed in the accounting

literature, we strictly follow the lead of Luthans and his colleagues (e.g., Luthans et al. 2008) for

our statistical analysis. Table 2 shows the means and standard deviations for the variables of the

study. Table 3 shows the correlations among the variables of the study. The results show support

for hypothesis 1 which predicts that budget participation is positively related to PsyCap (r =

.539; p<.01). Hypothesis 2 is also supported, indicating that PsyCap is positively related to job

performance (r = .362; p<.01). However, the results in Table 3 do not provide support for

hypothesis 3 which predicts a positive relationship between budget participation and job

performance. The results most importantly show support for hypothesis 4 which predicts that

PsyCap mediates the budget participation-job performance relationship.

<Insert Table 2 here>

<Insert Table 3 here>

Baron and Kenny‘s (1986) technique, revised by Kenny et al. (1989), was used to test the

hypothesis on the mediating effect of PsyCap on the budget participation – job performance

relationship. Three regression equations were estimated according to this approach. In the first

equation the dependent variable (job performance) was regressed on the independent variable

(budget participation). In the second equation, the mediating variable (PsyCap) was regressed on

the independent variable (budget participation). In the third equation, the dependent variable (job

performance) was regressed on both the independent variable (budget participation) and the

mediating variable (PsyCap).

According to Barron and Kenny (1986), there is support for mediation if a significant

relationship is found for the first two equations mentioned above, if the third regression shows

11
that the mediating variable is related to the dependent variable, and if the relationship of the

independent variable with the dependent variable is lower in magnitude than in the second

equation. Further, in order to find support for full mediation, the independent variable (budget

participation) should not relate to the dependent variable (job performance) when the mediating

variable (PsyCap) is added to the equation. Table 4 provides the results for the three regression

equations.

<Insert Table 4 here>

The results in Table 4 show that the regression coefficient for budget participation was

not significant when job performance was regressed on budget participation (β =.14, p = .14). As

revised by Kenny et al. (1989), a significant relationship between the independent variable

(budget participation) and the dependent variable (job performance) is not required for mediation

as long as the other two regression equations are significant. Therefore, a significant relationship

between budget participation and job performance is not required to statistically demonstrate

mediation.

As shown in Table 4, the regression coefficient for budget participation is significant

when PsyCap was regressed on budget participation (β=.54, p=.000) in equation 2. Further, when

job performance was regressed on both PsyCap and budget participation, PsyCap was the only

variable that contributed significantly to the equation (for PsyCap β=.40, p = .000). More

importantly, the already weak relationship between budget participation and job performance

weakened further to become negative (β=-.078, p =.461), showing support for full mediation.

Thus, there is strong support for hypothesis 4 which predicts that PsyCap fully mediates the

relationship between budget participation and job performance.

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 To provide further support for the mediating effect of PsyCap, the Sobel test was also

conducted. The Sobel test is conducted to test whether the mediator (PsyCap) carries the

influence of the independent variable (budget participation) to the dependent variable (job

performance) (Preacher and Hayes 2004). The Sobel test statistic measures the indirect effect of

budget participation on job performance by way of the mediator, PsyCap. Results of the Sobel

test were significant and supported the mediating effect of PsyCap on the budget participation-

job performance relationship (test statistic = 3.32, p-value <.001). In addition, the Aroian test

was also significant providing support for full mediation (test statistic = 3.29, p-value <.001).

The Aroian test is being used by researchers as an additional way to test for mediation effects

(e.g., Luthans et al. 2008). These additional tests along with the revised tests suggested by Kenny

et al. (1998) provide strong support for our hypothesis.

DISCUSSION AND CONCLUSIONS

This study aimed to provide empirical evidence about the relationship between budget

participation, PsyCap, and job performance. As predicted, our findings indicate that budget

participation is positively associated with PsyCap and that PsyCap is positively associated with

performance. We do not find a direct relationship between participation and performance, but

rather show that PsyCap fully mediates the relationship. This adds evidence to the recent stream

of budgeting literature that employs an intervening-variables model in the study of participation

and performance. Beyond this corroboration, the study‘s primary contribution involves the

introduction of PsyCap as a mediating link between participation and performance. Specifically,

our findings show that budget participation is significantly and positively associated with an

employee‘s PsyCap, which is in turn associated with higher levels of job performance.

13
 Although PsyCap is the subject of an emerging literature stream in organizational

behavior, our study appears to be the first to examine the construct in a budgetary setting.

PsyCap is a core, higher order construct that captures several underlying dimensions of an

individual‘s mental state. Much prior budget participation research has focused on the negative

consequences of participation (e.g, slack, gaming). On the contrary, PsyCap is an outgrowth of

the positive psychology movement, which focuses on the development of individuals‘ strengths

rather than their dysfunctions. PsyCap represents a positive perspective and strategy for

managing and improving performance (Luthans et al. 2008). Thus our findings suggest a positive

consequence of participatory budget practices.

Several limitations of this study must be acknowledged. First, PsyCap is an emerging

construct that remains open to refinement. The positive psychological constructs of hope,

resiliency, optimism, and self-efficacy have been theoretically and empirically validated to meet

the criteria of the core, higher order construct. It is possible that other constructs may be included

in the future. Second, we rely solely on the psychology-based literature on budgeting to motivate

our study, despite Covaleski et al.‘s (2003) call for the use of integrated theories in budgeting

research. Due to the emerging nature of PsyCap and its roots in positive psychology, it is unclear

how the construct may relate to economics- and sociology-based theories of budgeting. Future

research may investigate the potential integrations of PsyCap with economic and sociologic

variables. Thus, although these are limitations of our study, the infancy of PsyCap holds great

promise for future research. Third, the use of a self-rating of job performance may result in a

leniency error or upward personal bias. Although we followed prior research in our measure, this

will reduce the objectivity of the data. Future studies that include direct superiors‘ ratings for

14
subordinates‘ performance will minimize the bias. Additionally, experimental research and field

studies may allow us to capture richer data and ensure greater external validity.

Despite these limitations, the present study offers several implications for researchers and

managers. We provide initial evidence in an accounting context of an emerging construct that is

garnering a great deal of attention in organizational behavior, leadership, and management

disciplines. Additionally, we demonstrate a positive consequence of budgetary participation to

counter the negative behavior documented in some prior research. Given that PsyCap represents

a relatively new development, it is a fertile area for research. For managers, we document a

mechanism through which budget participation can be used to improve employee performance.

PsyCap is a concept that ―organizations can invest in and develop in their workforce to achieve

veritable, sustained growth and performance‖ (Luthans et al. 2008, 224). Given the increasing

pressure of a global economy, organizations may wish to explore the benefits of PsyCap and its

role in the budget participation and job performance relationship.

15
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 Table 1
Demographic Statistics

Standard
n Mean Deviation Range
Age 104 39.5 15.4 24-62 years
Years in current position, firm 103 4.3 4.2 1-24 years
Years in similar position, all firms 95 9.1 8.5 1-35 years
Years involved in budgeting 101 5.8 6.2 1-35 years

Gender 104 Female=39%; Male=61%

Highest degree attained 104 Bachelors=48%; Masters=52%
Type of degree 106 Business=96%; Other=4%

Industries n Percentage
Manufacturing 25 23%
Governmental/Not-for-profit 13 12%
Accounting 10 9%
Utilities/Mining/Energy 9 8%
Other service 9 8%
Technology 8 7%
Financial services/Banking 7 6%
Retail/Distribution 6 5%
Construction/Transportation 5 4%
Consulting 5 4%
Health care 5 4%
Education 3 3%
Other/no response 8 7%

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 Table 2
Descriptive Statistics
n = 113

Standard
Variable Mean Deviation
Performance 5.63 1.11
Overall Performance 5.69 1.34
Budget Participation 4.93 1.73
PsyCap 4.51 0.61

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 Table 3
Correlation Matrix for Variables

Overall Budget
Variables Performance Performance Participation PsyCap
Performance 1
Overall Performance .614** 1
Budget Participation 0.14 .238* 1
PsyCap .362** .399** .539** 1
** Correlation is significant at the .01 level (2-tailed test)
* Correlation is significant at the .05 level (2-tailed test)

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 Table 4
Tests for Mediation Effect – Regression Results

Standardized T-
Coefficient β statistic
Equation 1
Budget Participation 0.14 1.487
Equation 2
Budget Participation 0.54 6.742*
Equation 3
Budget Participation -0.078 -0.74
PsyCap 0.404 3.84*
Note:
For Equation 1

Dependent Variable = Performance R-Square = .02

F= 2.212
Sig. =.140
For Equation 2
Dependent Variable = PsyCap R-Square = .291
F= 45.460
Sig. =.000
For Equation 3
Dependent Variable = Performance R-Square = .135
F= 8.60
Sig. =.000

23
Figure 1: Research Model

Psychological
Capital
(PsyCap)

Budget
Participation Performance

24