Management Accounting Research 25 (2014) 206–222

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Management Accounting Research

journal homepage: www.elsevier.com/locate/mar

The impact of interactive and diagnostic uses of budgets

on team effectiveness
Kar Ming Chong a , Habib Mahama b,∗
a
School of Accounting, University of New South Wales, Sydney, NSW 2052, Australia
b
Department of Accounting, College of Business and Economics, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab
Emirates

a r t i c l e i n f o a b s t r a c t

This study investigates the impact of style of budget use on team-level motivation and
Keywords:
Biotechnology
team effectiveness. Specifically, we draw on Simons’ work (1994, 1995, 2000) to examine
Budgets how, in biotechnology firms, the extent of interactive and diagnostic uses of budgets affect
Perceived collective efficacy team effectiveness directly and indirectly through perceived collective efficacy. We used an
Extent of interactive use online survey to obtain data for this study and analysed the data using partial least squares
Extent of diagnostic use approach. The main results suggest that the extent of interactive use of budgets has direct
Team effectiveness positive effects on team effectiveness and that the positive effect of the interactive use of
budgets on team effectiveness is partially mediated by perceived collective efficacy. We did
not find support for the predicted positive effect of diagnostic use of budgets on perceived
collective efficacy and team effectiveness. We explain the implications of these results.
© 2013 Elsevier Ltd. All rights reserved.

1. Introduction Gordon, 1992) and this is largely attributed to the poten-

The aim of this study is to examine the impact of style of
budget use on perceived collective efficacy in formal work
teams and team effectiveness. We draw on Simons’ work
(1994, 1995, 2000) to examine the impact of the extent of
interactive and diagnostic uses of budgets on perceived col-
lective efficacy and team effectiveness. Perceived collective
efficacy refers to team members’ beliefs in their conjoint
capabilities to organise and execute actions required to
accomplish a given task (Chen and Bliese, 2002; Mulvey
and Klein, 1998). It is an important team-level motivation
factor that predicts team effectiveness.
This study is motivated by three interrelated fac-
tors. First, there is limited research that examines the
role of accounting in a team context. The use of for-
mal work teams has become widespread in contemporary
organisations (Chenhall, 2008; Scott and Tiessen, 1999;
∗ Corresponding author. Tel.: +971 3713 5237.
E-mail address: habib.mahama@uaeu.ac.ae (H. Mahama).
tial of teams to improve effectiveness and flexibility (Jehn
and Mannix, 2001; Schnake, 1991; Scott and Tiessen, 1999).
The argument that teams are more effective in achiev-
ing desired outcomes is derived mainly from the social
psychology research. This research demonstrates that the
presence of others in a work situation has the effect of
encouraging an individual to focus attention on his/her
contribution to team outcomes, thereby enhancing team
performance (Levine et al., 1993; Schnake, 1991). This
effect is generally known as social facilitation. Although
social facilitation is an important explanatory factor for the
increasing use of formal teams in contemporary organi-
sations, prior research has shown that people working in
teams do not necessarily perform as expected of them on
the basis of their individual performances (Levine et al.,
1993; Kerr, 1983). The results of these studies suggest
that lower than expected effectiveness of teams is largely
due to motivation loss within teams. Given that account-
ing control systems have long been established as playing
important roles in motivating the efficient and effective
management of organisations (see for example Bisbe and

1044-5005/$ – see front matter © 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.mar.2013.10.008
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
Otley, 2004; Simons, 2000; Otley, 1994), we find it nec-
essary to examine how accounting is implicated in team
motivation and team performance.
Second, there is limited evidence on how account-
ing controls are implicated in team motivation. Although
prior accounting studies have examined motivation at the
individual level, extending the results of these studies
to team level may not be appropriate. Research suggests
that team-level motivation may differ from individual-
level motivation. This is because team-level motivation is
not simply the sum of individual team member’s motiva-
tions (Bandura, 2001, 1997; Levine et al., 1993). Bandura
(1997) argues that beyond individual-level motivation,
people who work in teams also have additional consider-
ations that contribute to team-level motivation such as:
(a) beliefs about whether team members have the req-
uisite skill to execute assigned task, and (b) confidence
that team members will collaborate in the execution of
task. Zajonc (cited in Levine et al., 1993) also argues that
team-level motivation differs from individual-level moti-
vation in that, the presence of others in teams is likely
to elicit accessible cognitions that may facilitate or impair
performance. In addition, Baron (1986) argues that the
presence of others in team settings is a distraction, which
causes either performance increments or decrements. The
paucity of accounting research that focuses on team moti-
vation and the recognition that team-level motivation
may differ from individual-level motivation, prompt us to
examine the effect of accounting controls on team motiva-
tion.
Third, this study focuses on the style of budget use to
examine the role of accounting controls in a team con-
text. We focus on budgets as they are a major feature
of organisations’ management control systems (Abernethy
and Brownell, 1999) and are among the most widely used
accounting controls in practice (Bisbe and Otley, 2004).
Simons (1990) argues that there are distinctive differences
in the way accounting controls (including budgets) are used
by top management. Traditionally, the focus has been on
the diagnostic style of budget use where top management
evaluates a team’s performance by comparing it to the tar-
gets. Prior studies have helped to enrich our understanding
of the effects of the diagnostic uses of accounting in team
settings, for example, the influences of different incentive
structures (Libby and Thorne, 2009; Towry, 2003; Young
et al., 1993) and the use of comprehensive performance
measures on team performance (Scott and Tiessen, 1999).
We seek to complement the existing accounting litera-
ture by examining the impact of both the diagnostic and
interactive uses of budgets on team motivation and team
effectiveness.
We conduct a cross-sectional survey of members of
teams in biotech firms in the United States. The results
support our prediction that the extent of interactive use
of budgets in these teams will have a direct positive rela-
tionship with team effectiveness. However, the extent of
diagnostic use of budgets has no significant relationship
with team effectiveness. We also find support for our pre-
diction that the extent of interactive use of budgets will
have a direct positive relationship with perceived collec-
tive efficacy but no support for the effect of diagnostic
207
use of budgets on collective efficacy. In addition, consis-
tent with prior research (Chen and Bliese, 2002; Lent et al.,
2006; Wang and Lin, 2007), we find a significant direct
positive relationship between perceived collective efficacy
and team effectiveness. Whilst the test of the link between
perceived collective efficacy and team effectiveness is a
replication of prior studies, this test is necessary to exam-
ine how the relationship between the extent of interactive
use of budgets and team effectiveness is partially mediated
by perceived collective efficacy. Our analysis provides sup-
port for partial mediation with a significant indirect effect
between the interactive use of budgets and team effective-
ness through perceived collective efficacy.
This study makes three broad contributions to the liter-
ature. First, it contributes to our understanding of how the
style of budget use (particularly the interactive use of budg-
ets) affects team-level motivation and team effectiveness.
Teams are becoming central to the effective functioning
of contemporary organisations (Jehn and Mannix, 2001),
and given the amount of organisational resources invested
to ensure their effectiveness, improving our knowledge
of the style of budget use in teams will enable managers
to improve team performance. In particular, this study is
among the first to examine the relationship between the
extent of interactive and diagnostic uses of budgets and
team-level motivation and how that link translates into
team effectiveness. Second, we contribute to the account-
ing literature that focuses on the use of accounting controls
in innovation settings (Bisbe and Otley, 2004; Davila,
2000; Hertenstein and Platt, 2000) by examining (biotech)
teams that operate in an innovation environment. Third,
Abernethy and Brownell (1999) argue that much of prior
research on budgets focuses on the diagnostic use of budg-
ets to the virtual exclusion of the interactive use of budgets.
This study responds to their call for more studies on the
interactive use of budgets by examining both the interac-
tive and diagnostic uses of budgets in a team environment.
2. Literature review and hypotheses development
2.1. Work teams in organisational settings
Kirkman and Rosen (1999, p. 58) define a work team
as “a group of individuals who work interdependently to
solve problems or carry out work.” Such groups of individ-
uals are interdependent because of the tasks they perform
as members of a group within a larger organisational body.
Social psychologists argue that when individuals are con-
stituted into teams, their joint outcome is not merely the
product of their individual knowledge and skills but also
the interactive and synergistic dynamics of their working
relationships (Bandura, 2000; Guzzo and Dickson, 1996).
Consequently, a work team in an organisational setting
is conceptualised as a social entity within which beliefs
and perceptions about the actions and behaviours of other
members of the team can affect not only the level of moti-
vation within the team, but also effective team outcomes
(Bandura, 2000; Mulvey and Klein, 1998).
A major team motivational factor that is argued to
be conditioned by team members’ beliefs and percep-
tions (and which have consequences for effective team
208 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
outcomes) is perceived collective efficacy. Prior research
on teams indicates that perceived collective efficacy is
significantly linked to team goal attainment (Goddard
et al., 2004; Hoigaard et al., 2006; Little and Madigan, 1997;
Sampson et al., 2000). It is also argued in prior research
that the level of this team motivational factor is a function
of organisational processes and controls. As accounting
controls are an essential part of organisational processes
and control, we argue that the style of budget use will
affect team-level motivation. We therefore investigate
the impact of the extent of interactive and diagnostic
uses of budgets on perceived collective efficacy and team
effectiveness in the context of biotech work teams.
2.2. Perceived collective efficacy
Perceived collective efficacy was defined earlier as team
members’ beliefs in their team’s collective ability to organ-
ise and execute a given task. It is a perception of a team’s
performance capabilities in a specific situation (Kazub and
McDonnell, 2000; Prussia and Kinicki, 1996). This percep-
tion is a causal attribution made to the team rather than
the situation (Lindsley et al., 1995; Pethe, 2002). Lent et al.
(2006) argue that collective efficacy is a social cognitive
element that may help to explain how individuals function
together as a team.
Perceived collective efficacy reflects a team’s collective
belief that is, a belief shared by members of a team (Lindsley
et al., 1995; Watson et al., 2001). According to Lindsley et al.
(1995, p. 648), there are certain cognitions or beliefs that
“group and organisational members have which are quite
different and distinguishable from beliefs they experience
as individuals in isolation”. Such cognitions are argued to
be collectively shared, group-based beliefs that emanate
from the common exposure of team members to objec-
tive external and/or internal stimuli and through processes
of socialisation within the team (Lindsley et al., 1995;
Watson et al., 2001). Perceived collective efficacy is con-
sidered to be one such group or team cognition. Collective
efficacy beliefs are shared because a team member’s inter-
pretations of stimuli are based on how other members
perceive and interpret the stimuli (Watson et al., 2001). As
a consequence, team members’ perception of their team’s
collective efficacy should be similar (Lindsley et al., 1995;
Watson et al., 2001).
Empirical studies have found support for collective effi-
cacy as an attribute of a team. In assessing the extent to
which collective efficacy beliefs are shared, prior research
has examined within-group agreement by computing
inter-rater reliability coefficients (Rwg ) for each of the
teams they studied. For example, Watson et al. (2001) find
high Rwg of between 0.88 and 0.98 among the teams he
studied. Similarly, Jung and Sosik (2002) find average Rwg of
0.9 across the teams in their sample. These high inter-rater
reliability coefficients lend empirical support to collective
efficacy as a group attribute; collectively shared by team
members.
Collective efficacy beliefs are argued to be motivational
as they have been found to affect goal setting, choice
of activities, level of effort exerted, and persistence of
coping behaviour (Kazub and McDonnell, 2000; Lindsley
et al., 1995; Little and Madigan, 1997; Wang and Lin,
2007; Wood and Bandura, 1989). Bandura (1999), in
arguing for the motivational significance of collective
efficacy, states that team member’s collective efficacy
beliefs influence the type of futures they seek to achieve
through collective action, how they use their resources,
and their staying power when team efforts fail to produce
results. Team members are less likely to initiate or persist
in a course of action if they feel a low sense of collective
efficacy (Bandura, 1986). In summarising the importance
of collective efficacy perceptions to team motivation, Little
and Madigan (1997, p. 519) state that “collective efficacy
appears to offer the most clearly articulated framework
for examining group-level motivational effects”. It has also
been argued to strongly predict team performance (Jung
and Sosik, 2002) and to mediate the relationship between
contextual factors and team performance (Bandura, 1986;
Little and Madigan, 1997; Pethe, 2002).
In summary, the existing team literature suggests that
perceived collective efficacy beliefs are shared by team
members and these beliefs influence how teams function.
We draw on the concept of perceived collective efficacy to
explain how the extent of interactive and diagnostic uses
of budgets will influence team performance.
2.3. Interactive and diagnostic uses of budgets
A significant amount of prior research on budgets has
focused on their traditional diagnostic role, where budgets
are used on an exception basis to monitor organisational
outcomes and to evaluate and reward performance based
on preset budget standards (Abernethy and Brownell,
1999; Henri, 2006). Whilst research that examined the
diagnostic use of budgets has made important contrib-
utions to the literature, Abernethy and Brownell (1999)
argue for a need to examine how budgets are used interac-
tively and their effects in practice.
Simons (1990) argues that almost all organisations
have similar management control systems (for example,
budgets) but there are distinctive differences in the way
these control systems are used by top management. He
argues that any control system can be used in one of two
ways: interactively (interactive controls) or diagnostically
(diagnostic controls). Whilst almost all management con-
trol systems are used diagnostically, top management can
decide which management control systems to use inter-
actively and the extent to which these controls are used
interactively (Simons, 1990). Our main focus in this paper
is to study teams that use budgets and to focus on the vari-
ations in the extent of interactive and diagnostic uses of
these budgets to explain the levels of perceived collective
efficacy and team effectiveness.
According to Simons (2000), the interactive use of con-
trols occur when top management uses control systems to
personally and regularly engage themselves in the decision
activities of subordinates. In a team context, the interac-
tive use of control may involve superiors using the control
system to personally and regularly engage with the activi-
ties of work teams and/or team members using the control
systems interactively among themselves. Simons (1994)
argues that any diagnostic control (e.g., budgets) can be
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
made interactive through continuing and frequent top
management interest and involvement (i.e., a control sys-
tem that is used diagnostically can simultaneously be used
more or less interactively). Such involvement by top man-
agement is said to provide an opportunity for them to
engage in active and on-going dialogue with their subordi-
nates and to challenge underlying data, assumptions, and
action plans. As such, there is regular and active involve-
ment of subordinates at all levels (Simons, 1990).
Building on Simons’ definitions, Henri (2006, p. 533)
argues that when controls are used interactively, “(i) the
information generated is a recurrent and important agenda
for top managers; (ii) frequent and regular attention is
fostered throughout the organisation; (iii) data are dis-
cussed and interpreted among organisational members of
different hierarchical levels; and (iv) continual challenge
and debate occur concerning data, assumptions and action
plans”. Subsequent conceptualisation of interactive con-
trol systems by Bisbe et al. (2007) overlaps with Henri’s
(2006) conceptual categories. Bisbe et al. (2007) identify
five interrelated properties of interactive control systems
that are: (i) an intensive use by top management, as man-
ifested in the degree to which senior managers devote a
significant part of their limited attention and time to issues
related to the input, process, and output of the manage-
ment control systems. This is reflected in their regular and
frequent personal involvement in the activities of their sub-
ordinates through the use of the control system; (ii) its
intensive use by operating (subordinate) management as
reflected in the degree to which operating managers are
intensively and frequently involved in the use of the control
system; (iii) both senior and operating managers regularly
meet and interact resulting in face-to-face challenge and
debate; (iv) collect and generate information that relates
to the effects of strategic uncertainties on the strategy of
the business; and (v) senior managers’ non-invasive, facil-
itative and integrative role that encourages, facilitates and
inspires subordinates.
For the purpose of this study, we rely on Henri (2006)
and Bisbe et al. (2007) conceptualisation of the interac-
tive use of control to study how the interactive use of
budgets impacts on the perceived collective efficacy and
effectiveness of teams. Collectively, they suggest that
an important aspect of the interactive use of control is
that senior managers use the control system to create
a positive informational environment that generates
dialogue and encourages information sharing. Abernethy
and Brownell (1999) argue that budgets are well-placed
to facilitate interactive control. Budgets have the potential
to encourage dialogue and debate between superiors and
subordinates through their involvement in the budget
process, variance analysis and the discussion of underlying
assumptions and action plans (Abernethy and Brownell,
1999). When budgets are used interactively, team mem-
bers are actively and regularly involved in planning and
decision making processes and also share information
about factors that are considered critical to team effec-
tiveness. Also, using budgets interactively implies that
team members are able to discuss, challenge and debate
about how they can collectively organise and execute
action plans captured in the budgets. We expect that
209
Interactiv
e Use of
Budgets
H1a
H2a
Perceived Team
Collective H3
Efficacy
Effectiveness
H2b
H1b
Diagnosti
c Use of
Budgets
Fig. 1. Conceptual model.
such discussion will motivate collective efficacy belief
formation which, in turn, will affect team effectiveness.
Diagnostic use of control, on the other hand, involves
the use of controls to monitor organisational outcomes and
to correct deviations from preset standards. Its focus is to
benchmark outcomes against targets and align team mem-
bers’ behaviours with organisational objectives through
periodic (as opposed to regular) monitoring (Simons, 1995;
Widener, 2007). In the diagnostic use of budgets, top level
managers report less intensive personal involvement with
the operation of the budget and only do so on an excep-
tion basis. They rely on others to inform them when their
attention is required on particular issues (Simons, 1991).
Consequently, there is minimal interaction among top
managers and between top managers and their subordi-
nates (Widener, 2007).
We incorporate both the interactive and diagnostic uses
of budgets in our model and examine their respective
effects on our dependent variables. The theoretical expec-
tations of the relationships among our conceptual variables
are shown in Fig. 1.
2.4. Interactive and diagnostic uses of budgets and team
effectiveness
The literature on teams suggests that information is
the primary resource that team members bring to the
team and that the ability of teams to consider more infor-
mation from diverse sources is the primary reason why
teams are expected to perform better than the individual
(Gigone and Hastie, 1993; Henry, 1995; Mesmer-Magnus
and DeChurch, 2009; Mohammed and Dumville, 2001).
When team members are more informed, they are more
likely to effectively discuss and evaluate each other’s judge-
ment and this leads to higher quality decisions and more
effective use of resources (Gigone and Hastie, 1997; Henry,
1995; Mesmer-Magnus and DeChurch, 2009).
Henry (1995) states that while team members may be
aware of the benefits of discussing and evaluating each
other’s judgement, they avoid doing so if they are not
prompted or encouraged. We expect that the higher extent
of interactive use of budgets will prompt team members
210 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
to discuss and evaluate the information they bring to the
team. The interactive dialogue and debates associated
with the higher extent of interactive use of budgets will
more likely create an environment that encourages team
members to discuss and evaluate each other’s judgement
by challenging underlying data, assumptions and action
plans. We argue that this will lead to higher quality
decisions, with greater focus on critical success factors and
more efficient and effective use of resources. Prior research
also suggests that the diagnostic use of budgets can be used
to achieve effective performance outcomes by providing
motivation, resources and information to ensure that
organisational strategies and goals are achieved (Widener,
2007; Bisbe and Otley, 2004; Davila, 2000; Simons, 2000;
Scott and Tiessen, 1999). Following from prior research we
argue that the interactive and diagnostic uses of manage-
ment control systems in a team context will be positively
and directly related to team effectiveness. More formally:
Hypothesis 1a. The extent of interactive use of budgets
will have a direct positive relationship with team effective-
ness.
Hypothesis 1b. The extent of diagnostic use of budgets
will have a direct positive relationship with team effective-
ness.
2.5. Interactive and diagnostic uses of budgets and
perceived collective efficacy
Perceived collective efficacy was defined earlier as team
members’ collective shared belief about their team’s ability
to organise and execute a given task. Given the significance
of perceived collective efficacy to team behaviour and
outcomes, researchers have investigated how it is devel-
oped and enhanced. Prior research has identified at least
three issues that affect team members’ perceived collective
efficacy beliefs that are, clear roles, facilitory interaction,
and coordination (Bandura, 1997; Chen and Bliese, 2002;
Gibson, 1999; Lee et al., 2002; Taggar and Seijts, 2003).
‘Clear roles’ refers to how clearly team members under-
stand what is expected of the team as a whole and the
expected role of each member. Clear roles are said to influ-
ence the cognitive representation processes through which
members imagine their team’s ability to succeed and by
which these members develop beliefs in their team’s col-
lective efficacy (Bandura, 1997; Chen and Bliese, 2002;
Chen et al., 2000). In addition, facilitory interaction allows
team members to actively communicate among them-
selves and in the process they are able to: (a) discover
each member’s creative abilities, (b) share task-specific
knowledge, and (c) engage in discussions about alternative
problem solving strategies (Bandura, 1997; Gibson, 1999;
Taggar and Seijts, 2003). These outcomes from interac-
tion will then influence team members’ collective efficacy
beliefs. Furthermore, as team members depend upon each
other in the processes of organising and executing assigned
tasks, coordination of such interdependencies is crucial
to the way these members use collective resources and
is therefore essential in developing members’ collective
efficacy beliefs (Bandura, 1997; Gibson, 1999; Lindsley
et al., 1995; Taggar and Seijts, 2003).
We expect that the extent of interactive use of budg-
ets in a team context will be positively associated with
perceived collective efficacy. Greater extent of interactive
use of budgets will facilitate the building of perceived col-
lective efficacy in at least three ways. First, Abernethy and
Brownell (1999) argue that the interactive use of budgets
implies that superiors and subordinates participate in the
budget process and the on-going dialogue clarifies how
behaviours can be adapted to meet defined objectives.
Henri (2006) and Bisbe and Otley (2004) also argue that
the interactive use of controls focuses attention on what
top management considers to be of strategic importance,
thereby guiding subordinates actions towards desired out-
comes. Thus, when managers use budgets interactively,
they continuously and regularly signal issues to which they
want to direct team members’ attention. Managers use
these budget signals to challenge team members and their
action plans with a view to refocussing the team on their
expected role. Consequently, greater extent of interactive
use of budgets will have the effect of enhancing perceived
collective efficacy.
Second, the interactive use of budgets provides steer-
ing mechanisms such as meetings. These mechanisms
facilitate interaction and encourage dialogue among team
members. Prior research suggests that the dialogue pro-
cesses associated with the interactive use of controls
motivate information gathering and knowledge shar-
ing (Bisbe and Otley, 2004; Henri, 2006; Simons, 2000;
Widener, 2007). The gathering and sharing of information
enables individuals to share knowledge about their indi-
vidual capabilities and how such capabilities can be fused
together synergistically. Understanding the capabilities of
team members can have the effect of influencing an indi-
vidual’s belief in their team’s collective efficacy. Third, the
participatory and dialogic nature of using budgets inter-
actively enables debate about the underlying assumptions
of work processes and the associated interdependencies,
and the development of plans to coordinate team work.
This coordinative role of using budgets interactively is
expected to enhance team members’ collective efficacy
beliefs.
Following from the above, we expect that greater extent
of interactive use of budgets in work teams will enhance
individual members’ confidence in the conjoint capabilities
of their team. Thus, we predict that:
Hypothesis 2a. The extent of interactive use of budgets
will have a direct positive relationship with perceived col-
lective efficacy.
Furthermore, prior research shows that collective
efficacy may emerge from common exposure of team
members to objective stimuli such as outcomes of team
performance (Pethe, 2002; Lepper et al., 1986). Outcomes
of team performance have directional effect on individual
members’ beliefs about the conjoint capabilities of their
team and also enables members to identify areas where
they need to cooperate to improve future outcomes. One
way in which such stimuli can be provided is through
the diagnostic use of controls. As indicated earlier, diag-
nostic controls are feedback systems used to monitor
outcomes and to provide direction to subordinates. The
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
feedback provided through the diagnostic use of controls
may direct individual team member’s attention towards
collective outcomes by sensitising them to the drivers of
performance and the interdependent activities required
for the team members to co-produce team outcomes. We
therefore predict the following:
Hypothesis 2b. The extent of diagnostic use of budgets
will have a direct positive relationship with perceived col-
lective efficacy.
2.6. Perceived collective efficacy and team effectiveness
Collective efficacy has been found to be significantly
related to team outcomes (Bandura, 1997; Chen and Bliese,
2002; Lent et al., 2006; Wang and Lin, 2007). Lent et al.
(2006) argue that collective efficacy accounts for about 20
percent (representing a moderately strong effect size) of
team performance. Gibson (1999) contends that the level of
collective efficacy determines, to a large extent, the amount
of effort team members expend. It is also argued in the
literature that perceived collective efficacy is associated
with conditions for effective team performance. Goddard
et al. (2004) argue that perceived collective efficacy is
associated with effort level, persistence and commitment.
They argue further that perceived collective efficacy sets
team members’ expectations for action, and fosters cre-
ative problem solving and resilience. Pescosolido (2003)
also argues that teams with higher collective efficacy have
the desire to continue working as a group, have increased
openness to learning from other team members, and are
also satisfied with the opportunity to lead their teams.
Bray (2004) found that teams that have high collective effi-
cacy significantly outperform teams with low collective
efficacy. All the above suggest that when team mem-
bers have strong belief in their conjoint capabilities, they
are more likely to be effective in achieving team out-
comes than when their perception of collective efficacy is
low.
Whilst prior studies have found strong relationships
between collective efficacy beliefs and team effective-
ness, some researchers argue that prior studies are unable
to rule out the possibility that team effectiveness influ-
ences the formation of collective efficacy belief (see for
example Gully et al., 2002). To resolve the problem
of the causal direction between collective efficacy and
team effectiveness, Gully et al. (2002) call for research
with lagged experimental design. Following from the
suggestion of Gully et al., Porter et al. (2011) examine
the causal direction of the collective efficacy and team
effectiveness link through a lagged experimental design
research. They find that collective efficacy is a strong
predictor of team effectiveness; a finding that supports
earlier experimental studies by Lent et al. (2006) and
Prussia and Kinicki (1996). Together, these studies pro-
vide causal evidence that supports the directional link
between perceived collective efficacy and team effective-
ness. Thus:
Hypothesis 3. Perceived collective efficacy will have a
direct positive relationship with team effectiveness.
211
3. Research methods
3.1. Sample selection and data collection
Data was collected using a US-based management con-
sulting firm to host and administer an online survey. In
designing the survey, it was essential that we captured
perceived collective efficacy as a team attribute. As a shared
belief among team members, Lindsley et al. (1995) argue
that collective efficacy can be measured by (a) aggregat-
ing/averaging individual team members perception; (b)
using team members’ collective response to a single ques-
tion (consensual method), or (c) using an individual team
member as an informant to estimate the team’s collective
efficacy. Using an individual team member as an informant
was initially suggested by Earley (1993) and later endorsed
by Lindsley et al. (1995). The use of an individual informant
is based on the argument that collective efficacy is a shared
belief and the expectation is that, as a team level attribute,
an individual’s estimate of his/her team’s collective effi-
cacy will be similar to the average of the sum of all the
team member’s estimates. Lent et al. (2006) provide empir-
ical support for this argument. They measured collective
efficacy beliefs of individual members of the teams they
studied and used the individual estimates to test a struc-
tural model in which collective efficacy was modelled as a
predictor of team performance. They also tested the same
model using aggregates of individual team members’ esti-
mates as measures of their team’s collective efficacy belief.
The two models yielded similar results, thus providing sup-
port for estimating collective efficacy beliefs either as an
aggregate measure or using individual members as infor-
mants to estimate their team’s collective efficacy belief.
Given the survey method employed in this study, we
relied on individuals as informants to estimate their team’s
collective efficacy. Lindsley et al. (1995, p. 648) argue for
the use of individuals as informants by stating that “[w]e
treat the group and organisation as social entities, capable
of acting as wholes, and propose using individuals as infor-
mants to estimate the group’s or organisation’s collective
efficacy”. Our target sample is members of work teams in
the biotech industry in the United States. A list of poten-
tial participants (target sample) was generated from the
consulting firm’s online database. In generating the list of
potential participants from this database, care was taken
to ensure that they were from biotech firms in the United
States. This led to a target sample of 2000 people who were
then invited to participate in the survey. To ensure that
only this target sample participated in the online survey,
respondents had to answer four screening questions (see
Appendix A) and only those who successfully passed the
screening questions were allowed to proceed to the actual
survey. The four screening questions ensured that respon-
dents were part of a biotech team in the United States and
that budgets were used in their teams.
Of the 2000 people who were invited to participate in
the survey, 482 viewed the survey site and out of those
who viewed the site, 447 actually started the survey. Given
that our target sample is employees of biotech companies
working as part of a team, 261 of those who started the
survey were screened out by the end of the four screening
212 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222

Table 1
Survey participants.

Panel A: Target sample and completed responses

Initial list of invited people 2000
Number of people who viewed survey 482
Number of people who started the survey 447
Number that started and were member of biotech teams 186
Biotech team members that completed the survey 186

Panel B: Descriptive statistics for respondents’ demographics

Variable Count Minimum Maximum Mean Standard deviation (S.D)

Team tenure 186 0.92 34.17 3.67 2.95

Company tenure 186 1 34.33 6.16 4.87
Team size 186 3 8 5.64 1.52
Female 52
Male 134

Panel C: Cross-tabulation of job title and company type of respondents

Job description Type of biotechnology company

Bioinformatics Green Red biotechnology White Other Total

(calculations/statistics)a biotechnology (medical)c biotechnology
(agricultural)b (industrial)d

Analyst 5 1 3 8 0 17
Director 4 0 12 2 0 18
Other 0 1 13 6 3 23
Research associate 6 2 15 5 0 28
Research fellow 2 3 5 4 0 14
Research officer 1 1 2 1 0 5
Research/clinical coordinator 3 0 7 2 0 12
Senior analyst 6 0 39 3 0 48
Senior research associate 6 0 8 1 0 15
Senior research fellow 2 0 4 0 0 6
Total 35 8 108 32 3 186

n = 186.
a
Bioinformatics is a field of research that focuses on developing and applying algorithms, computational and statistical methods for the analysis of
biological data and for solving biological problems.
b
Green biotechnology focuses on developing and using environmentally-friendly solutions for agriculture, horticulture, and animal breeding processes.
c
Red biotechnology involves the manipulation and use of organisms for the improvement of medical processes.
d
White biotechnology is the application of biotechnology for industrial purposes, including manufacturing, biomaterials, and bioenergy.

questions. The remaining 186 participants completed the
survey. Table 1 (Panel A) provides a summary of the data
collection process.
Biotech firms are noted to be innovation intensive,
wherein they use integrated processes of biochemistry,
microbiology, and chemical engineering to research and
develop new and innovative products (Oliver, 2001;
Powell et al., 1996). The innovation processes in biotech
firms occur mainly through research teams as “it is
unusual to work alone” in these firms (American Chemical
Society, 2010). Although biotech teams may be struc-
tured differently, they mostly comprise a hierarchy
of senior scientists/researchers, research associates and
research assistants (American Chemical Society, 2010).
Our survey sample captures this broad hierarchy of
biotech team membership, with the 186 respondents
representing team membership from different levels of
the hierarchy (see Table 1, Panel C). We conducted
a difference in means test to determine whether the
respondents’ rank within the biotech team was asso-
ciated with our primary constructs of interest. Senior
researchers (i.e., senior analyst, senior research asso-
ciate, and senior research fellow) were treated as one
group and the others were classified into a second group.
An independent sample t-test reveals no statistically
significant differences in means across all the primary
constructs.
Each participant was asked to nominate one specific
biotech team he/she was currently working in and to
respond to the survey based on the nominated team. The
186 respondents had a mean of 3.67 (std. dev. 2.95) years
working as part of the teams they nominated for the survey
and a mean of 6.16 (std. dev. 4.87) years working for their
current employer. 52 (27.96%) respondents were female.
Table 1 (Panel B) reports the descriptive statistics of the
respondents’ demographics. Table 1 (Panel C) summarises
the respondents’ job descriptions and the biotech sub-
industry classifications for their companies. We conducted
a difference in means test to determine whether the biotech
sub-industry was associated with our primary constructs
of interest. The largest sub-industry group in our sample
was “Red biotechnology (medical)” and we classified that
as one group and all other sub-industry groups were com-
bined into a second group. We coded “Red biotechnology
(medical)” as 1 and all other sub-industry groups as 2 and
compared the means of these two groups across all the
primary constructs. We found no statistically significant
differences in means across all the primary constructs.
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
We also collected information about the size of respon-
dents’ teams (SIZE) and the duration the respondents had
being working as part of that team (TENURE). We antic-
ipated that SIZE may have effects on all of our primary
constructs of interest (i.e., the extent of interactive and
diagnostic uses of budgets, perceived collective efficacy,
and team effectiveness) and that TENURE could also have
effects on perceived collective efficacy and team effective-
ness. Even though we did not develop any hypothesis for
the effects of SIZE and TENURE, we included them in our
statistical model as covariates.
Prior studies (e.g., Widener, 2007) also suggest opera-
tional risk as a possible covariate. Given that our sample is
drawn from the same industry, we assume that the compa-
nies will experience relatively similar levels of operational
risk and therefore, operational risk will not be a confound-
ing factor. This assumption is consistent with Ittner et al.
(2003), who argue that drawing a survey sample from a
single industry helps to implicitly control for a myriad
of confounding factors that could affect the results if the
sample is a cross section of industries. To confirm this
assumption, we sought the views of two academics whose
research focuses on the biotech industry and one practi-
tioner in this industry about the differences in operational
risk across the different biotech sub-industry types listed in
Table 1. There is a consensus among them that there are no
significant differences in operational risk across the differ-
ent biotech sub-industries. Another possible confounding
factor in studies of interactive use of control is culture, but
consistent with Ittner et al. (2003), we expect our focus on
a single industry in a single country (the U.S.) to implicitly
control for the confounding effect of culture.
Following Dillman (2007), the questions for the online
survey were presented in a format similar to those of
paper-based self-administered questionnaires. The ques-
tions were presented in a screen-by-screen format, with
each screen representing a separate section of the ques-
tionnaire. The design of each screen was such that all
questions had to be completed before the respondent could
proceed to the next screen. Where the answers on a given
screen were incomplete, a pop-up message appears to
highlight unanswered questions and to encourage the par-
ticipant to answer those questions before proceeding to the
next screen. As a result, there was no missing data in the
responses.
3.2. Measurement model specification
The constructs of theoretical interest in this paper are
latent in nature that is, they cannot be observed or mea-
sured directly. We therefore measure them indirectly by
means of observable multi-item indicators. Recent devel-
opments in social research shows that one of two strategies
may be used when constructing multi-item indicators
for latent constructs, depending on the researcher’s con-
ceptualisation of the focal construct (Bisbe et al., 2007;
Diamantopoulos and Siguaw, 2006; Diamantopoulos and
Winklhofer, 2001; Henseler et al., 2009; Mackenzie et al.,
2005). The first strategy involves measuring the indica-
tors as reflective indicators of the latent construct and
the second strategy involves measuring the indicators as
213
formative indicators of the latent construct. Wilcox et al.
(2008) argue that latent constructs themselves are nei-
ther inherently formative nor reflective, which suggests
that a given construct can either be measured using for-
mative or reflective indicators, depending on an informed
choice by the researcher. Such a choice should be con-
ceptually driven. That is, it should depend on how the
researcher conceptualises the relationship between the
latent construct and their respective indicators and the
relationship among the indicators (Diamantopoulos et al.,
2008; Wilcox et al., 2008). Where the researcher meas-
ures indicators that are manifestations or effects of the
latent construct, then causality is assumed to be from
the latent construct to the indicators and hence a reflec-
tive indicator measurement model is appropriate (Bisbe
et al., 2007; Diamantopoulos et al., 2008; Mackenzie et al.,
2005). Alternatively, where the researcher measures indi-
cators that “represent the defining characteristics that
collectively explain the meaning of the construct, a for-
mative indicator measurement model should be specified”
(Mackenzie et al., 2005, p. 713). Also, whilst the indi-
cators are expected to covary and to share the same
antecedents/consequences in a reflective indicator mea-
surement model, the indicators in a formative indicator
measurement model are not necessarily expected to covary
or have the same antecedents/consequences (Bisbe et al.,
2007; Diamantopoulos et al., 2008; Mackenzie et al., 2005).
Informed by the above developments in the literature,
we develop reflective indicators for all our theoretical con-
structs. We measured each construct using multi-item
indicators; adapting measures from established scales (see
Appendix B for the measures used for each construct).
Each indicator (question) was anchored on a 7-point Likert-
type scale. The indicators for each construct are discussed
below:
3.2.1. Interactive use of budgets
As indicated in the literature review and hypotheses
development section, a budget that is used diagnostically
can simultaneously be used more or less interactively. Con-
sequently, we measure the interactive use of budgets and
diagnostic use of budgets as separate constructs rather than
two ends of a continuum. To measure the extent of inter-
active use of budgets, we adapted the seven-item scale
developed by Henri (2006). Two of these seven items (INT
3 and INT4) are excluded from our final statistical model
as we could not link them to the concept of interactive
control systems outlined in Section 2.3. Jarvis et al. (2003)
and Rossiter (2002) argue that scale items in a reflective
construct are interchangeable and that adding or dropping
an item does not change the conceptual domain of the
construct. Consistent with this, eliminating the two meas-
ures did not significantly affect the measurement model
for interactive use of budget and did not change the signif-
icance and direction of the results in the structural model.
The remaining five items were used as they sought to cap-
ture interactive use of budgets such as senior managers
use of budgets to: (i) involve themselves in the activi-
ties of the teams through meetings; (ii) enable debate
and to encourage continual challenge of data, underlying
assumptions and action plans of the team; and (iii) facilitate
214 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
team-consensus building by focusing attention on common
issues and critical success factors. The instrument also cap-
tures the involvement of team members. However, similar
to Bisbe and Malagueno (2009), our instrument did not
capture the focus on strategic uncertainties.
3.2.2. Diagnostic use of budgets
We adapted the four-item scale developed by Henri
(2006) to measure the extent to which budgets were used
diagnostically to manage teams. The measures focus on the
extent to which budgets are used to track team’s progress
towards goals, to monitor the team’s results, to compare
the team’s outcome with expectations, and to review the
team’s key performance measures.
3.2.3. Perceived collective efficacy
Whiteoak et al. (2004) argue that an important con-
sideration when using any of the measures of collective
efficacy is that the measure must have a group or team
referent, even if the group or team referent is implicit. As
collective efficacy manifests itself through confidence in
a team’s capability and competence, we ensure that the
measures used in this study had team referents and also
captured respondents’ estimate of their belief in the teams’
capability and competence. In this regard, the respondents’
perceptions of their teams’ collective efficacy was mea-
sured using a four-item scale adapted from Salanova et al.
(2003).
3.2.4. Team effectiveness
Conceptually, team effectiveness is assessed based on
the quality, accuracy and quantity of work done; the
timeliness of, and satisfaction with, work performed; and
operating efficiency. We measure team effectiveness by
adapting the six-item scale from Kathuria and Davis (2001).
Given that the respondents in this survey were anony-
mous, it was not possible to obtain actual or supervisor
ratings of team effectiveness measures. We therefore relied
on self-ratings of team effectiveness. Though self-rating of
performance is considered subjective, existing accounting
research suggests that subjective measures are not worse
than objective measures in survey studies (Abernethy and
Stoelwinder, 1991).
4. Statistical analysis and results
We analysed the data obtained from the survey
using the partial least squares (PLS) approach. PLS is a
component-based latent variable modelling technique that
aims to maximise variance explained while minimising
measurement errors. It enables path models involving
latent variables to be estimated, where the latent vari-
ables are indirectly measured by multiple indicators (Chin
et al., 2001). PLS is able to simultaneously examine theory
(structural model) and measures (measurement model).
Unlike covariance-based structural equation modelling,
PLS makes no distributional assumption about data. There-
fore, the R2 is considered the most appropriate statistic for
assessing the overall predictiveness of a model and boot-
strap re-sampling is used to test the significance of results.
The PLS approach is suitable for small sample sizes. The
minimum sample size for PLS modelling is ten times the
largest regression in the model (Chin and Newsted, 1999).
In this study, the construct requiring the most complex
regression is team effectiveness (with four paths leading to
this construct), suggesting a minimum sample size of 40.
Our sample size of 186 is therefore considered adequate for
PLS modelling. We used SmartPLS Release 2 (Ringle et al.,
2005) to simultaneously estimate the measurement and
structural models.
4.1. Results of the measurement model
Considering that the constructs in this study are latent
constructs, we evaluated the reliability and/or validity of
their indicators. We assessed the measurement models for
reliability (individual item reliability and composite reli-
ability) and validity (convergent and discriminant validity)
using traditional classical test theory (Hulland, 1999). We
assessed individual item reliability by examining the factor
loading of each scale-item. Adequate reliability is demon-
strated when factor loadings for a construct are 0.70 or
higher (Nunnally, 1978). All the indicators for the measure-
ment models loaded higher than 0.78 on their respective
constructs with p-values less than 0.0001 (see Table 2),
demonstrating adequate reliability. In addition, compos-
ite reliability of 0.70 or higher is considered acceptable.
Each of the measurement models had a composite reli-
ability higher than 0.87 (see Table 3), indicating acceptable
composite reliability.
We assessed the convergent validity of the mea-
surement models by examining each construct’s average
variance extracted (AVE). An AVE of 0.5 indicates accept-
able convergent validity (Chin, 1998; Hulland, 1999). As
shown in Table 3, the AVEs for all constructs in our model
were higher than 0.64, demonstrating adequate conver-
gent validity. We also assessed discriminant validity by
comparing the square roots of each construct’s AVE to the
correlations among the construct. Table 3 reports the corre-
lation coefficients in the off-diagonal and the square roots
of the AVE in the diagonal. All the square roots of AVE were
greater than the correlation coefficients, suggesting accept-
able discriminant validity. The cross-loading of scale items
also show that the items load higher on the construct they
are intended to measure than on any other construct (see
Table 2), thus providing further evidence for discriminant
validity.1
4.2. Common method bias
Common method bias is a concern in self-report surveys
in which the same rater responds to all questionnaire items.
This concern is more serious in situations where both the
independent and dependent latent constructs are percep-
tual measures derived from the same rater (Podsakoff and
Organ, 1986). Given that the independent and dependent
1
Chin (1998) argues that discriminat validity is demonstrated in cross-
loadings when scale-items load higher with their respective constructs
than any other scale-items from other constructs.
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222 215

Table 2
Measurement model: factors, descriptive statistics, cross-loadings, and t-statistics.

Latent constructs Scale items Actual range Mean Standard deviation Factor 1 Factor 2 Factor 3 Factor 4 t-statistics

INT1 1–7 5.30 1.469 0.8589 0.7578 0.1522 0.2692 23.5103

INT2 1–7 5.33 1.350 0.8564 0.7157 0.3235 0.4355 28.0197
Interactive use of
INT5 1–7 5.11 1.375 0.8990 0.7501 0.2147 0.3432 39.1660
budgets
INT6 1–7 5.26 1.433 0.8708 0.6716 0.2224 0.3751 25.1393
INT7 5.05 1.477 0.8133 0.6858 0.2392 0.3539 14.0555

DIAG1 1–7 5.22 1.437 0.6969 0.8797 0.1626 0.2308 21.6483

Diagnostic use of DIAG2 1–7 5.44 1.545 0.7388 0.9287 0.1903 0.3183 55.3861
budgets DIAG3 1–7 5.30 1.365 0.7474 0.9103 0.2170 0.2397 38.1797
DIAG4 1–7 5.26 1.390 0.7854 0.8653 0.2042 0.3035 27.0973

COLLECT1 3–7 5.99 0.873 0.2908 0.2619 0.8287 0.6858 29.5557

Perceived collect COLLECT2 4–7 6.02 0.876 0.1917 0.1145 0.7875 0.6018 24.1071
efficacy COLLECT3 2–7 5.82 0.894 0.2166 0.1576 0.7855 0.5598 24.9956
COLLECT4 3–7 5.88 0.845 0.1854 0.1456 0.8122 0.5695 21.6563

TPERF1 2–7 5.84 0.848 0.3147 0.2197 0.7030 0.8446 37.8273

TPERF2 3–7 5.88 1.040 0.4288 0.3435 0.6702 0.8113 29.8973
TPERF3 1–7 5.85 0.958 0.2673 0.1387 0.5925 0.8056 26.6479
Team effectiveness
TPERF4 2–7 5.57 1.059 0.3925 0.2826 0.5731 0.8561 41.7717
TPERF5 2–7 5.79 1.026 0.3444 0.2518 0.5385 0.8040 28.2843
TPERF6 2–7 5.66 1.028 0.3462 0.2843 0.6362 0.8195 25.3590

All item loadings on their respective constructs are statistically significant (p < 0.0001, one-tailed).
n = 186.

Table 3
Composite reliability, Cronbach’s alpha, and average variance extracted (AVE), discriminant validity and correlations.

Latent construct Composite reliability Cronbach’s alpha AVE Correlations and SQRT of AVEa

IUB DUB PCE TE

Interactive use of budgets (IUB) 0.934 0.913 0.740 0.860

Diagnostic use of budgets (DUB) 0.942 0.918 0.803 0.765 0.896
Perceived collective efficacy (PCE) 0.879 0.818 0.646 0.279 0.756 0.804
Team effectiveness (TE) 0.927 0.905 0.679 0.424 0.309 0.756 0.824
Size 1 1 1 0.022 −0.056 0.072 0.028
Tenure 1 1 1 0.025 0.052 0.166 0.057

n = 186.
a
Diagonal elements are square roots (SQRT) of AVE; off-diagonal elements are correlations between constructs.

variables in our survey instrument were perceptual meas-
ures and that responses to these measure were derived
from the same rater, there is a possibility that common
method bias exist in our data. We adopt two approaches
suggested by Podsakoff et al. (2003) to address concerns
with common method bias. First, we conducted Harman’s
single-factor test in which all the questions measuring our
constructs were entered into an unrotated exploratory fac-
tor analysis. A common measure bias is said to be present
when (a) a single factor emerge from the factor analysis
or (b) one factor accounts for the majority of the covari-
ance among the variables (Podsakoff and Organ, 1986). The
test did not find evidence of common method bias since we
found a multi-factor rather than a single factor solution and
the first factor explained only 34.6% of the total variance.2
Second, we included a latent common method fac-
tor in our PLS model to assess the presence of common
method bias and to partial out its effect. To implement
2
Though the Harman’s test is widely used, there are no general guide-
lines about the number of factors a researcher should expect from the
factor analysis. Therefore, the absence of a single factor is generally
deemed to be a sufficient measure of the absence of common measure
bias (Podsakoff and Organ, 1986).
this approach using PLS, we followed the procedure out-
lined and implemented in Liang et al. (2007) and Mahama
and Cheng (2013). We created the common method fac-
tor by using all the indicators for the substantive (main)
constructs in our model. To include the common method
factor in our PLS model, Liang et al. (2007) suggest that
we model the indicators of our substantive constructs
as single-indicator latent variables (first-order constructs)
and the substantive constructs as second-order constructs
of their respective single-indicator variables. The common
method factor is then included in the PLS model, with
links to all single-indicator variables in the model. The
path coefficients between the substantive constructs and
the single-indicator variables as well as those between
the common method factor and the single-indicator vari-
ables are then interpreted as the factor loadings of the
observed indicators (Liang et al., 2007; Marcoulides and
Moustaki, 2002). To assess whether common method bias
is a concern, we examine the statistical significance of fac-
tor loadings of the method factor and also compared the
percentage variance (measured as the squared values of
the factor loadings) of each observed indicator explained
by its substantive construct and by the common method
factor. As shown in Table 4, the method factor loadings
216 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222

Table 4
Common method bias analysis with latent common method variance factor (LCMVF).

Scale Items Substantive factor Variance explained Method factor Variance explained
loading (R1) by substantive loading (R2) by method factor
factor (R12 ) loading (R22 )

INT1 1.031***** 1.063 −0.190* 0.036

INT2 0.687***** 0.473 0.183 0.034
Interactive use of
INT5 0.947***** 0.897 −0.046 0.002
budgets
INT6 0.873***** 0.762 0.001 0.000
INT7 0.758***** 0.575 0.061 0.004

DIAG1 0.952***** 0.907 −0.094 0.009

Diagnostic use of DIAG2 0.923***** 0.851 0.007 0.000
budgets DIAG3 0.933***** 0.871 −0.029 0.001
DIAG4 0.774***** 0.600 0.120 0.014

COLLECT1 0.758***** 0.574 0.108 0.012

Perceived collective COLLECT2 0.802***** 0.644 −0.020 0.000
efficacy COLLECT3 0.805***** 0.648 −0.034 0.001
COLLECT4 0.871***** 0.758 −0.087 0.008

EFFECT1 0.862***** 0.743 −0.026* 0.001

EFFECT2 0.583***** 0.340 0.259 0.067
EFFECT3 0.962***** 0.926 −0.184 0.034
Team effectiveness
EFFECT4 0.842***** 0.708 0.023 0.001
EFFECT5 0.871***** 0.759 −0.070 0.005
EFFECT6 0.825***** 0.680 −0.005 0.000

Average 0.845 0.725 −0.001 0.012

n = 186.
*
p < 0.05 (one-tailed).
*****
p < 0.0001 (one-tailed).

are insignificant (except for two items) and the percent-
age variances of the observed indicators explained by the
substantive constructs (average variance = 0.725) are sub-
stantially greater than the percentage variances explained
by the common method factor (average variance = 0.012).
The ratio of substantive variance to common method
variance is about 60:1. This test provides evidence that
common method bias is unlikely to be a serious concern
for this study (Liang et al., 2007).
In addition, the results of the PLS structural model
(when the common method factor is included) are very
similar to those of our substantive model. In particular,
the R2 s for the two models are the same and this indicates
that the inclusion of the common method factor does not
influence the predictiveness of our structural model, thus
providing further evidence that our results are unlikely to
be affected by common method bias. Consequently, we dis-
cuss only the PLS results for the substantive model. The
results of the PLS structural model (when the common
method factor is included) are reported in Appendix C.
4.3. Results of the structural model
We tested our hypotheses using the PLS structural
model. The results of the structural model are summarised
in Table 5 (Panel A shows direct relationships, Panel B
shows indirect effects, and Panel C shows total effects).
Hypothesis 1a predicted a direct positive relationship
between the extent of interactive use of budgets and team
effectiveness. The structural path coefficient leading from
the extent of interactive use of budgets to team effec-
tiveness is positive (ˇ = 0.314) and significant (p < 0.005).
This confirms a direct positive relationship and thus pro-
vides support for hypothesis 1a. Hypothesis 1b predicted a
positive direct relationship between the diagnostic use of
budgets and team effectiveness. This prediction is not sup-
ported as the path coefficient was negative (−0.102) and
insignificant.
Hypothesis 2a predicted a direct positive relationship
between the extent of interactive use of budgets and
perceived collective efficacy. We find support for this
prediction. The path coefficient between the extent of
interactive use of budgets and perceived collective efficacy
is positive (ˇ = 0.322) and significant at the 0.05 level. This
significant result implies that the dialogue and knowledge
sharing associated with a greater extent of interactive use
of budgets improves team members’ beliefs in their teams’
conjoint capabilities to organise and execute a given task.
Hypothesis 2b predicted that the diagnostic use of budgets
will be positively related to perceived collective efficacy.
Unfortunately, this hypothesis is not supported as the path
coefficient is negative (−0.055) and insignificant.
We speculate that the negative and insignificant results
for hypotheses 1b and 2b can be attributed to the nature of
the research setting (i.e., biotechnology firms). This specu-
lation is based on prior studies that find the diagnostic use
of controls acts to constraint creativity in innovation sett-
ings and thus tends to have negative impacts on motivation
and performance (Henri, 2006; Simons, 2000). Also, in an
innovation environment, targets (or predicted outcomes of
team performance) are unlikely to be as well fixed com-
pared to a non-innovation environment (i.e., the targets are
vague and ambiguous, and more likely to provide guidance
rather than a definitive aim) thereby limiting the effects of
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
Table 5
PLS structural model results.
Panel A: Direct effects – path coefficient (t-statistics) and R2
Latent construct Path to:
Interactive use of budgets
Interactive use of budgets
Diagnostic use of budgets
Perceived collective efficacy
Size −0.021 (0.2225)
Tenure
R2
Panel B: Indirect (mediated) effects – path coefficient and bootstrap confidence interval
Latent construct Linkages
Interactive use of budgets Perceived collective efficacy
Panel C: Total effects – path coefficient and (t-statistics)
Latent construct Path to:
Interactive use of budgets
n = 186.
*
p < 0.05 (one-tailed).
**
p < 0.01 (one-tailed).
***
p < 0.005 (one-tailed).
****
p < 0.001 (one-tailed).
*****
p < 0.0001 (one-tailed).
the diagnostic use of controls. Given that the primary work
in biotechnology settings is about creativity and innova-
tion, we cannot rule out the effect of the research setting
on the negative and insignificant path coefficients observed
for the relationships involving the diagnostic use of budgets
construct and our dependent variables (perceived col-
lective efficacy and team effectiveness). Future research
could examine the model tested in this paper in sett-
ings other than those primarily involved in innovation and
creativity.
Hypothesis 3 predicted a direct positive relationship
between perceived collective efficacy and team effective-
ness. This prediction is supported by the results of the
structural model where the path coefficient leading from
perceived collective efficacy to team effectiveness is pos-
itive (ˇ = 0.702) and significant (p < 0.0001). The highly
significant result and the relatively large path coefficient
(ˇ = 0.702) for this prediction suggest that collective effi-
cacy has an important role in work teams. This result is
consistent with the findings of team studies that have
examined the relationship between collective efficacy and
team outcomes (Chen and Bliese, 2002; Lent et al., 2006;
Wang and Lin, 2007). Given that in hypothesis 2 there is
a significant positive relationship between the extent of
interactive use of budgets and perceived collective efficacy,
the result for hypothesis 3 makes the interactive use of
budgets in a team context salient.
Following from the test of our main hypotheses, we
further examined whether perceived collective efficacy
also mediates the positive relationship between the extent
of interactive use of budgets and team effectiveness. To
test this mediation, we follow Baron and Kenny’s (1986)
217
Diagnostic use of budgets Perceived collective efficacy Team effectiveness
0.322 (2.1929)* 0.314 (2.6963)***
−0.055 (0.3463) −0.102 (0.9947)
0.702 (13.1782)****
−0.056 (0.6394) 0.077 (0.9171) −0.022 (0.4134)
0.161 (2.3333)** −0.063 (0.4756)
0.111 0.629
Path to: Team effectiveness
Indirect path coefficient Bootstrap confidence interval (95%)
Lower Upper
0.226* 0.0192 0.4367
Team effectiveness
0.540 (3.4161)*****
step-wise approach. In the first step, we tested a model
involving the direct relationship between the extent of
interactive use of budgets and team effectiveness. This
yielded a positive (ˇ = 0.532) and significant (t = 3.1727;
p < 0. 001) result, thus supporting a direct relationship.3 In
the second step, we tested a model of a direct relation-
ship between the extent of interactive use of budgets and
perceived collective efficacy and found a direct positive
(ˇ = 0.327) and significant (t = 2.1180; p < 0.05) relationship.
The third step examined a model involving a direct rela-
tionship between perceived collective efficacy and team
effectiveness, while controlling for the effects of the extent
of interactive use of budgets (and also diagnostic use
of budgets) on team effectiveness. The results provided
support for a direct positive (ˇ = 0.703) and significant
(t = 13.0474; p < 0.0001) relationship. Given that the results
from these first three steps satisfied the conditions for the
mediation test, we proceeded to test a model involving all
the relationships among the three constructs. The results
of this test are reported in Table 5 and in Fig. 2. Whilst all
three direct paths remain positive and significant, we find
that the significance of the direct path leading from inter-
active use of budgets to team effectiveness is reduced when
perceived collective efficacy is included in the model. The
t-values fell from 3.1727 (ˇ = 0.532) to 2.6963 (ˇ = 0.314)
and the associated p-values also changed from p < 0.001
3
The reliability and validity of the measurement models for the models
tested in the first three steps of the Baron and Kenny (1986) mediation
test procedure were consistent with the measurement model results of
the full PLS model. Therefore, we have reported only the reliability and
validity for the full model.
218 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
Fig. 2. PLS results.
to p < 0.005. This reduction in the significance level of the
direct relationship between the extent of interactive use of
budgets and team effectiveness when perceived collective
efficacy is included in the model supports partial media-
tion. That is, the positive relationship between the extent
of interactive use of budgets and team effectiveness is par-
tially mediated by perceived collective efficacy.
Following the mediation test, we estimated the indi-
rect effect of the extent of interactive use of budgets and
team effectiveness through collective efficacy as a product
of the path coefficient for the direct relationship between
the extent of interactive use of budgets and perceived col-
lective efficacy and that of the direct relationship between
perceived collective efficacy and team effectiveness. This
yielded a path coefficient of 0.226 (see Table 5, Panel B).
We assessed the significance of the indirect effect using
bootstrapping procedures. We used the product of the PLS
bootstrap resampling results for the path coefficients of the
direct relationship between the interactive use of budgets
and perceived collective efficacy and that of the direct rela-
tionship between perceived collective efficacy and team
effectiveness to approximate the sampling distribution for
the indirect effect (Hayes, 2009). We then generated a con-
fidence interval (95% confidence) from this distribution
with a lower bound of 0.0192 and an upper bound of 0.4367
(see Table 5, Panel B). This interval provides 95% confidence
that the indirect effect is not zero; thus the indirect effect
is significant at the 0.05 level.
Given that our results show that the extent of interac-
tive use of budgets is both directly and indirectly related
to team effectiveness, we examined the total effect (direct
plus indirect effects) of the relationship between these two
constructs. The PLS results show that the extent of interac-
tive use of budgets has a positive (ˇ = 0.540) and significant
(p < 0.0001) total effect on team effectiveness (see Table 5,
Panel C).
5. Discussion and conclusion
Motivated by the growing importance and use of teams
in contemporary organisations, this study set out to investi-
gate the impact of style of budget use on team effectiveness.
Specifically, we examine how the extent of interactive and
diagnostic uses of budgets affects team effectiveness, both
directly and indirectly, through perceived collective effi-
cacy. Our results provide support for the hypothesised
direct relationships between the interactive use of budgets
and team effectiveness but not for the relationship between
the diagnostic use of budgets and team effectiveness. We
also find support for the predicted direct relationship
between the interactive use of budgets and perceived col-
lective efficacy. However, the predicted direct relationship
between the diagnostic use of budgets and perceived col-
lective efficacy was not supported. Furthermore, we find
that the relationship between the extent of interactive use
of budgets and team effectiveness is partially mediated
by perceived collective efficacy. We attribute the negative
insignificant results for the effects of the diagnostic use of
budget on perceived collective efficacy and team effective-
ness to the research setting of the study where innovation
and creativity dominate. Our explanation is consistent with
prior research findings of negative path coefficients for the
effects of diagnostic use of controls on motivation and per-
formance in innovation and creativity settings. Our findings
have a number of implications.
This study highlights the importance of examining the
interactive use of budgets. While most prior studies focus
on the diagnostic role of budgets, we add to the account-
ing literature by showing that greater interactive use of
budgets can motivate effective performance. Specifically,
a greater extent of interactive use of budgets in a team
context is directly associated with increases in team effec-
tiveness, and indirectly through a team motivational factor.
These findings are significant as they contribute to our
theoretical understanding of the paths through which the
extent of interactive use of budgets is linked to team out-
comes. Given that budgets are among the most widely used
accounting controls in practice (Abernethy and Brownell,
1999; Bisbe and Otley, 2004), the findings of this study will
also contribute to our understanding of how managers can
influence outcomes through the interactive use of budgets.
Our study also contributes to the accounting literature
that focuses on work teams (e.g., Libby and Thorne, 2009;
Scott and Tiessen, 1999; Young et al., 1993). While teams
are increasingly being used in organisations, few studies
have examined the role of accounting in team contexts, par-
ticularly in relation to team-level motivation. Given that
team-level motivation differs from individual-level moti-
vation and that team-level motivation is not simply the
sum of individual team members’ motivation, our findings
on the significant link between the extent of interactive
use of budgets and team-level motivation (perceived col-
lective efficacy) contributes to the accounting literature.
Our results show that team-level motivational factors can
help explain the impact of accounting controls in team sett-
ings. In our model, perceived collective efficacy is a critical
team-level motivational factor. We provide evidence that,
in addition to the direct relationship between the extent of
 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222
interactive use of budgets and team effectiveness, this rela-
tionship is also partially mediated by perceived collective
efficacy.
Furthermore, prior research suggests that budgets are
theoretically linked to innovation (Bisbe and Otley, 2004).
Whilst we do not examine innovation directly, our focus
on teams in biotech firms provides empirical evidence
of how budgets are associated with teamwork in an
innovation environment. We show that greater extent of
interactive use of budgets can improve the effectiveness
of teams in innovation firms such as those of biotech
companies, either directly or indirectly via collective
efficacy.
Finally, our study also responds to calls in the budget-
ing literature for research to examine the interactive use
of budgets. For instance, Abernethy and Brownell (1999)
argue that budgets serve as important data bases that facili-
tate interactive control, yet accounting research has tended
to emphasise more on the diagnostic use (e.g., performance
evaluation) of budgets and less on the interactive use. Our
study provides evidence of how interactive use of budgets
may be implicated in a team setting.
Our findings should be interpreted in the light of
some limitations. First, while our sample size is consid-
ered acceptable, our study would have benefited from
a higher response rate from the intended survey par-
ticipants. Second, given that our sample is made up of
biotech firms, there is the likelihood that this sample
may not be representative of all industries, thereby lim-
iting the generalisability of our results. Third, given that
data for the study was gathered from self-reported sur-
veys, we cannot conclusively rule out the possibility of
common method bias, although our statistical analysis sug-
gests that common method variance is unlikely to be a
serious concern in the study. Also, the use of survey has
also meant that we had to use individual team members
as informants to estimate their team’s collective efficacy.
Though research suggest that the use of individual team
members as informants yields results similar to aggre-
gating/averaging individual team member’s perception or
via consensual methods, our research could have bene-
fited from measuring perceived collective efficacy using
these alternative methods. Finally, whilst care is taken
to measure the extent of interactive use of budgets, we
acknowledge that there are other ways of measuring this
construct (see for example Bisbe et al., 2007). Our study
could have also benefited from using some of the alter-
native measures for this construct. We also acknowledge
the possible similarity between the interactive use of budg-
ets and leadership/management style as a limitation to our
study.
Further research can extend our study in a number of
ways. In particular, future accounting research can investi-
gate the impact of the interactive use of budgets on other
(and multiple) team-level motivational factors. In addi-
tion, we focused on teams in biotech firms. Future research
can also extend our proposed framework to examine the
effectiveness of accounting controls in other team settings.
Another interesting avenue for future research would be to
examine the impact of other types of accounting controls
on team motivation and team outcomes.
219
Acknowledgements
We would like to acknowledge the helpful advice and
comments from participants at the La Trobe University
2009 seminar series, Third New Zealand Management
Accounting 2009 conference and the 21st Asian-Pacific
Conference on International Accounting Issues. The com-
ments of Jan Mouritsen were particularly helpful. We are
also grateful to the Australian School of Business, Univer-
sity of New South Wales for funding this project. We would
also like to thank the anonymous reviewers and the editor
for their valuable feedback.
Appendix A. Screening questions
The participant should answer yes to all the questions
below to proceed to the questionnaire survey.
Question 1
Is your firm based in the United States?
Question 2
Is your firm operating in the biotechnology industry?
Question 3
Are you currently working in a team (or teams)?
(If you are working in more than one team, you need to nominate
only one team and
answer the questionnaire based on that nominated team).
Question 4
Do you have budgets for your nominated team project?
Appendix B. Measures used for each construct
B.1. Interactive use of budgets (INT)
The response scale for the following items ranged from
1 (not at all) to 7 (to a greater extent).
To what extent does senior management currently use
budget to:
1. Enable discussion in meetings of superiors and team
members
2. Enable continual challenge and debate underlying data,
assumptions and action plans of your team
3. Provide a common view of your team
4. Tie your team together
5. Enable your team to focus on common issues
6. Enable your team to focus on critical success factors
7. Develop a common vocabulary in your team
B.2. Diagnostic use of budgets (DIAG)
The response scale for the following items ranged from
1 (not at all) to 7 (to a greater extent).
To what extent does senior management currently use
budget to:
1. Track your team’s progress towards goals
2. Monitor your team’s results
3. Compare your team’s outcomes to expectations
4. Review your team’s key measures
220 K.M. Chong, H. Mahama / Management Accounting Research 25 (2014) 206–222

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