Asian Review of Accounting

The Impact of Contingency Factors on the Effectiveness of Budgetary Emphasis in

Sino-Foreign Joint Ventures
Dennis W Taylor
Article information:
To cite this document:
Dennis W Taylor, (1996),"The Impact of Contingency Factors on the Effectiveness of Budgetary
Emphasis in Sino-Foreign Joint Ventures", Asian Review of Accounting, Vol. 4 Iss 2 pp. 15 - 31
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http://dx.doi.org/10.1108/eb060672
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 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign

The Impact of Contingency Factors on the

Effectiveness of BudgetaryEmphasis in
Sino-Foreign Joint Ventures
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Dennis W Taylor
Curtin University of Technology
AUSTRALIA

ABSTRACT
Behavioural consequences of emphasis on budget-related performance
evaluation measures have been extensively researched in single countries, but
not in cross-cultural organizational settings. Contingency theory is invoked in
this study to model the "fit" for international joint venture companies (IJVs)
between two contingency factors — environmental uncertainty (EU) and
organizational objectives conflict (OOC)—and the organizational control sub-
system variable of budgetary emphasis (BE). The impact of this "fit" on the
effectiveness of managers from Chinese and Western sides of anIJVpartnership
is tested in respect of the effectiveness outcomes of self-rated managerial
performance (MP) and the creation of budgetary slack (BS). These two
effectiveness constructs are chosen for this study because they provide a
complementary picture of effectiveness in a budget-related behavioural settings.

To test the various "fit" hypotheses, this study provides results from a survey
of Sino-foreign JVs. Specifically, middle and senior managers representing
the foreign partner to a Sino-foreign JV were chosen in two groupings, Hong
Kong Chinese managers and Western managers. Multiple regression was
performed for the independent variables (EU, OOC and BE) in relation to the
respective dependent variables (MP and BS) and the respective sample groups
(HK Chinese and Western). Both main and interaction effects are reported in
this study. Implications of the findings for the use of budgetary emphasis in
management performance evaluation in IJVs are discussed.

Acknowledgement:Professor Gabriel Donleavy provided valuable suggestions on aspects of this paper.

15
 Aston Review of Accounting, Volume 4 Number 2,1996

Introduction
Reliance on accounting data in the performance evaluation of subordinate
managers, and its effects on subordinates'job-related or budget-related attitudes
has been widely researched during the past three decades (eg, Hopwood, 1972;
Otley, 1978; Hirst, 1983; Govindarajan & Gupta, 1985; Brownell & Dunk, 1991
Kaplan & Mackey, 1992). The proposition that dysfunction behaviour can result
from the inappropriate use of accounting performance measures was first
established and tested by Hopwood (1972). The management style of relying on
budget-related measures to evaluate subordinates was subsequently referred to as
the variable budgetary emphasis (BE). The extensive research relating to BE,
however, has assumed uni-cultural organizational settings. Behavioural
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consequences of emphasis on budget-related performance evaluation measures

in cross-cultural organizational settings is an aspect in which research is lacking.
In particular, cross-cultural budget-related behavioural research has not been
conducted for international joint venture companies (UVs), despite arguments
that IJVs have a heightened need for formal planning, control and performance
evaluation systems.
Decisions to invest in an IJV typically involve a commitment by the foreign
partner of capital to an uncertain future. The uncertainty dimension is compounded
by a more unfamiliar and complex set of contingency variables and constraints
than are faced by a home-based company, both in terms of the external environment
of the IJV and its requirement of joint ownership and management. Given the
proposition that IJVs are impacted strongly by contingency factors, Mueller et al
(1991) argue that formal planning within a budgetary framework, and formal
management control and evaluation systems become desirable as means of:

... enabling managers to: (1) implement the financial strategy (for the IJV); (2)
evaluate the degree to which the chosen strategies contribute to the attainment of
enterprise objectives; (3) motivate management and employees to achieve financial
goals of the enterprise as effectively and efficiently as possible, (p.105-6)

According to Harrigan & Newman (1987), much has been written about the
use of IJVs (and other international co-operative strategies) as risk-sharing
arrangements, but it has been largely descriptive, not analytical. The purpose of
this study is to provide evidence about the impact that budgetary emphasis in
performance evaluation (BE) has on the comparative effectiveness of foreign
managers of Sino-Western and Sino-Hong Kong equity joint ventures, given
organizational conditions of external uncertainty and internal conflict which such
managers from opposite sides of the partnership may face.
Contingency theory is invoked in this study to model the "fit" between two
contingency factors — environmental uncertainty (EU) and organizational
objectives conflict (OOC) — and the organizational control sub-system variable

16
 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Mntures

of BE. The impact of this "fit" on the effectiveness of Western managers and
Hong Kong Chinese managers, respectively, will be tested for two effectiveness
outcomes—self-rated managerial performance (MP) and the creation of budgetary
slack (BS). These two effectiveness constructs are chosen for this study because
they provide a complementary picture of effectiveness in a budget-related
behavioural setting. Thus, evidence of improvement in self-rated MP may be
counter-balanced by evidence of a simultaneous increase in the creation of BS by
the foreign manager concerned.

External and Internal Contingencies

The contingency theory variables used in management accounting studies
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have been adopted from the contingency theory of management and organisational
studies. As explained by Kast and Rosenzweig (1973, p. ix):
The contingency view seeks to understand the interrelationships within and
among subsystems as well as between the organization and its environment and to
define patterns of relationships or configurations of variables. It emphasizes the
multivariate nature of organizations and attempts to understand how organizations
operate under varying conditions and in specific circumstances.

The adoption of contingency theory in management accounting is premised

upon the belief that there is a need to identify contexts (ie, contingency factors
which may be external or internal to an organization) where specific accounting
designs, techniques and approaches wilier these contexts, but not others.

Environmental Uncertainty
As noted by Waterman and Tiessen (1978), perceived environmental
uncertainty (EU) is the primary external contingency variable that is associated
with managerial functions of management accounting systems (MAS) in
organisational units. Since this study uses Sino-Foreign JV sub-unit managers,
responsible for managerial functions of their organisation's MAS, the singling
out of environmental uncertainty for inclusion in the research design is appropriate.
Weick (1969) suggested that organisational members form an image of the
environment. He termed this imaging process enactment. He suggested that
organisational members respond to the enacted environment rather than to the
objective environment. This view is supported by Lawrence and Lorsch (1967)
who considered environmental uncertainty to be a perception (subjective
interpretation) of key decision-makers. Subsequent studies by Downey et al (1975)
and Gordon and Narayanan (1984) have suggested that the structuring actions an
organisation takes in responding to its environment are more consistent with
perceptions of the environment than with objective indicators of the environment.

17
 Asian Review of Accounting, Volume 4 Number 2,1996

In the study by Gordon and Narayanan (1984) it was found that as decision-makers
perceive greater environmental uncertainty, they tend to seek MAS information
which has characteristics of an external, non-financial and ex ante nature; on the
other hand, the role of organisational structure appears to be of minor importance
relative to EU in affecting the characteristics of MAS information sought by
decision-makers.

Organizational Objectives Conflict

In relation to internal contingencies, Otley (1980) proposed a "minimum
necessary contingency framework for studying MAS design" which reduced to
two factors — external contingencies and organizational objectives. Features of
Otley's framework are summarized as follows:
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(1) Variables outside the control of the organisation are considered

contingencies of the organization. Hence the significance of EU as
a contingency variable.

(2) The classification of organisational objectives as a contingency

variable is an exception to the non-controllable variables.
Organisational objectives should be treated as a criterion by which
organisational effectiveness in adapting to external contingencies is
assessed. However, to the extent that organizational objectives are
non-existant, ambiguous or conflicting, they represent a contextual
situation which has an appropriate^ with MAS design or other,
more specific, control factors such as BE.

(3) The organisational control package is the means by which the

organisation adapts to its contingencies in a way that might lead to
effective performance.

Liu et al (1992) provided evidence about the wide-ranging differences in

preferred financial and operating objectives held by managers from respective
sides of the venture partners in Sino-foreign JVs. They found that Chinese partners
favoured hard technology (plant etc), profits beyond the JV contract, attention to
export sales, and high investment of foreign currency. In contrast, foreign partners
favoured soft technology (patents etc), attention to domestic profits within the JV
contract period, and repatriation of foreign currency incomes. This evidence
highlights the fact that, in any evaluation of the effectiveness of BE or other MAS
control factors in a contingency framework, it must be asked for what and for
whom an organisational control sub-system is deemed effective.
Based on the arguments of Otley (1980) and the evidence of Liu et al (1992),
this study proposes a new major internal contingency variable termed
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 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Mntwes

organizational objectives conflict (OOC) which will be operationalized below for

a Sino-foreign JV.

Offsetting Measures of Effectiveness

In considering the effectiveness outcome of the control sub-system of BE,
given the context of different levels of EU and OOC, two offsetting variables are
considered. The first variable is the commonly used measure of self-rated
managerial performance (MP) (eg, Brownell, 1982; Chenhall & Brownell, 1988).
As Heneman (1974) demonstrated, a self-rating rather than superior-rating version
of the measure of MP overcomes the problem of "halo error". A widely adopted
instrument of self-rated MP is Mahoney et al's (1963) nine-item measure of
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managers' personal performance. This instrument comprises eight items on

performance on the managerial activities of planning, investigating, coordinating,
evaluating, supervising, staffing, negotiating and representing. In addition, a ninth
item is overall personal performance.
The second effectiveness variable is budgetary slack (BS). The relationship
between the achievability of targets and performance has been addressed in the
psychological, organisation and accounting literature. Locke et al (1981), in a
series of laboratory and field experiments, found that "specific hard goals (induce)
better performance than do-your-best or no goals". In an accounting context,
early studies found that less achievable budget targets are associated with better
performance (Stedry and Kay, 1966; Rockness, 1977). The issue of budget
attainability leads to the literature on budgetary biasing or slack. Budgetary slack
is defined by Lukka (1988) as:

...a deliberately created difference between the budgeting actors forecast about the
future ("honest budget estimate") and his or her submitted budgetfigure (budget
proposal), (p. 282)

Budgetary slack is, by Lukka's definition, a perception. Since every

participant in the budget setting process has his or her own unique picture of the
future, it is departures from what the actor "honestly believes" to be his or her
"realistic estimate" that is the basis of slack (Lukka, 1988, p. 283). This is an ex-
ante concept, with the biasing affecting the level at which a budget is set; a budget
level that would later be used to evaluate performance. The greater the creation
of BS, the more distorted will be the measurement of the effectiveness of BE,
because emphasis in performance evaluation will be on "meeting the budget"
based on an increasing departure from an "honest budget estimate".

19
 Asian Review ofAccounting, Volume 4 Number 2,1996

Hypotheses Development
Budgetary Emphasis and Environmental Uncertainty
(1) Impact on MP
As suggested by Kren & Liao (1988), "when uncertainty is high, accounting
numbers do not tell the whole story for performance evaluation, and other sources
of information are more relevant". Govindarajan (1984) and Brownell (1985)
provided the evidence about this idea. Both hypothesized that reduced reliance
on budgetary emphasis in performance evaluation would be more appropriate for
subordinate managers facing high levels of EU. In both studies, a measure of
perceived environmental uncertainty and self-rated performance was used, and
both found support for the hypothesis.
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This research gives support for the following hypothesis:

Hlmp: The lower environmental uncertainty (EU), the greater the impact of
budgetary emphasis (BE) on increasing managerial performance (MP)
of the HK Chinese and Western groups, respectively.

(2) Impact on BS
Findings reviewed above suggested that reduced BE was more appropriate
for managers facing high levels of EU. The propensity of subordinate managers
to create budgetary slack in order to increase their certainty of achieving
performance targets can be expected to increase when they face high budgetary
emphasis. It is posited that such a propensity to create slack will be hightened
when there also exists high EU.

Therefore, the following hypothesis is formulated:

Hlb: The higher environmental uncertainty (EU), the greater the impact of
budgetary emphasis (BE) on the creation of budgetary slack (BS)for
the HK Chinese and Western groups, respectively.

Budgetary Emphasis and Organizational Objectives Conflict

(1) Impact on MP
As concluded by Kren & Liao (1988), the impact of BE on MP is typically
moderated by contingency variables. The contingency variable of OOC between
the partners in an IJV is likely to have such a moderating effect. High levels of
OOC would means that the subordinate manager would perceive superiors to be
in dispute over corporate objectives to be pursued. For subordinate managers
operating in an organizational situation of dispute over the emphasis to be given
to certain organizational objectives, it is likely that they would seek less reliance
on specific performance criteria embodied in a budgetary emphasis approach.

20
 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Wntures

This is because organizational objectives are likely to provide much of the criteria
from which budgets are generated. Therefore, reduced reliance on budgetary
emphasis in performance evaluation would be expected to have a positive effect
on MP when subordinate managers face high levels of OOC. Alternatively, when
managers face low levels of OOC, increased reliance on BE might have a more
positive effect on MP.
The following hypothesis is formulated:
H2 : The lower organizational objectives conflict (OOC), the more positive
the impact of budgetary emphasis (BE) on increasing managerial
performance (MP) of the HK Chinese and Western groups,
respectively.
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(2) Impact on BS
It was argued above that high levels of OOC mean that the subordinate
manager would perceive superiors to be in dispute over the emphasis to be given
to certain organizational objectives, which translates to conflict over aspects of
budgets. Consequently, subordinate managers are likely to want less reliance on
budgetary emphasis in their performance evaluation by superiors. That is, high
OOC "fits" with low BE.
Budgetary emphasis, taken in isolation from OOC, would be expected to
increase subordinate managers' propensity to create budgetary slack. If subordinate
managers perceive rewards as dependent on evaluation against their budgets, Schiff
and Lewin (1970) conclude that they will be motivated to build slack into their
budgets. Onsi (1973) found a positive relationship between managers' needs to
create budgetary slack and "a system that places heavy stress on achieving budget
targets" (p.202).
Since conflict in organizational objectives is likely to undermine reliance
in budget-based criteria in performance evaluation, then increased reliance on BE
in performance evaluation would have the effect of increasing BS when subordinate
managers face high levels of OOC.
The following hypothesis is formulated:
H2bs: The higher organizational objectives conflict (OOC), the greater the
positive impact of budgetary emphasis (BE) on the creation of
budgetary slack (BS) or the HK Chinese and Western groups,
respectively.

Research Design and Variable Measurement

To test the hypotheses, this study undertook a survey of equity joint venture
companies operating under the Law of the People's Republic of China on Chinese-
Foreign Joint Ventures (1979) and associated regulations. Specifically, middle
and senior managers representing the foreign partner to the Sino-foreign JV were
chosen as the subjects for this study. Two groupings of managers were sampled -
Chinese ethnic managers representing Hong Kong foreign partners; Western ethnic

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 Asian Review ofAccounting, Volume 4 Number 2,1996

managers representing either Australian, New Zealand or Canadian foreign

partners. Due to practical necessity, the sampling procedure involved separate
selection methods for the two separate sample groups. In relation to the Hong
Kong Chinese group (HK Chinese), a comprehensive mailing directory of Hong
Kong owners in Sino-foreign JVs could not be obtained. Instead, several data
sources had to be pursued. These sources comprised mailing to JVs identified in
recent annual reports of Hong Kong listed companies, personal distribution by
accounting academics in two cities in China amongst pre-determined Sino-Hong
Kong JVs in these two cities, distribution amongst attendees at relevant seminars
and training sessions held by the Hong Kong Management Association (HKMA)
and the Hong Kong Society of Accountants (HKSA), and distribution through a
few past graduates in accounting from City University of Hong Kong who were
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being employed in Sino-Hong Kong JVs in China.

In respect of the Western group, the administration of the questionnaire
was much more conventional. Once the three mailing lists of Sino-Australian
JVs, Sino-New Zealand JVs and Sino-Canadian JVs were obtained, the
questionnaire was mailed to all firms with at least 20 employees or turnover of at
least $1 million (in any of A$, NZ$, or C$) or, where this data was not available,
a life of at least 3 years since inception. A total of 102 firms were selected for
inclusion in the sample. After follow up of slow respondents, 83 usable responses
from the Western group and the 89 usable responses from the HK Chinese group
were obtained.
Turning to the measurement of variables used in this study, reliability tests
were performed on each variable by way of factor analysis of the items comprising
each variable and by the Cronbach alpha statistic. In respect of each of the
following variables, their Cronbach alpha was above 0.58 and items in the survey
instrument loaded onto a single factor with an eigenvalue that explained above
60% of the total variance for the HK Chinese group and the Western group
respectively: Environmental Uncertainty (using seven of Sathe's (1974) 8-item
instrument); Organizational Objectives Conflict (using a new 6-item instrument
as given in the Appendix); Budgetary Emphasis (using two of Hopwood's (1972)
8-item instrument). Managerial Performance was measured using Mahoney et
al's (1963) nine-item self-rated performance measure, but was found to load onto
two factors for both sample groups. The factor of interest to this study contained
the three items of planning, investigating and evaluating for each respective group.
These three factors embodied information-based managerial activities, including
some reference to financial information in each item. For the HK Chinese group,
this factor had an eigenvalue which gave a percentage of explained variance of
42.0%; for the Western group it gave 52.3%. This three-item information-based
MP measure was, therefore, adopted. Finally, Budgetary Slack was measured
with Dunk's (1993) six-item instrument. For each sample group, only three of
Dunk's items loaded consistently onto a single factor, producing explained variance
of 28.4% for the HK Chinese group and 26.2% for the Western group.

22
 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Mntures

Results and Discussion

Multiple regression was performed for the independent variables (EU,
OOC and BE) in relation to the respective dependent variables (MP and BS) and
the respective sample groups (HK Chinese and Western). Both main and interaction
effects are considered in the following general equations:
Y=a + blX1+b2X2 + e (i)

Y = a + bjX, + b2X2 + bsX,X2 + e (ii)

Main Effects
Results of main effects only (equation (i)) are given in Table 1.
Table 1 Results of Regression for Main Effects;onMPandBS
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Dependent Independent F-value

Variable (Y) Variables (X,,X2) Beta Sig AdjR2 &sig

HK Chinese Group: .102 4.871 **

MP EU -.223 .034*
BE .146 .067

Western Group: .197 9.792 **

MP EU -.327 .002**
BE .259 .038*

HK Chinese Group: .073 3.361 *

BS EU .163 .125
BE .243 .023*

Western Group: .013 0.523

BS EU .091 .435
BE -.099 .397

HK Chinese Group: .115 5.605 **

MP OOC .249 .016*
BE .241 .020

Western Group: .223 2.751 **

MP OOC -.387 .002**
BE .232 .022*

HK Chinese Group: .051 2.341

BS OOC .071 .499
BE .219 .040*

Western Group: .153 4.321 *

BS OOC .228 .044*
BE -.025 .821

23
 Asian Review ofAccounting, Volume 4 Number 2,1996

In relation to the external contingency factor, EU, Table 1 confirms prior

findings that EU has a significantly negative relationship with MP. This applies
to both the HK Chinese group (beta = -.223) and the Western group (beta = -.327).
However, the expectation that EU is positively related to BS is confirmed for the
HK Chinese group (beta = .243), but is not significant for the Western group. One
possible reason for this is that Western managers may receive more tolerance
from their Western partner for operating in an uncertain environment in China,
and therefore have less incentive to create BS in the face of high EU, than might
be the case for HK Chinese managers operating in China.
In relation to the internal contingency factor, OOC, Table 1 shows the
unexpected result that OOC is significantly positively related to MP for the HK
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Chinese group (beta = .249), and significantly negatively related to MP for the
Western group (beta = -.387). Perhaps an explanation for this result is that HK
Chinese managers may 'externalize' OOC as a legitimate superior-generated
constraint to be managed when self-rating their performance, whereas Western
managers may 'internalize' OOC as partly their own making when self-rating
their performance. Evidence concerning differences in the cognitive variable,
locus of control, between the two groups could shed light on this notion of
internalizing versus externalizing the responsibility of self or others for conflict
in determining organizational objectives. Turning to the differences between the
groups in OOC's influence on BS, it can be seen in Table 1 that OOC is positively
related to BS as is expected for the Western group (beta=.228), but this relationship
is not significant for the HK Chinese group. This result implies that Western
managers are more inherently inclined to create budgetary slack as a result of
high OOC than are HK Chinese managers.

Interaction Effects
Results of two-way interaction effects (equation (ii)) are given in Table 2.
Table 2 contains the following statistics:

• Whole of equation statistics for the equation which contains

the interaction term - ie, equation (ii). These statistics are the
equation's F-value and its significance, and the adjusted R2.

• The regression co-efficients ofX,,X 2 and X : X r Since the co-

efficient of X,X2, ie, b3, is of key interest, the significance value
of the T statistic for b3 is also given.

• The whole of equation statistic, adjusted R2, for the equation

which contains the main effects only, equation (i), is given.
Finally, the difference in adjusted R2 for equation (ii) and

24
 The Impact of Contingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Wntwes

equation (i) is given as an indication of the incremental

explanatory power achieved by the inclusion of the interaction
term in the equation.

Table 2 Results of Regression for Interaction Effects on MP and BS

Dependent Independent Equation (ii) Equ. Diff. ofqs.

Variable Variables (i) (ii)&(i)for
Y X1,X2,(X,)(X2) b\ b2 b} iSigb3 AdjR2 AdjR2 AdjBT

HK Chinese Group:
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MP EU,BE,(EUxBE) -.213 .081 .122 .419 .109 .102 +.007

Western Group:
MP EU,BE,(EUxBE) -.341 .186 .087 .428 .202 .197 +.005

HK Chinese Group:
BS EU,BE,(EUxBE) .219 -.240 .677 .000** .285 .073 +.212

Western Group:
BS EU,BE,(EUxBE) -.154 -.103 .394 .001** .143 .013 +.130

HK Chinese Group:
MP OOC,BE,(OOCxBE) .338 .33 9 -.276 .015* .175 .115 +.060

Western Group:
MP OOC,BE,(OOCxBE) -.425 -.033 .583 .001** .338 .242 +.096

HK Chinese Group:
BS OOC,BE,(OOCxBE) -.042 .094 .352 .003** .148 .051 +.097

Western Group:
BS OOC,BE,(OOCxBE) .349 -.069 .427 .008** .136 .053 +.083

The results of EU's interactions with BE, as shown in Table 2, provide a

direct test of the hypotheses HI and Hl bs . First, Table 2 shows that there is no
significant interaction effect between EU and BE on MP for both the HK Chinese
and Western group. The alternative hypothesis, Hlm that the lower EU, the greater
the positive impact of BE on MP, is rejected for both group. Findings in support
of such an hypothesis obtained by Brownell (1985) in a Western management
setting are not confirmed in this cross-cultural study.
Second, when BS is used as the dependent variable, Table 2 shows that
there is a significant interaction effect between EU and BE on BS for both groups.
The inclusion of the interaction term, EU x BE, in the equation results in an
incremental explanatory power, as measured by the difference in adjusted R2 for
25
 Asian Review of Accounting, Volume 4 Number 2,1996

equation (ii) and equation (i), of 0.212 for the HK Chinese group and 0.130 for
the Western group. Therefore, alternative hypothesis Hlbs that the higher EU, the
greater the positive relation between BE and BS, is accepted for both groups.
Third, Table 2 shows that there is a significant interaction effect between
OOC and BE on MP for both the HK Chinese and Western group. For the Western
group, the regression co-efficient for the interaction term is positive (beta = .583,
sig = .001) and inclusion of this interaction term adds 0.96 to the equations
explanatory power. Therefore, in respect of the Western group, the alternative
hypothesis, H2m that the lower OOC, the greater the positive impact of BE on
MP, is accepted. However, for the HK Chinese group, the result is significant in
the opposite direction to that predicted by H2 . That is, OOC has a positive
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effect on MP (rather than a negative effect as is the case for the Western group)
and this is moderated downwards by BE (rather man upwards as is the case for
the Western group). For the HK Chinese group, the regression co-efficient for the
interaction term is negative (beta = -.276, sig = .015) and inclusion of this
interaction term adds 0.60 to the equation's explanatory power.
Fourth, when BS is again used as the dependent variable, Table 2 shows that
there is a significant positive interaction effect between OOC and BE on BS for
both groups. The inclusion of the interaction term, OOC x BE, in the equation
results in an incremental explanatory power of 0.097 for the HK Chinese group
and 0.083 for the Western group. Therefore, alternative hypothesis H2bs that the
higher OOC, the greater the positive relation between BE and BS, is accepted for
both groups.

Conclusions
This study has provided a comparison between HK Chinese and Western
managers of Sino-foreign JVs concerning the impact of budgetary emphasis on
offsetting aspects of their effectiveness, under varying contingency conditions.
In summary, the findings suggest the following conclusions:

• As a main effect on MP, EU impacts negatively on MP for both

groups; OOC impacts negatively on MP for the Western group
and positively for the HK Chinese group.

• As a main effect on BS, EU does not significantly affect BS for

either group; OOC impacts positively on BS for the Western
group, but has no significant effect for the HK Chinese group.

• As an interaction effect on MP, EU does not significantly interact

with BE to affect MP for either group; OOC does significantly
interact with BE to affect MP for both groups but, for the HK

26
 The Impact of Contingency Factors on the Effectiveness of Budgetary Emphasis in Sino-Foreign Joint Ventures

Chinese group, the direction of this interact on MP is negative

which is contradictory to the hypothesised direction.

As an interaction effect on BS, EU significantly interacts with

BE to positively affect BS for both groups; OOC also significantly
interacts with BE to positively affect BS for both groups.

The practical implications of these results can be summarized for external

and internal contingency factors, respectively. First, when a Sino-foreign JV
company is operating in an external environment with relatively high uncertainty,
an increase in budgetary emphasis in the evaluation of managerial performance
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would lead to an increase in the creation of budgetary slack, without having any
significant impact on improving managerial performance. This result is expected
for HK Chinese and Western managers alike. (This study's non-significant result
for the interaction of BE with EU to affect MP in a cross-cultural setting, is
inconsistent to the significant result found by Govindarajan (1984) and Brownell
(1985) in a single culture setting).
Second, when a Sino-foreign JV company is operating in an internal
environment of relatively high conflict between the partners about the
organizational objectives to be pursued by the IJV, an increase in budgetary
emphasis would again lead to an increase in the creation of budgetary slack for
bom groups. But, under high OOC, there could be an opportunity to improve
managerial performance if budgetary emphasis is increased in the case of the
Western group. For the HK Chinese group, however, high OOC coupled with
high BE is expected to not only increase BS but also reduce self-rated MP.
The conclusions of this study are subject to several limitations. The two
dependent variables are not objective measures of organizational efffectiveness;
rather they rely on managers' perceptions which are open to subject bias. The
construct, organizational objectives conflict, is a new concept and measurement
instrument developed for this study and has not yet been tested by other researchers.
Consideration has only been given to the control sub-system of budgetary
emphasis. IJVs will have a choice of using controls as substitutes for one anomer
or as reinforcements to one another when considering how best to moderate the
impact of contingency factors on organizational effectiveness. Finally, there were
constraints to the administration of the survey instrument which would have caused
some weakening of the internal validity of the collected data in this study.

27
 Asian Review ofAccounting, Volume 4 Number 2,1996

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 The Impact ofContingency Factors on the Effectiveness ofBudgetary Emphasis in Sino-Foreign Joint Matures

Appendix
Extract from Survey Instrument: Preferred Objectives by IJV Partners
We are interested in your views on the organisational objectives which are
preferred by the respective partners to your Joint Venture Company.
Some policy aspects of objectives are listed below. For each, consider the
extent to which you believe it is important or unimportant from the viewpoint of
the respective partners:
C = Chinese Enterprise partner's viewpoint
F = Foreign entity partner's viewpoint
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(circle one number on each line)

very very
unimportant neutral important

1. Domestic Sales in C = I 2 3 4 5 6 7
China rather than
export sales from F = I 2 3 4 5 6 7
China

2. Use of domestic C = [ 2 3 4 5 6 7
suppliers of materials,
parts and components F = I 2 3 4 5 6 7
in China

3. Spending on local C = 2 3 4 5 6 7
Chinese employees
for technical and F = 1 2 3 4 5 6 7
management training

4. Installation of C = 1 2 3 4 5 6 7
advanced imported
equipment and F = 1 2 3 4 5 6 7
patented technology

5. A balance of foreign C = 1 2 3 4 5 6 7
currency monetary
assets in excess of F = ] 2 3 4 5 6 7
foreign currency
liabilities

6. A substantial dividend C = 1 2 3 4 5 6 7
payout each year to
JV equity partners F = 1 2 3 4 5 6 7

31