Budget Goal Commitment and

Informational Effects of
Budget Participation on
Performance: A Structural
Equation Modeling Approach

Vincent K. Chong
The University of Western Australia
Kar Ming Chong
The University of New South Wales

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 Group :
Florentina Cindy. F 12-13-00-382
Mohammad Eka. P 12-13-00-389
Ivana Oktarina 12-13-00-390
Veralinda Nurdewi 12-13-00-397

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ABSTRACT

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 INTRODUCTION
This research contributes to the budget participation performance
literature in the following ways.

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 THEORETICAL MODEL AND HYPOTHESES
DEVELOPMENT
Linkage between Budget Participation and Budget Goal Commitment

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Linkage between Budget Goal Commitment and Job-
Relevant Information

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Linkage between Job-Relevant Information and
Job Performance

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 METHOD
• Sample Selection

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 Measurement of Variables
Budget Participation

• Milani’s (1975) six-item, seven-point

Likert-type scale was used to measure
budget participation.

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Job-Relevant Information

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Budget Goal Commitment

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Job Performance

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 RESULTS

Statistical Analyses
• To test our theoretical model, we used the
EQS structural equations computer program
(Bentler 1995). We adopted an approach
recommended by Anderson and Gerbing
(1988).

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First, the measurement model was evaluated by
confirmatory factor analysis.

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 Analysis of the Measurement Model
• The first step in our analysis was to develop a
measurement model. Our measurement model
consists of three factors (job-relevant information,
budget goal commitment, and budget participation).

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 Discriminant Validity Tests
• Discriminant validity of the three scales was assessed using the procedure outlined by
Bagozzi et al. (1991). Specifically, a model was estimated in which the correlation between
• (1) job-relevant information and budget goal commitment (JRI-COM),
• (2) job-relevant information and budget participation (JRI-BP), and
• (3) budget goal commitment and budget participation were restricted to unity (COM-BP)
(i.e., the correlation was fixed at 1.0).

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 Analysis of the Structural Model and
Analysis of Causal Ordering
• Prior to testing our hypotheses, we examine the
causal ordering between budget goal commitment
and job-relevant information. Our results confirmed
that budget goal commitment is an antecedent to
job-relevant information.

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sequential Chi-square difference tests
(SCDTs)

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 Hypothesis Testing

To test our hypotheses, we rely on the

standardized parameter estimates for our
Theoretical Model (I) (i.e., our best-fit
equivalent model) as shown in Figure 2.

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Hypothesis Testing

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 CONCLUSIONS

•Our results provide

•This study contributes some support for the
to the accounting use of goal-setting
literature by improving theory as an
our understanding of appropriate
the dual roles of alternative theory to
participation in the examine the budget
budgeting process. participation-
performance linkage.

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• More importantly, our results provide empirical support for
the dual effects of the motivational budget goal commitment
and informational effects of budget participation on job
performance. This is an important finding as prior studies in
this line of research have recognized the dual roles of budget
participation but failed to empirically test the dual effects.

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 LIMITATIONS
1. First, this study did not take into account the other
informational aspect of budgetary participation, namely
the subordinates’ communication of private information
and its contribution to budget quality and utility (see
Magner et al. 1996). Only one aspect of information is
examined, i.e., jobrelevant information.

2. Second, the sample was selected from the

manufacturing industries. Therefore, generalization of
the results to other industries (such as service
industries) should be done cautiously. Further research
involving the service industries would be worthwhile. A
related issue to the sample is the use of relatively small
sample size in this study.
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3. Third, the use of a self-rating scale to measure job
performance is likely to have higher mean values
(higher leniency error) and a restricted range (lower
variability error) in the score (Prien and Liske 1962;
Thornton 1968).

4. Fourth, this study tested a recursive model without

considering a nonrecursive model, which is possibly a
better model that could exist. In other words, there could
be simultaneous links between budget participation and
job performance, and budget goal commitment and job-
relevant information. In the present study, the test of a
nonrecursive model is not possible because of
identification problems.

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5. Fifth, this study focused mainly on the consequences of
budget participation without considering its antecedents. This
has been a major criticism of prior budget participation studies
(see e.g., Clinton et al. 1992; Shields and Young 1993; Shields
and Shields 1998).

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SUGGESTIONS FOR FUTURE RESEARCH
•Future research can employ different research
methods (e.g., longitudinal field studies) to
systematically investigate the theoretical causal
relationships proposed in this study.

•Not with standing these limitations, this study has

provided a further extension to research in the area of
budget participation by developing a structural model
that incorporates the effects of budget goal commitment
and informational roles of budget participation on
performance. More importantly, our study has improved
our understanding of the dual roles of budget
participation on performance.
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