This document summarizes a study examining the antecedents of budgetary slack. The study hypothesizes that budgetary slack will be higher for more diversified firms and firms pursuing differentiation strategies. It also hypothesizes that diversified firms and differentiation strategists will place less emphasis on meeting budgets and rely less on incentive systems tied to budget targets. The study involved surveying 101 Indonesian firms to analyze the relationships between these variables, finding that diversification and business strategy influence budgetary slack indirectly through their effects on budget emphasis. Managers with low power distance reacted more strongly to budget emphasis than those with high power distance.
Financial statement analysis of the greek private health sectorGiwrgos Loukopoulos
The purpose of this study is to perform a comprehensive financial statement analysis for Hygeia, the largest Private Health Organization in Greece. In this regard, we employ a variety of theoretically advanced approaches. For instance, DuPont analysis based on the decomposition scheme of Nissim and Penman (2001), shows that the capital structure decisions eroded shareholder profits, and specifically their impact was pronounced after the outbreak of the global financial crisis. Considering the unique operating characteristics of the health sector and the hostile macroeconomic environment, working capital management performed generally well, but with a considerable margin for further improvements, if more responsible policies are followed. What is more, thorough analysis revealed that in the last years operating returns were consistently negative and operating cash return were unable to cover effective interest fixed costs. If the external environment does change favorably and if more importantly, the business model of Hygeia does not focus on significant operating improvements, the long term prospect of the organization may be questioned.
International Journal of Humanities and Social Science Invention (IJHSSI)inventionjournals
is an international journal intended for professionals and researchers in all fields of Humanities and Social Science. IJHSSI publishes research articles and reviews within the whole field Humanities and Social Science, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
A company that has multiple, unrelated businesses. Unrelated businesses are those which (1) require unique management expertise, (2) have different end customers and (3) produce different products or provide different services.
Creative Accounting and Impact on Management Decision MakingWaqas Tariq
The study was conducted to appraise the impact of creative accounting on management decisions of selected companies listed in the Nigerian Stock Exchange. With the background, the main objective of the study includes the examination of the extent to which macro-manipulation of financial statement affects management decisions; to examine the extent to which macro-manipulation of financial statement affects share price performance; and to determine the impact of misreported assets and liabilities as well as making recommendations to help remedy some of the problems. The research method used was descriptive and the primary data collected were summarized and tabulated. These were picked in line with the hypothesis variables of the study so as to determine their validity. It was observed that the application of creativity in financial statement reporting significantly affects the decision of management to recapitalize the firm upward or dispose of it reserves. The study concluded that creative accounting through macro-manipulation of financial statements affects a firm’s price and capital market performance. In view of the study, the researcher recommended that the application of creative accounting on management decision should be to avoid misreporting of assets and liabilities in their financial report, and that management decision towards creative accounting should be geared towards the relative advantage principle and good corporate governance which encourage challenges to current ways of thinking and not manipulating for self interest.
Financial statement analysis of the greek private health sectorGiwrgos Loukopoulos
The purpose of this study is to perform a comprehensive financial statement analysis for Hygeia, the largest Private Health Organization in Greece. In this regard, we employ a variety of theoretically advanced approaches. For instance, DuPont analysis based on the decomposition scheme of Nissim and Penman (2001), shows that the capital structure decisions eroded shareholder profits, and specifically their impact was pronounced after the outbreak of the global financial crisis. Considering the unique operating characteristics of the health sector and the hostile macroeconomic environment, working capital management performed generally well, but with a considerable margin for further improvements, if more responsible policies are followed. What is more, thorough analysis revealed that in the last years operating returns were consistently negative and operating cash return were unable to cover effective interest fixed costs. If the external environment does change favorably and if more importantly, the business model of Hygeia does not focus on significant operating improvements, the long term prospect of the organization may be questioned.
International Journal of Humanities and Social Science Invention (IJHSSI)inventionjournals
is an international journal intended for professionals and researchers in all fields of Humanities and Social Science. IJHSSI publishes research articles and reviews within the whole field Humanities and Social Science, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
A company that has multiple, unrelated businesses. Unrelated businesses are those which (1) require unique management expertise, (2) have different end customers and (3) produce different products or provide different services.
Creative Accounting and Impact on Management Decision MakingWaqas Tariq
The study was conducted to appraise the impact of creative accounting on management decisions of selected companies listed in the Nigerian Stock Exchange. With the background, the main objective of the study includes the examination of the extent to which macro-manipulation of financial statement affects management decisions; to examine the extent to which macro-manipulation of financial statement affects share price performance; and to determine the impact of misreported assets and liabilities as well as making recommendations to help remedy some of the problems. The research method used was descriptive and the primary data collected were summarized and tabulated. These were picked in line with the hypothesis variables of the study so as to determine their validity. It was observed that the application of creativity in financial statement reporting significantly affects the decision of management to recapitalize the firm upward or dispose of it reserves. The study concluded that creative accounting through macro-manipulation of financial statements affects a firm’s price and capital market performance. In view of the study, the researcher recommended that the application of creative accounting on management decision should be to avoid misreporting of assets and liabilities in their financial report, and that management decision towards creative accounting should be geared towards the relative advantage principle and good corporate governance which encourage challenges to current ways of thinking and not manipulating for self interest.
Does Board Gender Diversity Have a Financial Impact Evidence.docxelinoraudley582231
Does Board Gender Diversity Have a Financial Impact? Evidence
Using Stock Portfolio Performance
Larelle Chapple • Jacquelyn E. Humphrey
Received: 12 December 2012 / Accepted: 21 June 2013 / Published online: 9 July 2013
� Springer Science+Business Media Dordrecht 2013
Abstract There is growing regulatory pressure on firms
worldwide to address the under-representation of women in
senior positions. Regulators have taken a variety of approa-
ches to the issue. We investigate a jurisdiction that has issued
recommendations and disclosure requirements, rather than
implementing quotas. Much of the rhetoric surrounding gen-
der diversity centres on whether diversity has a financial
impact. In this paper we take an aggregate (market-level)
approach and compare the performance of portfolios of firms
with gender diverse boards to those without. We also inves-
tigate whether having multiple women on the board is linked
to performance, and if there is a within-industry effect.
Overall, we do not find evidence of an association between
diversity and performance. We find some weak evidence of a
negative correlation between having multiple women on the
board and performance, but that in some industries diversity is
positively correlated with performance.
Keywords Gender diversity � Corporate governance �
Financial performance
Introduction
Board gender diversity has become a widely debated cor-
porate governance topic over the last decade. Indeed, as
reported below, some capital market regulators have moved
to impose gender quotas on boards; whereas others have
taken a more ‘‘best practice’’ approach and provided rec-
ommendations and/or disclosure requirements on firms with
respect to their gender diversity profiles. We categorise these
approaches to corporate governance and board composition
as either ‘‘mandated’’ or ‘‘self-regulation’’. At the core of the
regulatory debate is the nature of the value to be created from
diverse boards and the practical pressure it imposes on firms
to respond to these corporate governance initiatives.
Individual firms may face the cost of changing their
board composition, or at least the cost of defending (dis-
closing) current practices. Academic literature from a
variety of disciplines argues that an initiative such as board
diversity is not solely an economic concern, but a matter
that also may appeal to various social factors, recognising
that firms participate not just in capital markets but in
society as a whole (Hafsi and Turgut 2013). However, the
intriguing proposition that motivates the narrow focus in
this study is the explicit statement from the Australian
market operator that improving gender diversity enhances
company performance—as an economic construct:
Research has shown that increased gender diversity
on boards is associated with better financial perfor-
mance, and that improved workforce participation at
all levels positively impacts on the economy. (ASX
20.
Merkl-Davies, Doris M. and Brennan, Niamh M. [2007] Discretionary Disclosure ...Prof Niamh M. Brennan
This paper reviews and synthesizes the literature on discretionary narrative disclosures. We explore why, how, and whether preparers of corporate narrative reports use discretionary disclosures in corporate narrative documents and why, how, and whether users react thereto. To facilitate the review, we provide three taxonomies based on: the motivation for discretionary narrative disclosures (opportunistic behavior, i.e. impression management, versus provision of useful incremental information); the research perspective (preparer versus user); and seven discretionary disclosure strategies.
Running Head ECONOMICS AND ADMINISTRATION1ECONOMICS AND ADMI.docxtodd271
Running Head: ECONOMICS AND ADMINISTRATION 1
ECONOMICS AND ADMINISTRATION 5
ECONOMICS AND ADMINISTRATION
Khalia Hart
Dr. Touhey
MGMT 640 – Financial Decision Making for Managers
March 31, 2019
EXECUTIVE SUMMARY
For the success of every business, there needs to be a strong supporting factor that enforces success. The success of a business indicates that the structure of decision making is tough, strict but at the same time lenient to staff and more importantly customers. Financial management is a very vital factor to consider while engaging in any business activity. Not only is it concerned about customers and staff, but also affects every aspect of the business from managing cash flow and maintaining performance index to developing plans to ensure maximum use of opportunities by business owners. Stakeholders and business owners need to realize the importance of financial management as a tool in business administration since it is the force that ensures continuous development of financial capabilities needed for a business to achieve its full potential.
The macro-economic environment addresses issues concerning behavior. Here are where aAdministrative issues lie. Administration can be categorized into two main categories, administration as a practice and as a science. Administration as a practice mainly addresses the normal routine of business owners and managers and their normal administrative roles in any business entity. Administration as a scientific field is bound to face challenges which are broken down into four main classes. They are discussed fully in this document.
Factors that affect administrative decisions include globalization, cost of control, the relationship between stakeholders and demand on ethical behavior and corporate responsibility. Administrations in different organizations should always be keen to ensure that the named issues are always put under the eye . These factors can greatly affect the performance of a business entity as shall be discussed in this document. Comment by debra touhey: Good start, Khalia. The Executive Summary should explain the problems at hand with potential solutions to those problems. Here is a good reference on writing Executive Summaries:
https://www.inc.com/guides/2010/09/how-to-write-an-executive-summary.html
INTRODUCTION
Since time immemorial, business has always been a very important factor in society. To date, business transactions take place daily through the various business entities that have been established. In the modern world, however, various guidelines, strategies, and tools have been established to ensure that business practices go on smoothly (Robert et al., 2004). Comment by debra touhey: A little too informal for graduate writing
One of the practices that have been developed to ensure maximum productivity in the various entities that have been established, is financial management. The financial management function allows for the planning, organizing, monitori.
THE EFFECTS OF OWNERSHIP, BOARD COMPOSITION AND TOP MANAGEMENT TEAMS ON STRAT...Floriane G.
This paper aims to examine how different governance devices operate and interact to promote small-and-medium sized firms’ (SMEs) ability to change strategically.
A presentation of Brunninge, Nordqvist and Wiklund (2017°
This article is about analysis of if corporate change their divide.docxchristalgrieg
This article is about analysis of if corporate change their dividend policy during the global financial crisis during 2007 to 2008 and using the lifecycle model of dividend by DeAngelo et al. (2006). It is true that dividend payouts will be affected due to a company profits, this article looks a further step into if the magnitude of the drop is justifiable by the company financial status or is there a dividend policy due to cash management changes and company viability factors.
The assumption is that 2006 was the base year taken till 2009. A timeline of 4 years sample was used. The author gathered, compared various models and data.
Corporate dividend policy did shift during the global financial crisis, the 3 different type of shift are mainly dividend cut, no dividend payout and dividend initiation is significantly lower during the sample period. There are several factors that affects the probabilities of a company dividend change, mainly cash ratio, firm size, profit growth rate , capital ratio. A big company with a high cash ratio has a lower possibility of dividend policy change compared to a small company with low cash ratio. The author has felt that DDS life cycle should include significant macroeconomic events as it has a significant impact.
This article is about investor’s sentiment and market reaction to dividend news in a European perspective. Three markets were studied in this case, which is UK, France and Portugal. There is a theory that suggest that is based on the market with asymmetric information, insiders whom had the upper-hand uses the dividend policy as a form of signal to convey their firm’s performance to less informed investors from outside the firm. Which means that with dividend increase it signals a good performance, and decrease meaning that the firm is not profiting.
The analysis concluded that market reaction to news about dividend change depends on investors’ sentiments during investment decision process.
The findings show the results as follows. In the UK market, when sentiment is increased, the market reaction is more sensitive to dividend increase and less sensitive to dividend decrease when the sentiment is increased for French market.
As for the French market, the market reactions are more sensitive to dividend decrease announcement for smaller companies.
The smaller firms are more sentimental about market’s reaction to news about dividend change in the UK market.
And firms with big growth or in distress are more sentimental about market’s reaction to news about dividend decreases in the UK and French market.
Determinants of dividend policies for ADR firms
Extensive research was conducted regarding three theories (lifecycle theory, signaling theory, catering theory) for explaining dividend policies. Among them, many researchers have supported lifecycle theory as the better recognized theory in explaining observed corporate cash dividend policies. The lifecycle theory states that established firms ...
Relationship between Corporate Social Responsibility and Earnings Management ...ijtsrd
The relationship between corporate social responsibility CSR and earnings management EM is an extensive empirical study. However, the evidence on the nature of the relationship is unclear. A commonly defined reason for divergent and contradictory results is measurement issues. The purpose of this article is to evaluate alternative operation and measurement methods applied to the CSR and EM concepts in the empirical literature on CSR EM relationships. Our systematized appraisal was conducted over the last nine years from 2008 to 2016. This study has come to different observations. First, CSR measurement methods include sustainability indexes, content analyzes and single dimensional measurements, while EM measurement methods include discretionary accruals, discretionary loan loss provisions, real earnings management, abnormal earnings management, earnings persistence and earnings smoothing. In addition to the unique drawbacks of the approach, the subjectivity of the researcher and the selection anomalies that may influence the nature of the CSR EM relationships identified in the empirical literature. Finally, possible ways of overcoming these disadvantages are recommended. Mashiur Rahman | Sarah Chowdhury ""Relationship between Corporate Social Responsibility and Earnings Management: A Systematic Review of Measurement Methods"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-4 | Issue-2 , February 2020,
URL: https://www.ijtsrd.com/papers/ijtsrd29987.pdf
Paper Url : https://www.ijtsrd.com/management/business-ethics-and-legal-issues/29987/relationship-between-corporate-social-responsibility-and-earnings-management-a-systematic-review-of-measurement-methods/mashiur-rahman
ECO550179VA016-1168-001 - MANAGERIAL ECONOMICS & GLOBALI
Week 9 Assignment 3 - Submit Here
Quanise Richardson on Mon, Nov 28 2016, 10:50 AM
63% highest match
Submission ID: 4c2f5ce2-3b30-4e86-acd0-edd89fe4c99d
· Assignment_3_Long-Term_Investment_Decisi.docx
Word Count: 2,646
Attachment ID: 144852972
63%
Citations (14/14)
1. 1Another student's paper
2. 2Another student's paper
3. 3Another student's paper
4. 4Another student's paper
5. 5Another student's paper
6. 6Another student's paper
7. 7Another student's paper
8. 8Another student's paper
9. 9Another student's paper
10. 10Another student's paper
11. 11Another student's paper
12. 12https://www.scribd.com/document/53078122/MERGERS-20AND-20VALUE-20CREATION-20A-20CASE-20STUDY-20OF-20SIME-20DARBY-20040720
13. 13Another student's paper
14. 14Another student's paper
Running Head:
1 LONG-TERM INVESTMENT DECISIONS 1
2 Assignment 3 Long-term Investment Decisions Quanise Richardson ECO 550 Dr.Bernadette West November 26, 2016
Introduction Low calorie foodstuff or a healthy choice of meal is a new idea which has picked up a more enthusiasm for these technological periods. 3 In the past projects, we had talked about the foundation and the presentation of the organization which needs to take into account this division. 4 This paper will discuss the long term capital budgeting decisions that such an organization longs to make.
3 Pricing Strategy The Company plans to keep the costs of its items as inelastic as could reasonably be expected. 5 This implies that the estimating methodology (strategy of pricing) ought to have no effect in transit the users see and purchase such items. 3 For the most part we see such demand just in circumstances in which the great or administrations are crucial and the customers can't manage without those. Be that as it may, this is not the situation for microwavable sustenance items. 6 The demand function for low calorie microwavable sustenance to a great extent relies on upon the cost of the stock, its relative (substitute) item, commercial overheads and last yet not the minimum on the pay of the buyer.
7 From the demand function and the elasticity thought of it as, is built up that the market for the low calorie microwavable foodstuff fit into a market of monopolistically aggressive sort. 3 A monopolistic focused is recognized by a sensible number of purchasers and dealers. Thus individuals can change to another brand if a particular brand charges a taking off cost. However monopolistic focused providers do item separation. Subsequently he draws the final users or consumers of the product. Now,
7 Profit (NP) =Total Revenue (TR) – Total Cost (TC) = PQ TC According to the FOC of profit maximization, we get = MR – MC = 0 so MR = MC, where P is not fixed Form the elasticity as considered in the specified assignments; we can observe that the demand for the low calorie microwavable manufactured goods is not very elastic in nature.
Now, with the purpose to maintain their products ...
This presentation poster infographic delves into the multifaceted impacts of globalization through the lens of Nike, a prominent global brand. It explores how globalization has reshaped Nike's supply chain, marketing strategies, and cultural influence worldwide, examining both the benefits and challenges associated with its global expansion.
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Cotton in Nike Apparel
Nike Shops Worldwide
Nike Manufacturing Countries
Cold Cement Assembly Nike
3D Printing Nike Shoes
Nike Product Development
Nike Marketing Strategies
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Nike Distribution Centers
Automation in Nike Manufacturing
Nike Consumer Direct Acceleration
Nike Logistics and Transport
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the what'sapp information for my personal pi vendor.
+12349014282
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the what'sapp number.
+12349014282
Yes of course, you can easily start mining pi network coin today and sell to legit pi vendors in the United States.
Here the what'sapp contact of my personal vendor.
+12349014282
#pi network #pi coins #legit #passive income
#US
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the what'sapp contact of my personal pi merchant to trade with
+12349014282
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdfcoingabbar
Introducing BONKMILLON - The Most Bonkers Meme Coin Yet
Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdf
Budgetary slack and its antecedents
1. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
Budgetary slack and its antecedents
Does manager’s power distance matter?
By
Fuad & Arifin Sabeni
Abstract
Studies have provided insights on control systems, but results have not
developed into a widely accepted theory of management control in explaining the
antecedents of budgetary slack. This study attempts to answer the peculiarities and
anomalies shown by prior researches by examining direct effect of diversification,
business unit strategy on budgetary slack, or passing through the intervening
variables, budget emphasis and incentive systems. Manager’s power distance was
postulated to affect the extent of the relationship between the rigidity of budget
emphasis and budgetary slack.
A hundred and one responses from the independent-subsidiaries companies
were gathered and then analyzed by Structural Equation Modeling set up in Lisrel 8.5
and moderated regression analysis with dummy variable. The study found that while
both diversification and business unit strategy significantly affect budgetary slack and
indirectly through budget emphasis, incentive system insignificantly affects the
presence of budgetary slack. Surprisingly, the results suggest that the relationship
between budget emphasis and budgetary slack is negative and stronger for managers
with low power distance than for managers with high power distance, as opposed to
the positive interactions hypothesized that high power distance managers react
favorably to the high emphasis on meeting the budget rather than managers with low
power distance.
Key words: budgetary slack, power distance, business unit strategy, diversification
I. Introduction
The budgetary control systems have been examined widely by many researchers
for almost five decades. One of important areas has been focused on supervisory
style, which has been used to evaluate subordinate’s performance relying on
budgetary information. It was first pioneered by Hopwood’s (1972) seminal paper,
where recent budgeting literature has shown great interest in understanding possible
effects of budgetary control styles.
Later, Most of prior empirical evidences generally maintained that the incidence
of dysfunctional behavior is affected by the tightness of budgetary controls; which is
the condition when employees, mostly at the management organization levels, are
evaluated primarily on whether or not they achieved their budget. It implies,
therefore, all aspects of job prospects and facilities strongly depend on the managers’
ability to attain the budget target. Managers who miss the targets may face the
prospect of interventions by upper management, the loss of organizational resources,
the loss of annual bonuses/incentives, and worst, perhaps, the loss of their job
(Merchant & Manzoni, 1989). Under these circumstances, managers may look for
ways to protect themselves from the downside risk of missing budget targets and the
stigma normally (Stede 2000).
95
2. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
However, since corporate may not have all specific and wide information about
the operation of their subsidiaries, as is the case of the more diversified firms
(Campbell et al. 1995), the business units (BU) managers may react unfavorably to
the target determined by the corporate by underestimating their “real performance” to
easily achieve the budget target. In addition, the budget target determined by the
corporate may not as precise as the less diversified firms, and hence, budgetary slack
is presented. In order to minimize the existence of budgetary slack, according to
agency literature, corporate are likely to provide the great extent of incentive to their
subordinates.
Nevertheless, even if corporate managers were able to detect slack, they may
actually tolerate slack in business unit budgets as a conscious strategy to reduce
information overload at the top (Galbraith 1973). More slack reduces the chance of a
target being missed; and, the fewer the exceptions that need to be investigated, the
less the overload on the top. Rather than investing in “high-cost” information systems,
corporate tend to let this slack exist in their business units.
On the other hand, budgetary slack can also be explained by the uncertainty
involved in a particular industry facing different business unit strategy. Bourgeois
(1981) concluded that slack may be required to successfully pursue competitive
strategy that requires a high degree of flexibility to respond effectively to changes in
the environment (e.g. Porter’s differentiation and/or Miles and Snow’s prospector).
Langfield-Smith (1997) moreover found that the way in which business units
competes in their markets influence the design of management control systems.
Nevertheless, the results of this research have been inconclusive in some cases.
Simons (1987, 1988), for instance, found that prospectors emphasize rigid budgetary
controls to a greater extent than defenders. These findings contrast with the “popular
views” (e.g. Govindrajan (1988), Govindrajan and Fisher (1990)), maintaining that
innovation and differentiation (which is the case of differentiated companies) is best
achieved in organizations that minimize formal controls (i.e. low budget emphasis).
Moreover, the management accounting literature has maintained that the way in
which a business unit competes in its market also influences the design of the
management control system (Langfield-Smith 1997)
Therefore, those kinds of strategies that pursued by the business unit may also
influence the extent of slack. Organization theory has suggested that slack may be
needed to successfully pursue competitive strategies that require a high degree of
flexibility to respond effectively to changes in the environment (Bourgeois 1981).
Hence, business unit strategy is expected to be an important factor for explaining the
presence of slack in business unit budgets. Again, the results have been inconclusive
or in some cases, contradictory (for example, please compare, Miller and Friesen
1982; Simons 1987; Kaplan 1990; Govindarajan 1988).
With respect to the existence of national culture (power distance) that was
developed by Hofstede (1980) to moderate the relationship between budget emphasis
and budgetary slack is likely to exist. Power distance, that was defined as “the
difference between the extent to which the superior (in this case corporate) can
determine the behavior of subordinate (business unit managers)” (Hofstede 1980, p.
98; emphasize added), relates to favorably/unfavorably reaction to a high/low budget
emphasis in a high/low manager’s power distance. The favorably (unfavorably)
reaction indicates the lower (higher) extent of manager’s intention to create budgetary
slack.
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Although Chenhall (2003), quoting Hofstede (1980), argued that national culture
differs in particular cultural characteristics, preliminary test of this study showed that
each individual have “wide variance” of score based on the Hofstede’s questionnaires.
Therefore, we believe that the study of national culture have not always to compare
the behavior of managers in various countries as the contingent factors. Instead,
national culture measures can be adopted in the setting of specific country as well.1
It is interesting therefore, to contribute to the accounting literature by advancing
“the paths” of determinants of budgetary slack that might have not been examined by
prior researchers, in some specific ways: 1) Indonesia as the third world countries and
“western” countries have shown contrasted value (Noesjirwan 1977, p. 357) and
national culture (Hofstede 1985). Particularly, no research has been done in Indonesia
that uses this measure as moderating variable to examine the variables hypothesized.
2) This research hopefully will be an advance solution for providing the “generally
accepted results” pertaining the antecedents of budgetary slack.
This main purpose of this study is to determine the situational, as well as firm’s
administrative systems antecedents in the presence of budgetary slack. Contingent
argument will also be examined by the moderating role of power distance in the
relationship between budget emphasis and budgetary slack.
The remainder of the study is organized as follows. The next section develops in
more detail the hypotheses formulation and then followed by methodology of the
study in Section III. Results are reported in Section IV while limitations and avenues
for further research are discussed in the final Section.
II. Hypothesis Development
Corporate diversification is defined as the extent to which a firm is
simultaneously active in “distinct” businesses (Pitts and Hopkins 1982) and a means
by which a firm expands from its core business into other product markets (Andrews
1980; Gluck 1985). There are many advantages that a firm can get by doing
diversification. Diversification can improve debt capacity, reduces the chances of
bankruptcy by going into new product/markets (Higgins and Schall 1975; Lewellen
1971). Skill developed in one business transferred to other businesses, can also
increase labor and capital productivity. A diversified firm can transfer funds from a
cash surplus unit to a cash deficit unit without taxes of transaction costs (Bhide 1993).
The type (i.e. outcomes, use or usefulness) of management control systems
implemented over business units may be affected by the extent of diversification. In-
line with prior researches, more diverse firms may influence the ability of the
corporate to detect the budgetary slack in their business units. Corporate managers in
the diversified firms are less familiar with the operations of the distinct business
(Campbell et al. 1995). Therefore, corporate managers are at disadvantage to detect
slack. Moreover, as previously stated, some corporate tend to let slack exist in their
business unit to control the information-processing need by corporate management
(Galbraith 1973). Therefore, we posit that:
H1: more diversified firms experienced more budgetary slack in their business units.
1
Frucot and Shearon (1991) for instance, they examined the effect of manager’s power distance and
uncertainty avoidance on the budgetary participation, performance, job satisfaction and locus of control
to 83 Mexican managers.
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In accordance with the above preposition, diversification leads to an increase
in the capacity of information processing by the corporate. This would make the
corporate almost impossible to use direct informal interventions in business unit
operations as a tool of control. In fact, much of the control in diversified firms will be
achieved through financial-results or budgetary controls (Salter 1973; Berg 1969).
Fortunately, monitoring financial results requires less intimate knowledge of the
activities of the various business units, which is an advantage issue for more
diversified firms.
Moreover, in accordance with H1 above, since corporate managers in
diversified firms lack specific operation knowledge about the various activities of
their business units, it is expected that they will emphasize accounting-based budget
performance. In other words, most interactions between corporate and business unit
managers of diversified firms are likely to evolve mainly from budget-related issues,
as opposed to the operational details of the business.
H2 : more diversified firms put more emphasis on budget target.
Furthermore, agency theory predicts that incentives should be most intense
when business unit managers are able to respond to them (Milgrom and Roberts
1992). Business unit managers in diversified firms are likely to have discretion about
more aspects of their work, and hence, have greater marginal impact on performance
(Bruns and Waterhouse 1975). In the other hand, principal (corporate manager)
wanted the agent (business unit manager) to provide high effort. Since effort is
unobservable (Dirsmith 1998), incentives were provided for business managers to
motivate them to behave in a manner consistent with the corporate interests.
Moreover, as previously stated in H2, corporate managers in diversified firms
primarily monitor outcome-based budget results without getting involved in, and
having a great understanding of, the business unit operations as such. Agency theory
once again suggests that formal monitoring of outcome-based performance and
incentives are complementary. Thus, we expect that the greater autonomy of business
unit managers and the greater reliance on outcome-based budgetary controls in
diversified firms is associated with a higher percentage variable compensation.
H3: diversified firms tend to intensively give a larger extent of both business unit and
corporate performance-based incentive
There are two typologies that were used widely by behavioral-based budgetary
accounting researchers to measure business unit strategy; which are Porter’s (1980)
Cost-leadership/Differentiator and Miles and Snow (1978) Defender/Prospector. Both
are assumed to be similar since they have the “same sense of market oriented”. Cost-
leadership and defenders for instance, they focus on achieving a low cost position
relative to competitors and therefore pursue cost reduction, exploit economies of scale
and produce undifferentiated product. On the other hand, differentiators and
prospectors actively engage in market and product development. Often, they create
something that is perceived by the customer as unique by pursuing superior product
features, product innovation, customer service, brand image, etc.
Govindrajan (1984, 1986, 1988) reconciled the Hopwood (1973) and Otley’s
(1978) results relating to performance, argued that defenders face relatively low
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environmental uncertainty2
rather than prospectors. He argued that
differentiators/prospectors face relatively more uncertainty than cost-
leaders/defenders because they have broad product lines, engage in produuct
innovation, deal with products that have not yet crystallized, etc. Cost-
leaders/defenders, in contrast, keep their essentially undifferentiated product offerings
relatively stable over time (Fisher and Govindrajan 1993, Govindrajan 1986, 1988).
Hence, the reliance on formal accounting-based budgetary controls is less suitable and
they will also require a higher degree of flexibility to respond effectively to changes
in the environment. Bourgeois (1981) and Cyert and March (1963) suggested the
slack creation to hedge against uncertainty, which provide a cushion to support the
exploitation of market opportunities and a source of funds to experiment with product
innovation.
In addition, both defender and prospector also typically operate in dissimilar
settings that may affect the ability of corporate management to detect slack. Merchant
(1985b) argued that the ability to set accurate budget and to measure performance
precisely, which is likely to be the case for cost-leaders/defenders, provides the
opportunity to prevent the introduction of slack. On the other hand, corporate
management may not wish to reduce slack in the differentiators/prospectors business
units, where if they do, it would chokes innovation and prevents managers from
exploring new market opportunities (Stede 2001). Therefore we conclude that
H4: differentiators/prospectors have more budget slack than cost leaders/defenders.
Prior research has not produced conclusive evidence on the relationship between
management control systems and competitive strategy (Langfield- Smith 1997). For
instance, Simons (1987, 1988) found that prospectors emphasize rigid budgetary
controls to a greater extent than defenders, which conflicts with the widely held view
that innovation and differentiation are best achieved in organizations that minimize
formal controls. However, Govindrajan (1988) and Govindrajan and Fisher (1990)
maintained that prospectors tend to set tight budgets.
Nevertheless, many strong evidences have suggested that cost-
leadership/defenders (CL/DEF) will emphasize cost control, trend monitoring and
efficiency, whereas differentiatiors/prospectors (DIF/PRO) are likely to rely on
scanning the environment for new opportunities, comprehensive planning, and the
adoption of relatively subjective performance measures. Accounting controls (budget)
in general tend not to be associated with innovation; hence, differentiators/prospectors
will make limited use of budgetary controls, where it chokes innovation and
experimentations, although they will be important in the case of defenders.
H5: differentiators/prospectors put less emphasis on meeting the budget than cost
leaders/ defenders.
With respect to the incentive system, managers in charge of DIF/PRO
businesses are likely to receive a lower portion of their salary tied to accounting-based
budgetary performance because of the uncertainty involved in pursuing DIF/PRO
strategies. For example, engaging in product and market innovation may require
investments that decrease current-period accounting profits despite their potential to
generate substantial, but uncertain, future earnings. Incentives contingent on
2
He defined environmental uncertainty as the unpredictability of the actions of customers, suppliers,
competitors and regulatory groups.
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accounting-based measures may therefore discourage managers from undertaking
such investments.
Since the critical success factors underlying DIF/PRO strategies tend to be long-
term in nature and more difficult to quantify, incentives tied to accounting-based
budgetary performance become less suitable because they potentially encourage
managers to be myopic in their decisions (Baber et al. 1996; Clinch 1991). Similarly,
if accounting-based measures of performance are a less adequate reflection of the
managers’ actions in DIF/PRO units than in CL/DEF units, it is expected that
incentive payments to managers in DIF/PRO units will be conditioned on subjective
performance evaluations by corporate management to a greater extent than in
CL/DEF units (Bushman et al. 1995). Collectively, this suggests that:
H6: incentives for managers in charge of differentiation/prospector business units are
less intensive compared to incentives for managers in charge of cost
leader/defender business units.
The presence of slack in business unit budgets is affected by the design of the
budgetary control and incentive system, either because these systems produce
pressures on business unit managers and/or affect the likelihood that slack is detected
(Merchant 1985a). A strong (if not exclusive) emphasis on budgetary performance
should provide clear guidance to managers as to what is considered important.
Controls can also diminish the intentions of managers to create slack in their business
unit budgets.
H7: tight budgetary controls are negatively associated with slack
Incentives can be considered using the theory of operant conditioning as well as
the other motivation theories (e.g., agency, expectancy, equity and goal setting).
Operant conditioning theory suggests that an individual’s behavior will be modified
by the rewards or punishments that occur as a result of some action or failure to act on
the part of the individual. Holding business unit managers responsible for clearly
defined results areas, adequate monitoring of performance in these areas, and
providing compensation for good results, generally is viewed in the (economics-
based) accounting literature as an effective way to stimulate goal-directed
management behavior. A high percentage variable compensation should increase the
likelihood that bonus amounts are significant enough for managers to influence their
behavior.
H8: business unit performance-based incentives are negatively associated with slack.
Recent management accounting studies incorporating some or all of
Hofstede’s dimensions of national culture are mostly applied in the area of behavioral
researches. It was pioneered by Chow et al. (1991) who found the insignificant
relation between individualism and performance by controlling team pay, and then
followed by numerous researchers such as Harrison (1992, 1993), O’Connor (1995),
Lal et al. (1996), Nicholson et al. (1997), etc. Although they were a sign of the
widening area in the behavioral accounting research, but many of them revealed the
contradictory results. For example, while Chow et al. (1996) examined the effect of
three Hofstede’s national culture dimensions (Individualism, Power distance and
uncertainty avoidance) on the relationship between control system tightness,
procedural controls, and centralized directives and found the significant ones,
Harrison (1992) showed the contradictory results. Oddly, both used the same
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measurement and samples; which were Anglo-American managers and Singaporean
manager.
We, however, postulate that a significant interaction of power distance in
mediating the relation between budget emphasis and budgetary slack is likely to
happen. Subordinates or managers are likely to react favorably to a high budget
emphasis evaluative style in a high power distance society because a preference for a
non-consultative, decisive leadership style in high power distance societies is also
likely to produce a preference for high RAPM (reliance on accounting performance
measure) in evaluative style (Harrison 1993, p. 322). A favorable subordinate’s
reaction to a performance evaluative style is likely to be associated with less slack in
achieving the budget target. In contrary, subordinates in low power distance societies
are likely to “react favorably to a low budget emphasis evaluative style because this
style provides the opportunity for subordinates to be consulted” (Lau et al. 1997, p.
179). With low budget emphasis, greater reliance will be placed on non accounting
performance measures. As non accounting performance measures are likely to be
more subjective and applied in more flexible measures than accounting performance
measures, there is likely to be a greater need for consultations between superiors and
subordinates. Therefore, hypothesis 9 is stated as:
H9: the interaction term between budget emphasis and budgetary slack is determined
by power distance.
Figure I: Conceptual Framework
III. Method
3.1. The sample
Pilot study was conducted to the 34 respondents that represent the sample by
conducted interview to ensure feasibility, understandability and clarity of the
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Diversification
PD
Strategy
Incentive
Slack
Budget
Emphasis
H1
H2
H3
H4
H5
H6
H7
H8
H9
8. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
questions. However, there were many revisions suggested; and the most significant
revision made was the omission3
of one of Hofstede’s (1980) power distance
constructs no C.124
(see Hofstede 1980, p.120), since respondents did not clearly
understand the meaning after it was translated into Indonesian according to the
methodological sequences. (Please refer to footnote 3).
We examine both the subsidiaries from both go public and non go public
parents. This study identified 246 firms from 36 parents of manufacturing public
listed firms and randomly allocated 500 questionnaires to them; Another 200
questionnaires were allocated to the non go public subsidiaries. Companies with less
than 100 companies were not expected to have clearly defined areas of responsibility
to which managers could be appointed (Dunk 1993), so they are not included in the
study. Chosen managers were until three levels below the top management in order to
hinder the bias results, because commonly, higher incentives are given to the middle-
high level managers.
Sampling was restricted to managers of budget-related functional area; that is,
managers that were responsible in attaining the budget target. A questionnaire5
was
attached to a cover letter explaining the purpose of the study and assuring anonymity
was mailed (and e-mailed) to the managers. A reply-paid self-addressed envelope was
also attached to the cover letter requesting the participants to return the completed
questionnaires directly to the researcher. We received 45 and 56 usable responses
from subsidiaries of go-public and non-go public firms, respectively.
Although prior researchers concluded that the subsidiaries of non-go public and
go-public firms might have different characteristics based on their ownership and
equity financing (Singh, 1995), test for equality of variances and means showed no
differences between those different characteristics (all variables exceed the threshold
level of observed probability 0.1). Therefore, this study inherently found no problem.
3.2. Measurement of Variables
Corporate diversification was measured by the number of separate entities in
each company as a proxy for the degree of diversification at the highest organizational
level. Budget emphasis was measured by the questionnaire survey consist of 7 items
that scores from 1 (definitely false) to 5 (true) adopted from Stede’s (2000, 2001)
published researches. The higher the score, the more achieving the budget is
emphasized, and hence the tighter the budgetary control process is perceived to be.
The construct reliability of budget emphasis was 0.752. A complete questionnaire is
presented in the appendix A.
A budget contains slack if the business unit manager has intentionally set
his/her budget target lower than his/her honest forecast about the future so that the
budget becomes easier to achieve (Lukka 1988). The slack measurement consists of
5 items (items 1-4, using 5 items Likert’s scale, and item 5 is fully anchored
3
Modification of construct is common in behavioral-based accounting research. Budgetary
participation construct developed by Milani (1975) has been revised significantly by Pope and Otley
(1996). Furthermore, Brownell (1982, 1983) and harrison also made changes in job satisfaction’s
widely-used questionnaires developed by Weiss et al. (1967).
4
“There are few qualities in a man more admirable tha dedication and loyalty to his company”
5
The questionnaires were initially developed in English by prior researchers, then translated into
Indonesian and back-translated into English by different individuals. The original and back-translated
versions were compared. The Indonesian version was then revised based on the detected differences,
then translated back into English and again compared to the original English version. There were many
remaining differences had to be resolved to finalize the Indonesian version.
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question asking whether the budget is very easy to attain until impossible to attain).
The construct reliability was 0.837
Incentives were measured using two aspects of monetary incentives. First, we
asked respondents to indicate the percentage of their compensation that is
performance-dependent. Second, we asked respondents to indicate the percentage of
their bonus that depends on total corporate performance v. their own business unit
performance (Gupta and Govindarajan 1986). The average of these measures was
employed to determine the extent of incentive systems based on the performance of
corporate, as well as their business units.
Business strategy as Govindrajan and Fisher (1990), using Porter’s (1980)
Low cost – Differentiation and Miles and Snow’s (1978) Defender-Prospector were
used in this study. The business unit managers were asked to position their business
unit relative to competitors (on a seven-point scale from significantly lower to
higher) in terms of Product selling price; R&D expenditures; Product quality; Brand
image; and Product features. The higher score indicates that the business units
operate in differentiation/prospector strategy, while vice versa; the lower score
proves that the business units run in cost-leadership/defender strategy. The
reliability was 0.716
Power distance was measured by a nine-item instrument developed by
Hofstede (1980). At present, it is the only available instrument for measuring power
distance. “This instrument was based on subordinates’ perceptions of whether their
peers are afraid to disagree with their superiors, as well as their peers’ perceptions
of and preferences for their superiors’ decision making styles”. (Lau et al. 1997. p.
183). Power Distance Index (PDI) was not adopted as many prior researchers did, as
the nine-items of PD’s construct used in this study would be more precisely explain
the extent of power distance (Hofstede 1980, p. 109).
Table 1: Descriptive Statistics
Variable N Actual Range Theoretical Range
Min Max Min Max Mean(µ) Std.Dev (λ)
STRATEGY 101 5 25 5 25 18.861 3.867
DIVRSFTCN 101 2 19 0 ∼ 5.663 4.641
INCENTIVE 101 0 0.3 0 ∼ 0.101 0.074
EMPHASIS 101 7 35 7 35 27.316 5.434
BDGSLACK 101 7 25 5 25 20.158 4.706
Pow Dist 101 14 37 8 40 27.435 5.034
∼: Unidentified
IV. Results and Discussion
H1 to H8 were analyzed by Structural Equation Modeling in LISREL 8.05
Simplis. Despite the model were threaten as the observed variables, rather than the
latent variables (unobserved variables), this is the common method in a behavioral-
based accounting research (Stede 2001; De ruyter and Wetzels 1999). In fact, this
test produced a better confirmation about factor dimensions and the causality
relationship between those factors. Nevertheless, H9 was analyzed by moderated
regression analysis. Therefore, we assumed that there is no other antecedent (i.e.
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diversification and strategy) affecting the extent of budget emphasis and budgetary
slack. In other words, budget emphasis, power distance (moderating variable) and
budgetary slack are independent and dependent variables, respectively, using
dummy (dichotomous variable). The purpose of this method is to figure out the role
of managers’ power distance in the relationship between the rigidity of budget and
the likelihood of managers to create budgetary slack, without be affected by other
determinants of budgetary slack.
Table 2
Correlations
Strategy Slack Emphasis Diversification Incentive
Slack .609**
Emphasis -.238* -.305**
Diversification .219* .395** .120
Incentive -.087 -.158 .085 .105
PD -0.168 -0.179 0.221* -0.048 -0.047
Notes: N=101; **p < 0.01; * p < 0.05 (one-tail)
Table 2 reports the correlation between variables. While business unit strategy
and budgetary emphasis seems to negatively correlated, Differentiators/Prospectors
experience more slack in their budgetary outcome. The tight budgetary controls also
seem to have less slack in their budgets. Incentive system and other variables,
surprisingly, seem do not significantly correlated in the predicted directions.
Diversified companies do not put more emphasis on their budgets, although they
have more slack in their budgets, indicating lack of operational knowledge about the
various activities of their business units.
Table 3 reports the output of a structural equation model. The structural
equation model tests the hypothesized relationships with all variables entered
simultaneously in the model. The purpose of this multivariate analysis is to test
whether the one to one correlations reported in Table 2 hold significant in the
presence of other intervening variables. In other words, it tests whether corporate
diversification and business unit strategy, respectively, have a direct effect on
budgetary slack or whether this effect is (in part) attributable to how rigidly the
control system is implemented and/or how the incentive system is designed.
The structural model was set up in LISREL 8.05 Simplis. Because of sample
size limitations, all variables in the model were treated as the observed variables (by
using the aggregate scale for each construct) and not as latent variables with
multiple indicators. Model fit is adequate: (χ2
is insignificant (p = 0.66); the
comparative fit index (CFI=1.00) exceeds 0.9. Further methodologies details are
provided in the footnotes to table 3.
Table 3
Structural Equation Modeling Results
Path from …to β Sig.
H1 Diversification Slack 0.337 0.000
H2 Diversification Emphasis 0.212 0.064
H3 Diversification Incentive 0.002 0.198
H4 Strategy Slack 0.574 0.000
H5 Strategy emphasis -0.390 0.004
H6 Strategy incentive -0.002 0.253
H7 Emphasis Slack -0.192 0.002
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H8 Incentive Slack -8.338 0.061
Notes: a. This study contained both the univariate and multivariate outliers. However, this study
did not attempt to delete ones, because outliers must be viewed within the context of the
analysis and should be evaluated by the types of information they provide. In addition,
Hair et al. (1995) mentioned that “outliers should be retained to ensure generalizability to
the entire population… (p. 66)”
b. Model fit is very good: (χ2
= 0.193; root mean square error of approximation = 0.000;
adjusted goodness of fit index (AGFI) is 0.988, above the recommended acceptance level
(0.90); normed fit index (NFI) is 0.998; comparative fit index (CFI) is 1.000 proving the
perfect fit (Arbuckle and Wothke 1999), which is above a common recommended value
0.90 (Hair et al. 1995)
The results showed, as hypothesized, as the number of subsidiaries controlled by
the corporate is increasing, the extent of budgetary slack could be higher indeed. (H1;
p= 0.00; β=0.3371). Following Galbraith’s (1973) model in which corporate
management deals with the overload information processed, corporate management
can either increase the capacity to handle more information, or reduce the amount of
information. However, since investing in information systems is a high cost
investment, corporate tends to let the slack exist in their business units. Moreover, it is
more likely that more diversified corporate are less familiar with the operations of
their businesses, which make them at a disadvantage to uncover slack (Onsi 1973).
Therefore, much of the control in diversified firms will be achieved through
financial results-oriented or budgetary controls (Merchant 1981, Salter 1973, Berg
1969), as shown by significant effect on diversification to the budget emphasis (H2:
p= 0.064; β=0.212) at the moderate cut-off (i.e. 7 per cent). Monitoring financial
results requires less intimate knowledge of the activities of the various business units
and simplifies top management information processing (Hill and Hoskisson 1987).
Nevertheless, more diversified firms are not likely to give higher incentive to their
business units manager (H3: p=0.198; β=0.002). Since business unit managers may
underestimate their productive capabilities, the reliance on performance-based
incentive was not the only option the corporate has. Instead, as has been argued by
stewardship theorists (e.g., Donaldson and Davis 1989, 1991, 1994; Fox and Hamilton
1994; Donaldson 1990), agency theory may not work well on upper level
management; where they were the sample of this study. Instead, higher order needs
(growth, achievement, and self-actualization) are more determined by the corporate
rather than lower order/economic needs (e.g. physiological, security, economic) as the
motivation drivers for their managers.
The success factors underlying DIF/PRO strategies tend to be of a long term
nature and difficult to quantify, which not only make reliance on formal accounting-
based budgetary controls less suitable, but also requires a higher degree of flexibility
to respond effectively to changes in the environment. Differentiators seem to induce
more slack in their budget, while cost-leadership companies, in contrast, tend to
produce less slack (H4: p=0.000; β=0.5745). In addition, Differentiators seem do not
put higher pressure to attain the budgetary targets, as to be the case of cost-leadership
companies (H5= 0.0045; β=-0.3904). However, differentiators do not give more
incentive to their managers (H6) because the differentiated company’s ability to
satisfy a customer need in a way that its competitors can not means that it can charge
the premium price (p=0.2531; β= -0.0022). The ability to increase revenues by
charging premium prices (rather than by reducing costs like the cost-leadership)
allows the corporate to gain above-average profits. Hence, incentive in charge of
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differentiation/prospector business units is more intensive rather than in cost-
leaders/defender business units.
We also found that rigid budgetary controls should increase the likelihood that
slack gets detected (Williamson 1967), and therefore, curtailed (H7: p= 0.0026; β=-
0.1920). In addition, we also found that there is a negative effect between incentives
and budgetary slack at 10 per cent cut-off (H8: p=0.0617; β=-8.3382). As previously
stated, assuming that managers seek to maximize personal income, high business unit
performance will be pursued since it translates directly into higher personal income.
This, however, reduces the propensity of BU managers to build slack (Milgrom and
Roberts 1992).
Does managers’ power distance matter?
H9 implies that manager’s power distance moderates the relation between
budget emphasis and budgetary slack. In other words, power distance and the rigidity
of the budget interact to influence the extent of budgetary slack. If the interaction is
significant, it would mean that the relations between the management control feature
and budgetary slack is stronger for managers with high power distance than for
managers with low power distance. To test the hypothesis, we divided the sample into
high power distance and low power distance based on the mean score. The hypothesis
was tested using the following regression equation:
Y = a0 + a1X1 + a2X2 + a3X1X2 (1)
Y = budgetary slack
X1 = budget emphasis
X2 = manager’s power distance (0 for low power distance and 1 for high power
distance)
Using the value of power distance = 1, and 0, equation (1) can be
reconstructed for managers with high and low power distance respectively as
presented below:
For low managers power distance: Y = a0 + X1 (2)
For high managers power distance: Y = (a0 + a2) + (a1 + a3) X1 (3)
H9 posits that there is a significant interaction between budget emphasis and
manager’s power distance affecting budgetary slack. To support the hypothesis, a3 in
equation (1) must be significant and positive. However, this study found the
significant one, but the negative sign was not expected as displayed in table 3. It can
be observed from the table that the interaction term is negative and significant (p <
0.011). The model explains 25.4 per cent of the variance (adj. R2
= 0.164, F = 6.350,
p < 0.01)
Table 4: Moderated Regression Results
Variables Coefficient Coefficient value
(β)
T-stat value Sig. p.
X1 budget emphasis A1 -0.069 -0.646 0.520
X2 manager’s PD A2 10.884 2.307 0.023
X3 interaction term A3 -0.436 -2.588 0.011
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13. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
Constant A0 22.830 8.042 0.000
Notes: Adj. R2
= 0.164; F = 6.350; p < 0.001
To present more clearly the difference in the slope of the relationship
between budget emphasis and budgetary slack with respect to the low and high power
distance, the values from table III for the relevant coefficient in equation (1) are
inserted to obtain equation (2) and (3)
For low manager’s power distance Y = 22.830 – 0.069BE (2a)
And
For high manager’s power distance Y = 33.674 – 0.505BE (3a)
The results clearly indicate that the relationship between budget emphasis and
budgetary slack is negative and stronger for managers with low power distance (PD)
than for managers with high power distance. A comparison of the regression
coefficient of budget emphasis in equation (2a) and (3a) indicates that a unit decrease
in budget emphasis has at least a seven-fold effect on the extent of budgetary slack for
managers with high PD than for managers with low PD (see figure).
Figure 2: Relationship between budgetary slack and budget emphasis: low and high
manager’s power distance
Budget emphasis
Surprisingly, although the moderating effect of power distance is significant,
the negative sign is not expected. It means, therefore, business unit managers with
high power distance tend to react favorably to a low budget emphasis evaluative style
in achieving the budget target rather than managers with lower power distance. Since
the satisfaction of managers with directive or persuasive superior is large for
managers with high power distance (Hofsede 1980) greater reliance will be placed on
non-accounting performance measures in the low budget emphasis
5. Limitations and Avenues for Further Research
This study carries several inherent limitations. Since the very low response
rate, totally 11.25%, the question arises as to whether the responses obtained are
representative of the population. The use of questionnaire also introduces the
possibility that the respondents may place a different interpretation on the questions
than did the researchers. Efforts were made to overcome this limitation, which was by
107
High PD
Low PD
Budgetary
Slack
14. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
conducting the pilot study. In addition, there are some determinants of budgetary
slack which are not included in the study. Budgetary slack may actually be influenced
by other variables than those considered in the study. Therefore, conclusions can be
made only with respect to those situational factors and firm’s administrative systems.
Market intensity may affect the extent of accounting control and the
intentions of manager to create slack in their business unit budgets, as well as the
external forces of industry (i.e., porter’s five forces). Further study can also
incorporate other measures of incentives such as group-based incentive Vs
tournament-based incentive suggested by Drake et al. (1999), compensation level
and/or compensation change (Ke et. al. 1999), or use of long term incentives
(Merchant 1995). By overcoming the data difficulty, organizational systems variables
can also be proxied by use of non-financial performance measures that have been
done by Perera et al. (1997)
The role of national culture can also be extended by incorporating other
dimensions of national culture such as individualism, uncertainty avoidance, or
masculinity; or perhaps, by combining the national and organizational culture would
clearly determine the “true effect” of cultures in each variable hypothesized. Further
research can also change the business unit strategy’s scale. The dichotomous variable
may be better, as this dummy variable can precisely determine the exact threshold
value of differentiator/prospectors and cost-leadership/defender companies based on
its median or mean value.
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Appendix
Instruments assessing manager’s power distance
Every individual have its own culture which is a set of values that might be expected
or implicitly required of members of that organization. The following statements
listed below are values that have been found prevalent in different individuals.
Please place one number (i.e. 1, 2, 3, 4, 5) against each of the following eight items to
indicate the extent of your individual’s power distance
1 2 3 4 5
Not at all To a slight
extent
To a moderate
extent
To a great
extent
To a very
great extent
(1) Employees lose respect for a
consultative manager
1 2 3 4 5
(2) A good manager gives detailed
instructions
1 2 3 4 5
(3) My manager is not concerned
with helping get ahead
1 2 3 4 5
(4) An employee should not ask for
a salary increase
1 2 3 4 5
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18. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
(5) Employees in industry should
participate more in the decisions
taken by management
1 2 3 4 5
(6) The average human being has an
inherent dislike of work and will
avoid it if he can
1 2 3 4 5
(7) Most employees want to make a
real contribution to the success
of it
1 2 3 4 5
(8) By and large, companies change
their practises much too often
1 2 3 4 5
Business Unit Strategy
Please position your business unit relative to competitors
1 2 3 4 5
Lowest lower Not bad higher highest
(1) Product selling prices 1 2 3 4 5
(2) Product quality 1 2 3 4 5
(3) Brand image 1 2 3 4 5
(4) R&D expenditures 1 2 3 4 5
(5) Product features 1 2 3 4 5
Budget emphasis
A high emphasis on meeting the budget is the condition when subordinate managers
are evaluated primarily on whether or not they achieve their budget. This instruments
measure the rigidity of budget emphasis
1 2 3 4 5
Definitely
false
False Neutral True Definitely
true
(1) I am constantly reminded by the corporate
parent of the need to meet budget targets
1 2 3 4 5
(2) Corporate superiors judge my performance
predominantly on the basis of attaining budget
goals
1 2 3 4 5
(3) Control over my business is achieved by the
corporate parent principally by monitoring
whether my budget is on target
1 2 3 4 5
(4) In the eyes of my corporate superiors,
achieving the budget is an accurate reflection
of whether I am succeeding in my business
1 2 3 4 5
(5) Not achieving my budget has a strong impact
on how my performance is rated by my
corporate superiors
1 2 3 4 5
(6) My promotion prospects depend heavily on my 1 2 3 4 5
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19. SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004
ability to meet the budget
(7) In the eyes of my corporate superiors, not
achieving the budget reflects poor performance
1 2 3 4 5
Budgetary slack
This instruments measure whether you as the business unit managers intentionally set
your budget target lower than your honest forecast about the future so that the budget
becomes easier to achieve.
1 2 3 4 5
Definitely
false
False Neutral True Definitely true
(1) Succeed to submit budgets that are easily
attainable
1 2 3 4 5
(2) Budget targets induce high productivity in my
business unit
1 2 3 4 5
(3) Budget targets require costs to be managed
carefully in my business unit
1 2 3 4 5
(4) Budget targets have not caused me to be
particularly concerned with improving
efficiency in my business unit
1 2 3 4 5
(5) How do you judge your business units’ budget target?
(please circle one)
1. very easy to attain
2. attainable with reasonable effort
3. attainable with considerable effort
4. practically unattainable
5. impossible to atttain
113