The Impact of Culture on the Relationship Between Budgetary

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The impact of culture on the relationship between budgetary participation, management accounting systems,

and managerial performance:An analysis of Chinese and Western managers

Judy S.L. Tsui* Department of Accountancy, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon, Hong Kong, China

Abstract

This study tests the hypothesis that the behavior and attitudes of Chinese and Western managers to budgetary participation will be different because of cultural differences. Chinese managers are used torepresent managers from a high-collectivist, large-power distance, and long-term orientation culturewhile Caucasian expatriate managers are used to represent a culture that is low-collectivist, small- power distance, and short-term orientation. Data were collected from 51 Chinese subunit managers inXian, China and 38 Caucasian expatriate subunit managers in Hong Kong who were requested torespond to questionnaires designed to measure the availability of broad scope and timelymanagement accounting systems (MAS), budgetary participation, and their managerial performance.Multiple regression analysis showed that the three-way interaction term was significant, thus,suggesting that the interaction effects of MAS and budgetary participation on managerial performancewere different, depending on the cultural background of the managers. More specifically, therelationship between MAS information and managerial performance of Chinese managers wasnegative for high levels of participation but positive for Caucasian managers. These results haveimplications for the design of effective control subsystems and suggest that the management accounting theories developed in the context of Western economies may not be generalizable to theChinese environment. D 2001 University of Illinois. All rights reserved.

Keywords: Culture; Budgetary participation; Management accounting systems; Managerial performance

0020-7063/01/$ see front matter D 2001 University of Illinois. All rights reserved.PII: S0 020-70 63(0 1)000 101-7

* Tel.: +852-2788-7923; fax: +852-2788-7002. E-mail address : [email protected] (J.S.L. Tsui).

The International Journal of Accounting36 (2001) 125146


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1. Introduction

A significant strand of management accounting research focuses on the notion that national cultural variables could affect the relationship between management controlsystems and performance (Awasthi, Chow, & Wu, 1998; Birnberg & Snodgrass, 1988;Chow, Shields, & Chan, 1991). It is argued that people from different cultures havedifferent attitudes to similar management control systems and management practices(Chow, Harrison, Lindquist, & Wu, 1997; Harrison, 1992). As a result, management control tools and management practices found to be effective in one environment could be ineffective or even dysfunctional in another environment (Chow, Kato, &Merchant, 1996). Thus, these differences as a result of culture have far reachingimplications for the design and implementation of management control systems indifferent countries.

While there are a number of studies that have examined the relationships betweenculture and various aspects of marketing and organizational behavior, research on therelationship between culture and management control systems is by comparison stillscarce (Harrison & McKinnon, 1999; Kagitcibasi & Berry, 1989). In particular, therehave only been a handful of studies that have examined managers attitudes tomanagement control systems across national boundaries (Awasthi et al., 1998; Birnberg& Snodgrass, 1988; Chow et al., 1996; Chow, Kato, & Shields, 1994; Dunk, 1989;

Harrison, 1992; Harrison, McKinnon, Panchapakesan, & Leung, 1994; Merchant, Chow,& Wu, 1995). For example, Birnberg and Snodgrass (1988) conducted a field study inUS and Japan and found that culture affects the nature of formal control system.Another study conducted in Australia and Singapore found that culture influenced therelation between reliance on accounting performance measures in the evaluative style of superiors and work-related attitudes of subordinates (Harrison, 1992). Other aspects of management controls such as the link between budgetary participation and management accounting systems (MAS) still remain to be explored. Most studies (Chow et al., 1991,1996; Daley, Jiambalvo, Sundem, & Kondo, 1985; Harrison, 1992; Harrison et al.,1994) have focused on managers in Japan, US, Singapore, and Australia with little or no evidence on how Chinese managers would behave. The extension of these types of studies to Chinese managers is important given the recent surge of multinational business activities in China and the lack of empirical data on Chinese management accounting practices. Moreover, Chinese culture emphasizes values that are diametricallyopposed to Western values (Gul & Tsui, 1993, 1995; Hofstede, 1991). Thus, empiricalevidence from China would provide important insights into the role of culture in theapplication of management accounting across national boundaries.

This study examines how MAS and budgetary participation affect the performance of Chinese subunit managers in the Chinese Mainland and expatriate Caucasian managers inHong Kong. Both MAS (Chenhall & Morris, 1986) and budgetary participation (Brow-nell, 1982a; Lau, Low, & Eggleton, 1995; OConnor, 1995) have been identified as keyelements in a firms management control system that is expected to affect managerial performance. However, according to Hofstede (1980, 1991), Chinese managers are

J.S.L. Tsui / The International Journal of Accounting 36 (2001) 125146 126


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expected to behave differently from Western managers in managerial decision-making

situations such as budgetary participation because of cultural differences.1

In the case of budgetary participation, there are at least two further aspects to consider. Thefirst issue relates to the motivational role of participation. The dominant Western theories onmotivation such as the needs-based theories (Alderfer, 1972; Herzberg, Mausner, & Synder-man, 1959; Maslow, 1954; McClelland, 1975) all emphasize that recognition, influence, andachievement are primary motivators. Participation in the decision-making process caters tothese needs of recognition and influence and is, therefore, likely to be a motivating factor.However, the application of these theories in a non-Western environment is questionable.Hofstede (1980) argued that these motivational theories are culture-bound and are relevant only to Western countries. Similarly, Kanungo (1983) suggested that while we may accept theneeds to motivate employees, the nature of those needs may be influenced by cultural values.In a recent survey in China, it was found that Herzbergs model had to be modified for it to beapplied to the Chinese environment (Yu, 1991). Thus, the motivational role and advantages of participation is not clear in a non-Western environment. Second, even though the participativedecision-making style is used in non-Western culture, it, in itself, is not widely accepted inAsian cultures. Several studies have shown that a more directive style whereby the leader or top management makes a decision on his own and then persuades the subordinates to accept that decision is preferred in Asian cultures (Deyo, 1978; Redding & Casey, 1976; Redding &Richardson, 1986). Moreover, unlike Western cultures where direct objections and frank

discussions are preferred, managers in Asian cultures prefer restraint, politeness, and indirect objections (Kirkbride, Tang, & Westwood, 1991; Thompson, 1989). Thus, the participativedecision-making style is not expected to be consistent with Chinese culture which has, untilrecently, been insulated from Western ideology. As a result, the expected positive relationship between MAS and managerial performance for high levels of budgetary participation, asexpected in Western society, may not exist for Chinese managers in the Mainland.

Section 2 of the paper provides a review of the relevant literature, which leads to thedevelopment of the hypothesis tested in this study. This is followed by Section 3,which is about the methodology of the study, and Section 4, which discusses the results

and conclusions.

2. Hypothesis development

As pointed out earlier, both participation and other accounting information system (AIS)tools should be viewed as a control package and are considered interdependent (Emmanuel,Otley, & Merchant, 1990). For example, participation may be more meaningful in organ-izations that have sophisticated MAS so that managers can use that information for participative decisions on resource allocation among the operating units (Chow, Cooper, &Waller, 1988; Waller, 1988). Further, with the opening up of the Chinese economy and

1 The idea that culture can affect the budget participationperformance relationship was also suggested byBrownell (1982a).



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Western influence, some level of participation is being practiced but their use is not as

entrenched as MAS information for purposes of control (Fang & Tang, 1991). However, therole of participation in China is not clear since, as pointed out earlier, there are cultural factorswhich suggest that participation in the budgetary process could, in fact, be dysfunctional.

Hofstede (1991) and Hofstede and Bond (1988) identified five dimensions of culture that are labeled power distance, uncertainty avoidance, collectivism, masculinity, and long-termorientation. 2 Of relevance in this context are the dimensions of power distance, collectivism,and long-term orientation since these three dimensions may be theoretically linked to budgetary participation. Power distance is defined as the degree of inequality among people.This can range from relatively equal (small-power distance) to extremely unequal (large- power distance). In the large-power distance countries, individuals accept the inequalities that exist in society and even subscribe to such inequalities. Authority and seniority are important and individuals are comfortable with the superiorsubordinate relationships. In a recent study, Hofstede (1993) 3 suggested that China is at the high end of the power distance scalecompared to the US, which is on the low end of the scale, where equality and participatorymanagement would have positive motivational effects.

Collectivism is defined as the form and manner of the relationship between an individualand others in society. Chinese society is characterized by a high degree of collectivism whileWestern society emphasizes individualism (Meindl, Hunt, & Lee, 1989). In low-collectivist (high individualist) Western society, the individual places his own interest above that of other

members and questions of independence at work and the ability to influence organizationaldecisions becomes paramount. In high-collectivist societies such as China, individuals arecommitted to the group and they see themselves in a network of relationships. For theseindividuals, the need to be part of the decision-making process in the organization is lessimportant than for individuals from low-collectivist societies (Meindl et al., 1989).

It is unlikely that participation will be effective in Chinese society, which is high-power distance andhigh-collectivist. Chow et al. (1996) also drew attention to the fact that participationis more likely to succeed in a society which has a highly individualist culture as in the US. On theother hand, participation in a culture that emphasizes collectivism such as in China (Hofstede,

1993) would not be successful in inducing goal congruence, communication, and coordination.Hofstede (1984, p. 394) also pointed out that subordinates in large-power distance countries

2 According to Gul and Tsui (1993) and Perera (1989), it is necessary to examine the pertinent dimensions inthe context of each study. In most cross-cultural studies, only the pertinent dimensions are used to explain cross-cultural differences in management control system (e.g., Chow et al., 1996; Harrison et al., 1994; OConnor,1995). Specifically, there is a substantial amount of literature that supports the association between individualismand participation (see Chow et al., 1991; Harrison, 1992; Lincoln & McBride, 1987). In addition, Frucot andShearons (1991) study provided evidence that power distance is an important cultural variable in explaining participation as well. It can also be argued that the most important characteristic of long-term orientation is the

notion of wu lun , which is consistent with the dimension of power distance, characterized by the respect of authority and unequal relationships among people. Therefore, only these three dimensions are considered relevant for the context of this study.

3 For power distance, US had a score of 40 while China had a score of 80. Similarly, the individualism scorefor US was 91 and for China was 20.



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have strong dependence needs . . .and . . .expect superiors to behave autocratically and not to

consult them. Therefore, allowing subordinates to participate in budgetary matters would becounterto suchexpectations of authoritative leadership styles. In contrast, subordinates in small- power distance countries would prefer to participate in budgetary decision (OConnor, 1995).Thus, on the basis of these cultural dimensions, it is unlikely that participation in the budgetary process would be successful in China.

Long-term orientation represents the idea of Confucian dynamism, which consists of thefollowing values: persistence, thrift, having a sense of shame, ordering relationships by status,and observing this order (Hofstede, 1991). One of the most important characteristics of long-term orientation is the notion of wu lun , which emphasizes the respect for authority and theunequal relationships between people. Wu lun consists of five basic relationships: ruler subject, fatherson, older brotheryounger brother, husbandwife, and senior friendjunior friend. For example, in an organization, the junior manager owes the senior manager respect and obedience; the senior manager owes the junior manager protection and consideration(Hofstede, 1991). Hofstede (1991) also found that long-term orientation is correlated withlarge power distance. China is classified as long-term while the US is classified as short-term. 4 Therefore, in the Chinese culture that is classified as large-power distance and is long-term in its orientation, it is likely that participation would be frowned upon since it isinconsistent with the philosophy of unequal relationships based on the principles of wu lun .

Several control tools such as AIS including MAS information are now available in

Chinese enterprises as a result of the economic structural reforms. For example, Fang andTang (1991) drew attention to the fact that there are now concerted attempts to developaccounting information for both macro- and microeconomic management including sophis-ticated computerized management information systems. The AIS, in general, and MAS in particular, are being used at different levels by Chinese manufacturing companies to improvemanagerial performance. In this study, the MAS dimensions of scope and timeliness wereselected because of their theoretical links with budgetary participation and managerial performance. MAS scope refers to the focus, quantification, and time horizon of theinformation (Chenhall & Morris, 1986; Gordon & Narayanan, 1984). Traditional MAS

information in terms of scope would include information that is confined to the organization,financial in nature and essentially historical, whereas broad scope MAS information wouldalso provide information that is external, nonfinancial, and future-oriented including probabilistic data. Timeliness refers to the provision of information on request and thefrequency of reporting systematically collected information. A MAS that is characterized bythe existence of high frequency reports and rapid feedback is considered to be more usefulthan one that lacks these features (Chenhall & Morris, 1986). Both these features of scopeand timeliness of MAS are likely to positively affect managerial performance. For example,given the dynamic nature of the business environment, both broad scope and timelyinformation will assist managers make more informative decisions which in turn will

4 The long-term orientation score for China is 118 while for US the score is 29.



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improve performance (Gordon & Narayanan, 1984). Chenhall and Morris (1986, p. 31)

emphasized the importance of studying this relationship:Perhaps, most importantly, the effect of different types of MAS on managers performanceshould be investigated. It is hoped that such approaches will enhance our abilities tounderstand what types of MAS are appropriate in different situations and, as a result, toimprove the likelihood that MAS will help managers improve their performance and that of their organizations.

Taken together, both broad scope and timely MAS information are also expected tofacilitate participative budgetary decision making. For example, broad scope MAS informa-tion would be useful in budgeting and evaluating the costs involved in servicing the diversity

of decisions that managers face. Chenhall and Morris (1986) and Simon, Guetzkow,Kozmetsky, and Tyndall (1954) refer to the usefulness of broad-based attention-directingand problem-solving information to assist managers in pricing and sales, inventory control,and marketing. This presumably includes setting the sales budget, inventory budget, andadvertising and marketing budget to name a few. Further, the evaluation of budgetary performance of subunit managers is also likely to be assisted by broad scope, nonfinancialinformation regarding managers reliability, cooperation, and flexibility in the budget setting process (Chenhall & Morris, 1986; Hayes, 1977). Similarly, the provision of future-orientedinformation is likely to complement budgetary participation as this would improve managersability to make more informed decisions and formulate more realistic budgets. Timely MASinformation would enhance the budgetary participation process since it reports on the most recent events and provides rapid feedback on the budgetary decisions.

Fig. 1. MAS=Management Accounting System



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In order to test the joint effects of MAS and budgetary participation on managerial

performance, MAS is identified as the primary independent variable and budgetary partic-ipation is the moderating variable as shown in Fig. 1.Budgetary participation is considered a moderating variable because the availability of

MAS in improving managerial performance is likely to be influenced by participation. Thus,while a positive relationship between MAS and managerial performance is expected, it islikely to be moderated by budgetary participation; at high levels of budgetary participation, it is likely that there would be a negative relationship between MAS and managerial perform-ance for Chinese managers. Chinese managers are expected to be uncomfortable with participation and this may negate the positive effects of MAS information on managerial performance. Since participation in decision making is consistent with Western cultural beliefs, a positive relationship between MAS and managerial performance is expected at highlevels of budgetary participation for Western managers. This reasoning suggests the followingthree-way interaction hypothesis:

Hypothesis 1: The interaction effects of MAS and budgetary participation onmanagerial performance will be different depending on the cultural background of the managers. High levels of budgetary participation will be associated with anegative relationship between MAS and managerial performance for Chinesemanagers but will be associated with a positive relationship for Western managers.

3. Methodology

A survey was employed to collect the data for this study. Pilot tests of the Chinese versionsof the different instruments were conducted prior to distribution to ensure that the translationswere valid and reliable. Questionnaires were then distributed to subunit managers in selectedChinese manufacturing enterprises in Xian, China and English versions to Caucasian subunit managers in selected manufacturing enterprises in Hong Kong. The English version of thequestionnaire consisting of four parts on the detailed measurement of the variables (asdiscussed below) with instructions to the respondents is attached in Appendix A.

3.1. Measurement of variables

Managerial performance was measured through a self-evaluation questionnaire (Mahoney,Jerdee, & Carroll, 1963). Respondents were asked to rate on a nine-point Likert scale their own perceived performance on eight subdimensions of planning, investigating, coordinating,evaluating, supervising, staffing, negotiating, and representing (Brownell & Hirst, 1986; Gul,1991). An overall score calculated by averaging the eight subdimensions 5 was used as a

5 Most prior studies used the overall measure for performance as the dependent variable. A number of Chinese managers did not complete the overall measure and in order to improve the sample size, the eight itemswere selected as the measure of performance. The high Cronbachs alpha value for the eight items suggests that this was appropriate.



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measure for managerial performance. There is some criticism of this measure because of its

subjective nature and the leniency bias of such self-rating scales. Empirical evidence,however, suggests that such concerns regarding subjectivity are unwarranted (Heneman,1974; Venkatraman & Ramnujam, 1987) and the evidence regarding the extent to which self-ratings exhibit a leniency bias is equivocal (Nealey & Owen, 1970). A Cronbachs alphavalue of .88 showed satisfactory convergence of the items.

Budgetary participation was measured by using Milanis (1975) six-item measurement instrument (Brownell, 1982b). The items measured subjects perceptions of the amount of influence and involvement that a manager has on a jointly-set budget. Cronbachs alpha for the scale was .82.

MAS was measured by using the two dimensions adapted from the Chenhall and Morris(1986) instrument. First, only the dimensions of scope and timeliness were examined, whileChenhall and Morris also examined the dimensions of aggregation and integration. Our selection of scope and timeliness is based on its theoretical linkages to budgetary participation(Gul, Shields, Fong, & Kwok, 1995) and performance (Gordon & Narayanan, 1984). Second,Chenhall and Morris evaluated the perceived usefulness of MAS, whereas in this study, wemeasured the availability of MAS. This modification was necessary since the dimensionsof a MAS may be perceived to be useful but if they are not available, they are unlikely tohave any impact on performance.

Nine questions based on the Chenhall and Morris (1986) instrument were included in the

questionnaire in order to evaluate the availability of MAS scope and timeliness character-istics. Of these, five questions focused on the availability of external, nonfinancial and future-oriented information, i.e., broad scope characteristics. Four questions were asked on thefrequency and speed of reporting in establishing the information characteristic of timeliness.It was decided to combine these items since factor analysis revealed that all the items loadedsignificantly on one factor. Cronbachs alpha for the nine items was .79.

Cultural background was operationalized in terms of dummy variables with 0 representingChinese and 1 representing Western subunit managers, respectively.

Demographic statistics are given in Table 1. Descriptive statistics for the independent

variable, MAS, and the moderating variable, budgetary participation, as well as thedependent variable, managerial performance for both Chinese and Western managers, and

Table 1Demographic statistics

Mean

Chinese managers (N = 51)Age 39.11Experience 17.33

Western managers (N = 38)Age 35.76 ( t = 0.1586)Experience 16.71 ( t = 0.7585)



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their average scores for each subdimension, characteristic, and item for the above variables

are given in Table 2.

Table 2Descriptive statistics

Panel A: summarized dimensions

Variables Mean a Standard deviation Actual range Theoretical range

Chinese managers (N = 51)Managerial performance ( Y ) 5.92 1.54 2.008.50 1.009.00MAS ( X 1 ) 3.96 1.17 1.786.56 1.009.00Budgetary participation ( X 2 ) 4.04 1.12 1.006.50 1.007.00

Western managers (N = 38)Managerial performance ( Y ) 6.59 1.34 1.888.88 1.009.00MAS ( X 1 ) 3.95 1.11 1.676.50 1.009.00Budgetary participation ( X 2 ) 5.15 1.17 1.006.83 1.007.00

Panel B: summarized subdimensions

Variables Average Standard deviation Actual range

Chinese managers (N = 51)

Managerial performance (Y)Subdimension 1 5.82 1.58 1.008.00Subdimension 2 5.98 2.01 1.009.00Subdimension 3 6.43 1.92 1.009.00Subdimension 4 5.96 1.87 1.009.00Subdimension 5 6.04 2.37 1.009.00Subdimension 6 4.94 2.63 0.009.00Subdimension 7 6.22 2.19 1.009.00Subdimension 8 5.67 2.19 1.009.00

MAS (X 1 )Characteristic 1 4.69 1.77 1.007.00

Characteristic 2 3.31 1.73 0.006.00Characteristic 3 3.27 2.03 0.007.00Characteristic 4 4.27 1.86 1.007.00Characteristic 5 3.02 1.75 0.007.00Characteristic 6 3.90 1.84 0.007.00Characteristic 7 3.94 2.11 0.007.00Characteristic 8 3.84 1.77 0.007.00Characteristic 9 3.65 1.98 0.007.00

Budgetary participation ( X 2 )Item 1 4.22 1.72 1.007.00Item 2 4.39 1.60 0.007.00

Item 3 4.06 1.85 1.007.00Item 4 4.00 1.73 1.007.00Item 5 3.65 1.44 1.007.00Item 6 3.92 1.81 1.007.00

(Continued on next page)



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A correlation matrix for MAS, budgetary participation, and performance is given in Table3. As expected, the correlation matrix shows that both MAS and budgetary participation are positively correlated to managerial performance with a significant positive correlation between MAS and budgetary participation as well.

3.2. Sample size and data collection

The sample consists of Chinese and Western subunit managers drawn from a cross-sectionof different manufacturing companies in Xian, China and Hong Kong, respectively. Themanaging directors and personnel managers of selected manufacturing companies were personally approached by the researchers to assist in questionnaire distribution to subunit managers of three large manufacturing enterprises in Xian, China and four large manufactur-ing enterprises in Hong Kong. A total of 124 questionnaires were distributed. Ninety-fivequestionnaires were returned with six unusable questionnaires representing a response rate of

Panel B: summarized subdimensionsVariables Average Standard deviation Actual range

Western managers (N = 38)Managerial performance ( Y )

Subdimension 1 6.58 1.67 1.009.00Subdimension 2 6.61 1.37 4.009.00Subdimension 3 7.05 1.66 3.009.00Subdimension 4 6.61 1.64 1.009.00Subdimension 5 6.50 1.96 0.009.00Subdimension 6 6.13 2.32 0.009.00Subdimension 7 6.84 1.94 2.009.00Subdimension 8 5.71 2.13 0.009.00

MAS ( X 1 )Characteristic 1 4.45 1.61 0.007.00Characteristic 2 3.45 1.84 0.007.00Characteristic 3 4.32 1.76 1.007.00Characteristic 4 3.76 1.55 0.006.00Characteristic 5 3.29 1.61 0.007.00Characteristic 6 3.37 1.65 0.006.00Characteristic 7 3.63 2.17 0.007.00Characteristic 8 4.16 1.67 1.007.00Characteristic 9 4.05 1.58 1.007.00

Budgetary participation ( X 2 )Item 1 5.24 1.63 1.007.00Item 2 4.82 1.56 1.007.00Item 3 4.55 1.77 1.007.00Item 4 5.32 1.45 1.007.00Item 5 5.82 1.47 1.007.00Item 6 5.13 1.63 1.007.00

X 1 = availability of MAS scope and timeliness information; X 2 = budgetary participation.a Mean of the overall score for each variable.

Table 2 (continued)



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72%. The mean age of the respondents was 40 (range 2166) and mean experience was 17years (range 139). 6

3.3. Data analysis

To test the hypothesis, the following multiple regression model is employed (Eq. (1)):

Y a b1 X 1 b2 X 2 b3 X 3 b4 X 1 X 2 b5 X 2 X 3 b6 X 1 X 3 b7 X 1 X 2 X 3 1

where Y = managerial performance; X 1 = availability of MAS scope and timeliness

information; X 2 = budgetary participation; X 3 = dummy variable for cultural background, 0representing Chinese managers, 1 representing Western managers; X 1 X 2 , X 1 X 3 , X 2 X 3 , X 1 X 2 X 3 = interaction terms; H 1 : b7 6 0.

The multiplicative interaction term is expressed as the cross-product . . . occurring between independent variables in their effect on the dependent variable (Southwood,1978, p. 1155). It is used to test the interaction effects of the availability levels of MAS, budgetary participation, and cultural background on managerial performance in the multipleregression model. If the b for the interaction term does not equal to 0, this implies that theinteraction is significant. For a significant interaction, it is insufficient to examine only theinteraction term because the algebraic sign of the interaction term only gives an indication of whether the effects are in the hypothesized direction (Gul & Tsui, 1995; Schoonhoven, 1981).A partial derivative equation is calculated from the main regression equation to determine thenature and direction of the interaction. Since the focus of this study is on the interactioneffects between budgetary participation, MAS, and cultural background on managerial performance, the effects of the independent and moderating variables on the dependent variable individually need not be interpreted. The question of multicollinearity, which iscommon in multivariate models, is also a nonissue in this analysis 7 (Govindarajan & Fisher,1990; Gul & Tsui, 1995; Gupta & Govindarajan, 1989).

Table 3Correlation matrix a

Variable Y X 1 X 2

Managerial performance ( Y ) 1.00MAS ( X 1 ) 0.28* 1.00Budgetary participation ( X 2 ) 0.50** 0.27* 1.00

X 1 = availability of MAS scope and timeliness information; X 2 = budgetary participation.a Based on all the summarized average scores.* P < .01.** P < .001.

6

As shown in Appendix A, information on gender was not requested.7 They argued that through a priori linear shifts in the origin points of X 1 and X 2 , the correlations between X 1 X 2and both X 1 and X 2 can always be reduced to 0. Since it is mathematically proven that these represent mere shiftsin the origin points of X 1 and X 2 , they are meaningless and do not affect the information value of X 1 X 2 . As such,multicollinearity is a nonissue.



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4. Discussion of results and conclusions

Panel A of Table 4 reports the regression results for two sets of equations based onaverage scores for the different variables. Equation A gives the regression results for MAS, budgetary participation, cultural background, and their two-way interactions onmanagerial performance. Equation B shows the results for the same regression with theaddition of the three-way interaction term, which is significant ( b7 = .51, P < .05). Withthe introduction of the three-way interaction term, the adjusted R2 significantlyincreases by 4%. The findings of both Equations A and B confirm that there is asignificant three-way interaction between budgetary participation, MAS, and cultural background of the managers on managerial performance. Additional analyses are runusing factor scores for each variable and results show that they are very similar (Gul& Chia, 1994).

The three-way interaction term, by itself, does not provide any information on the natureand direction of the relationships. In order to do this, the interaction term in the regressionequation needs to be explained mathematically in terms of the partial derivative equation(Govindarajan, 1986). The partial derivative of Equation B in Panel A of Table 4 yields thefollowing result:

dY =d X 1 0:99 0:14 X 2 3:10 X 3 0:51 X 2 X 3 2

Eq. (2) suggests that the effects of MAS on managerial performance is a function of budgetary participation and cultural background. In order to further analyze this interactionrelationship for Chinese and Western managers, X 3 was set at 0 (for Chinese managers) and 1(for Western managers) in the following two equations:

Chinese Managers : 3

dY =d X 1 0:99 0:14 X 2

Western Managers : 4

dY =d X 1 2:11 0:37 X 2Eq. (3) suggests that for Chinese managers, the positive relationship between MAS and

managerial performance decreases as budgetary participation increases. On the other hand,Eq. (4) suggests that for Western managers, low levels of budgetary participation is associatedwith a negative relationship between managerial performance and MAS, but this relationship becomes positive at high levels of budgetary participation. 8

The evidence supports the hypothesis that the relationship between MAS and budgetary participation on managerial performance is different depending on the cultural

background of the managers. The finding that there is a negative relationship between

8 These results are similar for Panels B and C of Table 4 based on factor scores.



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Table 4

Panel A: Based on average scores. Regression results of MAS, budgetary participation, and cultural backgroundon managerial performance ( N = 89)

Variables Equation A Equation B

MAS X 1 0.24 (0.45) 0.99* (0.53)Budgetary participation X 2 0.23 (0.47) 1.00* (0.55)Cultural background X 3 1.14 (1.36) 10.52*** (3.96)Interaction term X 1 X 2 0.04 (0.10) 0.14 (0.12)Interaction term X 2 X 3 0.25 (0.27) 1.70**Interaction term X 1 X 3 0.55* (0.29) 3.10*** (1.05)Interaction term X 1 X 2 X 3 26% 0.51** (0.20)Adjusted R2 30% F value 6.07*** 6.44***

Panel B: Based on factor scores. Regression results of MAS (timeliness), budgetary participation and cultural background on managerial performance ( N =89)


MAS X 1 0.26* (1.70) 0.17 (1.09)Budgetary participation X 2 0.42*** (2.82) 0.49*** (3.36)Cultural background X 3 0.07 ( 0.35) 0.29 ( 1.34)Interaction term X 1 X 2 0.12 (0.95) 0.16 ( 0.97)Interaction term X 2 X 3 0.23 (0.96) 0.33** (1.37)

Interaction term X 1 X 3 0.56* ( 1.98) 0.65** ( 2.37)Interaction term X 1 X 2 X 3 0.64** (2.59)Adjusted R2 23% 28% F value 5.47*** 5.97***

Panel C: Based on factor scores. Regression results of MAS (scope), budgetary participation and cultural background on managerial performance ( N =89)


MAS X 1 0.41*** (2.78) 0.39*** (2.68)Budgetary participation X 2 0.37** (2.53) 0.38*** (2.65)Cultural background X 3

0.02 (

0.12)

0.08 (

0.41)

Interaction term X 1 X 2 0.07 (0.51) 0.06 ( 0.43)Interaction term X 2 X 3 0.16 (0.75) 0.18 (0.82)Interaction term X 1 X 3 0.37 ( 1.53) 0.59** ( 2.21)Interaction term X 1 X 2 X 3 0.54* (1.80)Adjusted R2 23% 28% F value 6.28*** 6.00***Standard errors are in parentheses.Adjusted R2 explained by three-way interaction term = 4%. X 1 = availability of MAS scope and timeliness information; X 2 = budgetary participation; X 3 = dummy variable for cultural background, 0 representing Chinese managers, 1 representing Western managers.

* P < .10.** P < .05.*** P < .01.



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MAS and managerial performance at high levels of budgetary participation is therefore

consistent with the cultural characteristics of Chinese society and Hofstedes (1991)cultural theory. In a large-power distance, high-collectivist, and long-term orientationsociety like China, high levels of budgetary participation in the presence of availablemanagement accounting information would not result in high managerial performance.However, consistent with Western theories underlying the motivational effects of participation, it was found that there is a positive relationship between MAS and performance for high levels of budgetary participation for Western managers. Asignificant implication of the results concerns the fact that management accountingtheories developed in the Western context may not be generalizable to the Chineseenvironment. These results are also seen to be consistent with Otleys (1980) view that MAS and budgetary participation constitute an overall control package and areinterdependent. More importantly, the application of this control package should alsoconsider cultural differences. In order to implement control strategies successfully,organizational designers should consider these cultural factors.

Another implication of this study is that top management must recognize and proactivelymanage differences in culture. In designing management control systems, top managers of multinational corporations should be aware of the extent to which reward and evaluationsystems and decision-making processes reinforce differences in culture.

This study is subject to the usual limitations of questionnaire survey methodology

(Birnberg, Shields, & Young, 1990). Subjects were not selected at random and general-izing the results to other organizations should be viewed with caution. The use of respondents perceptions to measure the variables has been criticized on the grounds that they are not objective. This is not a serious limitation since managers actions anddecisions are based on their perceptions. This study focused on budgetary participation,certain characteristics of MAS and performance measured in terms of managers perceptions of their own performance. Other control tools such as decentralization andother types of MAS/AIS should be examined in future studies with different measures of performance such as job satisfaction. Moreover, the classification of cultural differences

was based on Hofstedes (1991) analysis, and it may have been useful to retest thecultural dimensions of the respondents. These future studies should provide more evidenceregarding the role of control tools and their impact on managerial performance in different cultural environments.

This study examined the theory that there is a difference between Chinese andWestern managers attitudes and behavior towards management control tools. In particular, this study tested the hypothesis that Chinese managers would not react positively to budgetary participation because of their cultural background. The partialderivative analysis showed that the positive influence of MAS on managerial perform-ance for Chinese managers decreased at progressively higher levels of budgetary participation. On the other hand, for Western managers, at low levels of budgetary participation there was a negative relationship between MAS and managerial performance but progressively higher levels of participation were associated with a positive relation-ship between MAS and managerial performance. These results suggest that management



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accounting theories developed in the Western economies may not be generalizable to the

Chinese environment.

Appendix A. Research on managerial performance

This research aims to investigate the effects of MAS, budgetary participation, andmanagerial performance. The following questionnaire consists of four pasts which measureyour perceptions of these variables. Please answer all the questions following the instructionsgiven. Completion of the questionnaire should not take more than 25 min of your time. Allresponses will be treated in the strictest confidence and only summarized results will be published. Your time and cooperation is very much appreciated.

Thank you.

A.1. Part A: Budgetary participation

The following items can be used to describe the role that you play in the development of the budget for your group. Please respond by circling a number from 1 to 7 on the scale for each of the following items.

(a) Which category below best describes your activity when the budget is being set? I aminvolved in setting:

(b) Which category below best describes the reasoning provided by your superior when budget revisions are made? The reasoning is:

(c) How often do you state your requests, opinions, and/or suggestions about the budget toyour superior without being asked?

(d) How much influence do you feel you have on the final budget?

1 2 3 4 5 6 7All of the budget

None of the budget

1 2 3 4 5 6 7Very soundand/or logical

Very arbitraryand/or illogical

1 2 3 4 5 6 7Very frequently Never

1 2 3 4 5 6 7Very high amount None



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(e) How do you view your contribution to the budget? My contribution is:

(f) How often does your superior seek your requests, opinions, and/or suggestions whenthe budget is being set?

A.2. Part B: Performance evaluation

Effective managerial performance may be regarded as depending on competence in theareas of managerial activity listed below. For each area of activity, please rate your own recent performance in each area.

Please respond by placing a number from 1 ( very low ) to 9 (very high ) in the appropriatespace to rate your own recent performance in each area. The following scale should be usedfor reference:

1 2 3 4 5 6 7Very important Very unimportant

1 2 3 4 5 6 7Very frequently Never

Performance: Below average Average Above average1 2 3 4 5 6 7 8 9

Performance(number from 1 to 9)

(a) Planning : Determining goals, policies and courses of action;work scheduling, budgeting, setting up procedures, programming.

___

(b) Investigating : Collecting and preparing information for records,reports and accounts, measuring output; inventorying, job analysis. ___

(c) Coordinating : Exchanging information with people in your organization in order to relate and adjust programs; advisingand liaison with other personnel.

___

(d) Evaluating : Assessment and appraisal of proposals for reportedor observed performance; employee appraisals, judging output records, judging financial reports; product inspection.

___

(e) Supervising : Directing, leading and developing your personnel;counselling, training and explaining work rules to subordinates;assigning work and handling complaints.

___



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A.3. Part C: Management accounting system

Listed below are nine information attributes. Two questions are addressed in relation toeach of them.

(f) Staffing : Maintaining the work force of your organization; recruiting,interviewing and selecting new employees; placing, promotingand transferring employees.

___

(g) Negotiating : Purchasing, selling or contracting for goods or services, contacting suppliers, dealing with sales representatives.

___

(h) Representing : Attending conventions, consultation with other firms, business club meetings, public speeches, community drives;advancing the general interests of your organization.

___

(i) Overall Performance : The following section of the questionnaire seeks some informationrelating to your firms performance in the recent past year. If you have no definite figureswe would appreciate approximate figures.

Please indicate the intervals which best depict your enterprises performance by circling anappropriate number for questions (a) and (b).

(a) On average, the growth of sales revenue for the past 3 years is:

Below 10% . . .. . . 1 5160% . . .. . .. . . 61120% . . .. . .. . . 2 6170% . . .. . .. . . 72130% . . .. . .. . . 3 7180% . . .. . .. . . 83140% . . .. . .. . . 4 8190% . . .. . .. . . 94150% . . .. . .. . . 5 Above 90% . . ...10

(b) On average, the growth of net profit before taxes the past 3 years is:

Below 5% . . .. . .. . . 1 2630% . . .. . .. . .. . . 6510% . . .. . .. . .. . . 2 3135% . . .. . .. . .. . . 71115% . . .. . .. . . .. 3 3640% . . .. . .. . .. . . 81620% . . .. . .. . . .. 4 Above 45% . . .. . .. . . 95% . . .. . .. . .. . .. . ... 5

(c) What was the number of employees when the enterprise started? ______ What is the number of employees at present? ______

(d) Which year did your enterprise start its operation? ______



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To what extent do you believe your organizations MAS contains this information attribute?

Please circle the relevant number on each of the seven-point scales below your perceptions.(a) Reports are provided frequentlyon a systematic, regular basis

Small extent Great extent Not applicable

1 2 3 4 5 6 7 8 9

(b) Information which relates to possible future events (if


historical information is most useful for your needs, mark thelower end of the scale).

1 2 3 4 5 6 7 8 9

(c) Nonfinancial informationthat relates to production and market


information such growth share etc.(if you find that a financial interpretation of marketing informationis most useful for your needs, pleasemark the lower end of the scale).

1 2 3 4 5 6 7 8 9

(d) Requested information toarrive immediately on request.


1 2 3 4 5 6 7 8 9

(e) Quantification of the likelihoodof future events occurring


(e.g., probability estimates). 1 2 3 4 5 6 7 8 9

(f) There is no delay between anevent occurring and relevant


information being reported to you. 1 2 3 4 5 6 7 8 9

(g) Noneconomic information, such ascostumer references, relations,


attitudes of government andconsumer bodies, competitive threat.

1 2 3 4 5 6 7 8 9

(h) Information on broad factorsexternal to your organization,


such as economic conditions, population growth, technologicaldevelopments, etc.

1 2 3 4 5 6 7 8 9



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A.4. Part D: Background

All responses will be treated in the strictest confidence and only summarized resultsare published.

Thank you.

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