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Article history: This study investigates the impact of participative strategic planning on managers’ creation of budgetary
Received 6 August 2014 slack. Specifically, we draw on self-determination and organisational commitment theory to examine
Received in revised form 22 May 2015 whether and how the degree of managerial participation in strategic planning relates to the creation of
Accepted 20 June 2015
budgetary slack. The hypotheses are empirically tested with survey data obtained from 247 managers
in a cross-section of West-European organisations. The results from a structural equation model, with
Keywords:
controls for budget participation and slack detection, suggest that increased participation in strategic
Budgetary slack
planning leads to lower budgetary slack creation through the suggested path of heightened affective
Participation
Strategy
organisational commitment. In addition, the results indicate that budget participation decreases the
Organizational commitment creation of budgetary slack through the mediating effect of autonomous budget motivation, suggesting
Motivation that both elements of the organisational planning process are related to the creation of budgetary slack.
Our study contributes to the growing research exploring the interface between accounting and strategy
by recognizing the importance of participative strategic planning for understanding managers’ creation
of budgetary slack.
© 2015 Elsevier Ltd. All rights reserved.
1. Introduction which establishes a need to identify and test the effect of additional
explanatory variables (Webb, 2001).
Budgetary slack, defined as the deliberate incorporation of This study focuses on managers’ participation in strategic plan-
excess resources in the budget that make the budget easier to attain ning (PSP) as an additional explanation for the creation of budgetary
(Merchant, 1985), is one of the most investigated budgeting out- slack. The identification of PSP as a possible antecedent of bud-
comes. Not only does evidence indicate that there is considerable getary slack creation is based on the fact that the budget is an
budgetary slack in organisations (e.g. Merchant, 1985; Schoute and indistinguishable part of an organisation’s planning process (e.g.
Wiersma, 2007), it also remains one of the primary controversial, Covaleski et al., 2003; Hansen et al., 2003; Merchant and Van der
unsolved issues in budgetary control. There is a considerable liter- Stede, 2011). This planning process not only includes budgeting but
ature that discusses possible antecedents of budgetary slack (for an also strategic planning (e.g. Frezatti et al., 2011). Focus in extant
overview, see Derfuss, 2012; Dunk and Nouri, 1998). The majority research on a manager’s immediate budget setting and BP has
of this prior literature investigated the effect of budget participa- neglected the possible effect of strategic planning on budgetary
tion (BP) on the creation of budgetary slack. These empirical studies, slack creation. This omission may be significant as it may, at least
however, have resulted in contradictory findings. BP seems a nec- partially, explain the inconsistencies in the research findings con-
essary but not sufficient explanation for budgetary slack creation, cerning the effect of BP on managers’ budgetary slack creation. This
research aims to extend prior research’s focus by studying the effect
of strategic planning on budgetary slack creation, over and beyond
BP’s effect in order to capture the whole planning process and as
such further our understanding of the antecedents of budgetary
∗ Corresponding author. slack creation. In particular, as recent work on strategic manage-
E-mail address: [email protected] (J. De Baerdemaeker).
http://dx.doi.org/10.1016/j.mar.2015.06.002
1044-5005/© 2015 Elsevier Ltd. All rights reserved.
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
YMARE-553; No. of Pages 12 ARTICLE IN PRESS
2 J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx
ment (e.g. Floyd and Wooldridge, 2000; Kaplan and Norton, 2001) Consequently, a manager’s budget demand not necessarily reflects
suggests that strategy should be planned in a participative way, this real organisational necessities (Hopwood, 1974).1
study aims to clarify whether and how PSP relates to the creation The majority of slack-related studies have focused on BP as the
of budgetary slack. main explanation for the creation of budgetary slack (e.g. Merchant,
As understanding managerial behaviour requires insights from 1985; Nouri and Parker, 1996; Onsi, 1973). BP refers to “a process
both psychology-based and economic-based theories, we follow in which the subordinate is involved in, and has influence over, the
Covaleski et al.’s (2003) suggestion and adopt a psychology-based determination of his budget” (Anthony and Govindarajan, 2007; p.
management accounting research approach. More specifically, 380). There is, however, little consistent evidence on the effect of
we use insights from organisational commitment and self- BP on the creation of budgetary slack. While some studies report
determination theory (SDT) to broaden our understanding of that the relationship is negative (Dunk, 1993; Merchant, 1985; Onsi,
whether and how PSP relates to budgetary slack. To test our 1973), others report a positive relationship (Lowe and Shaw, 1968;
hypotheses, we conducted a survey which was completed by 247 Lukka, 1988) or an insignificant one (Collins, 1978).
managers from a cross-section of West-European organisations. These mixed results have led to the use of other approaches such
The contribution of this paper to management accounting as agency models (e.g. Young, 1985) and the use of contingency fac-
research is threefold. First, our study results contribute to the tors to predict the creation of budgetary slack (for an overview, see
budgetary slack literature by demonstrating that PSP reduces the Derfuss, 2012; Dunk and Nouri, 1998). Although these approaches
amount of budgetary slack created through enhanced affective have helped gain insight into the creation of budgetary slack, much
organisational commitment, after controlling for the effect of BP remains unexplained, establishing the need to identify and test
and slack detection. As such, we deepen our understanding of the effect of additional explanatory variables (Webb, 2001; Yuen,
the factors that drive budgetary slack. Second, we show that BP 2004). Such an additional explanation suggested by prior bud-
also decreases the creation of budgetary slack through height- geting research is the organisation’s strategy (e.g. Merchant and
ened autonomous budget motivation. Taken together, in order to Manzoni, 1989; Van der Stede, 2000, 2001) as research increasingly
understand the creation of budgetary slack in a specific situa- acknowledges both budgeting and strategy as parts of the organi-
tion, we should take into account both the level of BP and PSP. zational planning process (e.g. Cadez and Guilding, 2008; Frezatti
Both elements are part of an organisation’s planning process and et al., 2011). Whereas prior empirical studies incorporating strategy
are related to budgetary slack creation, albeit through a different in budgetary slack research have focused on the effect of generic
path. Third, our study extends the line of research on the interface strategies2 (Derfuss, 2012; Van der Stede, 2000, 2001), we focus on
between accounting and strategy (Dent, 1990; Langfield-Smith, the effect of PSP.
1997) by focusing on the relationship between the level of PSP
and the creation of budgetary slack. Surprisingly, few management 2.2. Participation in strategic planning and its relationship with
accounting research has been published on PSP despite it being budgetary slack
of interest in the academic and professional literature in recent
years (Kaplan and Norton, 2008; Wooldridge et al., 2008). In addi- Strategy, defined as ‘the determination of the basic long-term
tion to the contributions to management accounting research, this goals and objectives of an enterprise, and the adoption of courses of
study also has the potential to inform the practice of management action [. . .] necessary for carrying out these goals’ (Chandler, 1962;
accounting. In particular, our results demonstrate the importance p. 13) was traditionally treated as a dichotomy: strategy planning
of personal variables such as affective organisational commitment was the sole responsibility of top management and strategy imple-
and autonomous motivation to understand managers’ budgeting mentation the task of all other managerial levels (e.g. Ansoff, 1965;
behaviour. Indeed, it are not the formal management control sys- Anthony, 1965). This traditional division of work was challenged as
tems in itself but it are their effects on these personal variables that environmental uncertainty increased in recent decades: we have
are primordial to understand managers’ budgetary slack creation. observed a shift in focus in the strategic management literature
Moreover, our study gives practitioners an understanding of how from top management to other managerial levels in the organisa-
budgeting and strategy may interact. Specifically, we show that tion. We may even say that there is currently a widespread feeling
the way managers are involved in the strategy process determines that top management is no longer in a position to make strate-
their budgetary slack creation. When trying to influence subor- gic decisions on its own. Recent work on strategic management
dinate managers’ budgeting behaviour, top management should (e.g. Floyd and Wooldridge, 2000; Kaplan and Norton, 2001, 2008)
hence take a holistic approach and consider both elements of the therefore suggests that in today’s business environment, strategy
planning process. should be planned in a participative way.
The remainder of this study is organised as follows. Section 2 Although there is strong theoretical and empirical support for a
provides the theoretical background of the constructs used in our positive relationship between PSP and organisational performance
research model and develops the hypotheses. Section 3 describes (Bourgeois and Brodwin, 1984; Wooldridge and Floyd, 1990), prior
our research method, and Section 4 presents the results of the anal- literature is less clear on the potential impact of PSP on budgetary
ysis of our survey data. In Section 5, we summarise the conclusions slack. First, PSP can be argued to decrease budgetary slack creation.
of our research, discuss the limitations, and suggest some fruitful One of the main reasons why managers create slack is to protect
directions for future research. themselves and the organisation’s core from uncertainty (Cyert
and March, 1963). PSP can lower the uncertainty experienced (and,
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
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J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx 3
Budget participation
Slack detection
Autonomous budget
motivation
H1 (+) H2 (-)
H3 (+)
H4 (-)
Affective
organisational
commitment
ceteris paribus, the need for and the creation of budgetary slack) in motivation (e.g. Becker and Green, 1962) and organisational com-
several ways. First, if managers are allowed PSP internal communi- mitment (Nouri and Parker, 1996). Therefore, we combine these
cation will be enhanced as it permits both vertical and horizontal two lines of research. The full theoretical model appears in Fig. 1.
information sharing (Hutzschenreuter and Kleindienst, 2006). Sec- Each link in the model represents a hypothesis and will be discussed
ond, the integration of different capabilities through PSP can evoke below.
a cognitive effect on the managers’ part (Hall, 2008). The provision
of more and better information allows managers to make better 2.3. The relationship between participation in strategic planning
informed choices and positively influences the decision quality and autonomous motivation
(Raes et al., 2011), which can result in improved resource allo-
cations (i.e. a lower amount of budgetary slack) (e.g. Cadez and Hansen and Van der Stede (2004) recognize that budgeting can
Guilding, 2008). Third, as managers are allowed PSP, transparency ex-ante translate the long-term strategic plans of the firm into a
is accomplished and managers will better understand their organi- short-term operating budget. Indeed, a fundamental purpose of the
sation’s strategy (Chapman and Kihn, 2009; Wooldridge and Floyd, budget is to provide a means by which managers can grapple with
1990). As goals and directions become more clear, uncertainty the abstract and complex strategy (Anthony and Govindarajan,
decreases and accordingly the need and the creation of budgetary 2007). As a financial translation of the strategy, the budget com-
slack (Yuen, 2004). Conversely, PSP can also increase budgetary municates the strategy to the employees and enables the strategic
slack creation. The propensity of managers to let their behaviour plan to meet its goals. Moreover, strategic planning guides the
be influenced by their preferences is called ‘motivated reasoning’3 deployment of resources so that organisations can achieve their
(Kunda, 1990). Recent research by Tayler (2010) has illustrated the competitive advantage (Ketokivi and Castañer, 2004). As man-
importance of motivated reasoning in a balanced scorecard set- agers can participate in strategic planning, they will internalise the
ting. Expanding it to the strategy-accounting context, we can expect strategic goals of the organisation and consequentially the means
that if managers are allowed PSP, they will be more involved and (i.e. the budget) needed to achieve those goals.4 PSP can thus be seen
committed to the organisation’s strategy (Allen and Meyer, 1990) to engender managers’ motivation not only for the organisation’s
and therefore will safeguard the implementation of the strategy strategic goals but also for the budgetary targets.
they co-developed. As budgetary slack can provide a buffer against When studying motivation, motivation theorists (Deci, 1975;
unforeseen circumstances (Cyert and March, 1963), its existence Ryan and Deci, 2000) have illustrated the importance of dis-
may help managers in ensuring a smooth strategy implementation. tinguishing between autonomous and controlled motivation.
Therefore, we recognize that managers allowed PSP may create Whereas autonomous motivation is characterized by underlying
budgetary slack with this noble intention in mind. feelings of freedom and volition, controlled motivation is charac-
Given that it is unclear whether PSP will be positively or neg- terised by an overarching feeling of pressure (Vansteenkiste et al.,
atively related to the creation of budgetary slack, we incorporate 2009). This distinction between autonomous and controlled moti-
motivation and organisational commitment as mediating variables vation is important, as ample research in the field of psychology has
to examine whether and how PSP and budgetary slack are related. provided evidence of positive outcomes for autonomous motiva-
We chose these two variables as mediating mechanisms because tion and negative outcomes associated with controlled motivation
both motivation and organisational commitment are important (e.g. Ryan and Deci, 2000; Vansteenkiste et al., 2009). Moreover, the
variables in the strategic management and budgetary slack liter- usefulness of this contrast is not confined to psychology research
ature. More specifically, Gerbing et al. (1994) reported that PSP but has also been demonstrated in recent budgeting research. More
positively influences organisational commitment and motivation specifically, Wong-on-Wing et al. (2010) introduced a motivation-
and earlier budgetary slack research has also recognized the role of
4
The assumption of a strong link between budget and strategy was tested by a
four-item scale developed specifically for this study (see Appendix A). The strength
3
We are greatly indebted to one of the anonymous reviewers for pointing out of the link received an average score of five out of seven, implying that our assump-
this interesting suggestion. tion is appropriate in this particular sample.
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
YMARE-553; No. of Pages 12 ARTICLE IN PRESS
4 J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx
based model of participative budgeting to explain the mixed 2.5. The relationship between participation in strategic planning
evidence concerning the relationship between BP and performance. and affective organisational commitment
Within SDT, it is maintained that autonomous motivation can be
fostered through a need-supportive environment (Vansteenkiste PSP spurs not only motivation but also affective commitment to
et al., 2010). A need-supportive environment sustains the three the organisation (Freeman, 1989; Shields and Shields, 1998). Affec-
basic psychological needs innate to all humans: the need for tive organisational commitment refers to employees’ emotional
autonomy, the need for competence, and the need for related- attachment to the organisation and is characterised by (1) a strong
ness. The need for autonomy refers to feeling strong-willed and belief in and acceptance of the organisational goals and values and
fully endorsing one’s actions. People want to experience choice (2) a willingness to exert substantial effort on the organisation’s
in their behaviour (Vansteenkiste et al., 2010) and be the initia- behalf (e.g. Mowday et al., 1979).
tors of their own actions (Deci, 1975). As a specific instance of Employees develop a deep sense of affective organisational
participative decision-making, PSP can provide managers with a commitment if they are in a business environment that provides
sense of willpower and choice (Deci et al., 1989) and thereby them chances to participate in decision-making (Searfoss and
satisfy their need for autonomy. The second basic need, com- Monczka, 1973). PSP, as a specific form of participative decision-
petence, concerns feeling effective in one’s interactions with the making, is positively related to the satisfaction of the manager’s
social and physical environment (Deci, 1975). People have a natu- need for autonomy and competence and satisfaction of those needs
ral tendency to explore, manipulate, and master their environment is identified as an antecedent of affective organisational com-
(Vansteenkiste et al., 2010). Therefore, they feel competent if they mitment (e.g. Greguras and Dieffendorff, 2009). Applying these
experience opportunities to exercise and express their capaci- notions to a strategic management context, ample research illus-
ties (Deci and Ryan, 2004). PSP can give managers the feeling trates that PSP leads to greater acceptance of organisational goals
that they are better able to control their environment (Chenhall, and hence fosters affective organisational commitment (e.g. Kim
2003; Hutzschenreuter and Kleindienst, 2006), their work (Shields and Mauborgne, 1998; Korsgaard et al., 1995). Indeed, PSP enhances
and Shields, 1998), and the decision-making process (Locke and affective organisational commitment as it provides managers an
Latham, 1990). Being invited to participate in strategic planning opportunity to make organisational decisions and commits them to
hence signals trust in the manager’s competence. Lastly, the need these decisions (Mathieu and Zajac, 1990). The following hypothe-
for relatedness denotes caring for and feeling cared for by others. sis tests for this positive relationship:
People search for close relationships and want to feel as though they
H3. Higher levels of PSP increase managers’ affective organisa-
belong to a social group (Baumeister and Leary, 1995). Allowing
tional commitment.
managers PSP increases the level of consensus among managers,
enhances internal communication, and creates a climate of shared
2.6. The relationship between affective organisational
effort (Papadakis et al., 1998), which all satisfy the need for related-
commitment and budgetary slack
ness. Based upon these findings, we expect that the satisfaction of
the three basic needs through PSP will encourage internalisation of
The possibility of creating budgetary slack can instil a conflict
both the organisational goals and the resources needed to imple-
of interest, as slack creation may be beneficial for the manager but
ment those goals, such that the manager experiences autonomous
may run against the interests of the organisation as a whole (Kramer
motivation to achieve the budgetary targets. Hypothesis H1 tests
and Hartmann, 2011). Managers with strong affective commitment
for this positive relationship:
will act in the interests of the organisation just as they would in
H1. Higher levels of PSP increase managers’ autonomous budget their own because they have come to perceive the interests as iden-
motivation. tical (Kim and Mauborgne, 1998). These managers align with the
organisational goals and feel positive about them. Conversely, man-
agers with low organisational commitment are primarily driven by
2.4. The relationship between autonomous motivation and satisfying their individual goals and ambitions.
budgetary slack Nouri (1994) and Nouri and Parker (1996) found that man-
agers’ level of affective organisational commitment influences their
Managers can engage in similar behaviours for different under- attempt to create budgetary slack. Strongly affectively committed
lying reasons (Grant et al., 2011). They may constrain their managers understand the potential dysfunctional effects of bud-
budgetary slack creation because of social pressure, accountability getary slack for their organisation and will be inclined to act in
pressure, or pressure to reveal private information they otherwise the general interest of the organisation. Therefore, the amount of
would not (Covaleski et al., 2003). However, individuals who feel budget slack they create will be low. Conversely, managers with
pressured fail to maintain their effort and performance over time a low level of affective organisational commitment may exhibit a
(Grant, 2008). Conversely, autonomous motivation predicts greater high degree of budgetary slack creation because as rational eco-
goal-directed effort and goal attainment (Sheldon and Elliot, 1998). nomic individuals, this is often in their best interest (Lowe and
Managers having autonomous budget motivation understand the Shaw, 1968). Hypothesis 4 tests for this negative relationship:
importance of budget attainment which is central to their decisions
about how best to meet these budgetary targets. Prior research has H4. Higher levels of affective organisational commitment
illustrated autonomous motivation’s strong relationship with pos- decrease budgetary slack creation.
itive work outcomes, such as performance, creativity, persistence,
and initiative (e.g. Ryan and Deci, 2000; Wong-On-Wing et al., 2.7. The relationship between autonomous motivation and
2010). This implies that autonomously motivated managers will affective organisational commitment
put more effort in looking for creative solutions to attain the bud-
getary targets “as they are” and will be less inclined to make the Motivation is one of the bases through which commitment
targets easier to attain (i.e. they will be less inclined to create bud- develops. Researchers have argued that autonomous motivation
getary slack). Therefore, we formulate the following hypothesis: and affective organisational commitment should be related to each
other (e.g. Gagné et al., 2008). More specifically, Bono and Judge
H2. Higher levels of autonomous budget motivation decrease (2003) demonstrated a positive relationship between autonomous
budgetary slack creation. reasons for pursuing work goals and affective organisational com-
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
YMARE-553; No. of Pages 12 ARTICLE IN PRESS
J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx 5
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
YMARE-553; No. of Pages 12 ARTICLE IN PRESS
6 J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx
Table 2
Descriptive statistics, correlation matrix, and discriminant validity coefficients (n = 247) for participation in strategic planning, autonomous budget motivation, affective
organisational commitment, the creation of budgetary slack, and the control variables.
Variable Mean s.d. Min Max Cronbach ˛ (1) (2) (3) (4) (5) (6)
PSP (1) 5.56 0.95 1.90 7 0.93 0.75
AM (2) 5.38 0.99 1 7 0.85 0.23** 0.71
AOC (3) 5.63 0.98 1 7 0.87 0.42** 0.25** 0.74
SLACK (4) 3.06 1.11 1 6.33 0.70 −0.27** −0.32** −0.29** 0.66
BP (5) 5.57 1.04 1 7 0.89 0.45** 0.18** 0.26** −0.26** 0.77
DETECT (6) 5.32 1.11 1.67 7 0.81 0.28** 0.17** 0.28** −0.18** 0.24** 0.77
**, Correlation is significant at the 0.01 level (two-tailed test), respectively. Correlations between the different constructs are below the diagonal. The square root of the AVE
value for each of the constructs in along the diagonal (in bold).
PSP – participation in strategic planning; AM – autonomous motivation; AOC – affective organisational commitment; SLACK – the creation of budgetary slack; BP – budget
participation; and DETECT – slack detection.
3.2. Variable measurement definition, as illustrated by the following quote given by one of the
interviewees:
For all variables in our study, the survey items were scored on a
‘Strategic planning is looking for an answer to the “what” question:
seven-point Likert-type scale ranging from one (strongly disagree)
what do we want to achieve? Strategy implementation, conversely,
to seven (strongly agree) unless stated otherwise. We used pre-
focuses on the “how” question: once we have decided what we want
viously validated scales whenever possible to ascertain construct
to do, we need to decide upon how to achieve these goals.’
validity. To check on the relevance of these measures, our ques-
tionnaire was submitted to the scrutiny of six faculty colleagues, We used thematic analysis procedures to systematically iden-
three part-time MBA students, and 21 managers with budget tify patterns that organise both the published and oral information
responsibility9 for pre-testing. Final measures were then developed on the strategic planning process in a meaningful way. Appendix
and refined. Furthermore, we conducted empirical tests (i.e. range C provides a non-exhaustive overview of the analysed quotations
of responses, Cronbach’s alpha, and factor analyses) as suggested by from published work. Different themes referring to different PSP
Nunnally (1978) to further establish content and construct valid- properties were developed and clustered into one code when the
ity. An overview of the survey items is provided in Appendix A. themes had similar contents or were closely conceptually related
Appendix B depicts the factor analyses used to construct the vari- (Boyatzis, 1998). The output of this procedure are two codes rep-
ables in this study. Descriptive statistics of the constructs based on resenting the building blocks of the strategic planning process,
the equally weighted average scores of multi-item variables and namely, the visioning process and the strategic positioning pro-
the correlation matrix are presented in Table 2. cess, which is in line with research by Merchant and Van der Stede
(2011). The visioning process entails answering abstract questions of
existence. In particular, the interviewees mentioned such questions
3.2.1. Participation in strategic planning (PSP) as ‘What type of organisation are we?’, ‘What type of organisation
Given the novelty of PSP in management accounting survey do we want to be?’; and ‘What type of business do we want to be
research, we designed a new instrument specifically for this study. in?’, reflecting Johnson and Scholes’ (1989) definition of corporate
Special attention has been paid to the conceptual specification of strategy. The strategic positioning process refers to preparing anal-
the construct. PSP, as a practice-informed construct, is given mean- yses and making decisions about the strategic position of the firm,
ing by listing its theoretical properties found in practice (Bisbe et al., as reflected in Porter’s (1985, p.1) notion of competitive strategy:
2007). The process of specifying this construct’s exact meaning strategy is ‘the search for a favourable competitive position in an
consists of a twofold approach. First, we elaborate on the defini- industry’. Interviewees cited external and internal analyses, and
tion of ‘participation’ and ‘strategic planning’. Participation refers decisions about products, markets, product-market combinations,
to both the ‘involvement of employees in and their influence over’ and the firm’s/business unit’s competitive advantage. To measure
certain organisational decisions (Anthony and Govindarajan, 2007; participation in the two sub strategy processes identified in the
p. 10, emphasis added). Strategic planning focuses on ‘the determi- interviews, we adapted the BP measure,11 which was developed by
nation of the basic long-term goals and objectives of an enterprise’ Milani (1975) and tested extensively in prior research (e.g. Chenhall,
(Chandler, 1962; p. 13). Allowing managers PSP thus implies involv- 2003; Dunk, 1993; Leach-López et al., 2007). The item pool included
ing them in and allowing them to influence the long-term goals 12 items: six items measuring participation in the visioning process
and objectives of the organisation (Freeman, 1989). As such, we and six items measuring participation in the strategic positioning
recognise both the quantity and quality aspect of management process (see Appendix A). More specifically, we asked respondents
participation in the strategy process, as recommended by Gerbing to indicate their extent of involvement in and influence over (a)
et al. (1994). Second, we engaged in a thorough examination of the determination of the basic long-term goals, objectives, and
the strategic management literature and conducted in-depth inter- future opportunities of their organisational entity12 (i.e. the vision-
views with three senior managers and one middle manager10 to ing process), and (b) the identification, preparation, and evaluation
fully grasp the process of strategic planning in both theory and prac- of options (i.e. the strategic positioning process). Although the mea-
tice. Further support was provided for the validity of the theoretical surement properties of this 12-item PSP scale are good, scale items
two and eight could be viewed as rather communication by the
9
The target respondents for the pretest phase were excluded from the actual
11
hypothesis testing sample. The original phrase referring to the budgeting process was replaced by ‘vision’
10
Senior manager A (54 year, male) has been the CEO of a playing card company or ‘long-term goals and objectives’ to refer to the visioning process and was replaced
for 18 years. Senior manager B (60 year, male) has been in his function of general by ‘strategic position’ when measuring the amount of participation in the strategic
manager in a civic and social organisation for 15 years. Senior manager C (51 year, positioning process.
12
male) is since five years responsible for the strategy process in the same organisation We used the phrase ‘organisational entity’ to refer to the specific unit the respon-
as senior manager B. Middle manager D (51 year, female) works already 21 years dents is working in. For example, an organisational entity can be a business unit, a
for a telecommunication company and is since two years after sales manager. department.
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
G Model
YMARE-553; No. of Pages 12 ARTICLE IN PRESS
J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx 7
superior instead of subordinate participation and thus we recal- not load adequately on the factor. Therefore, we deleted this item
culated the measure without these items. The exploratory factor for further analyses. The remaining three items load on the same
analysis reveals that the ten remaining questions used to measure factor, which explains 62% of the variance. The reliability of the
PSP load on one factor with an explained variance of 61%. The reli- three-item construct is acceptable (˛ = 0.70). The construct is cor-
ability of the 10-item construct is strong (˛ = 0.93). Since this is a related to two alternative measures for the creation of budgetary
new measure, we correlated it to an established measure of partic- slack (Van der Stede’s (2000) and Onsi’s (1973) measure, respec-
ipation in strategic decision making (Floyd and Wooldridge, 1992) tively) to ensure that the Dunk (1993) measure is working plausibly
(nine-item scale, 43% variance explained, ˛ = 0.83) and found, as in our sample. As expected, the results show positive and significant
expected, a significant positive correlation (r = 0.40, p < 0.01). As correlations (r = 0.79, p < 0.01 and r = 0.23, p < 0.01, respectively).
the measurement properties of the specific measurement instru- Dunk’s (1993) measure is retained for further empirical analyses as
ment were better than those of the Floyd and Wooldridge (1992) it has better measurement properties than Van der Stede’s (2000)
instrument, we decided to use the former as input for the statistical and Onsi’s (1973) measure in this specific sample.
analyses.
3.2.5. Control variables
3.2.2. Autonomous budget motivation (AM) We used two control variables in this study.15 First, we con-
The adapted Motivation At Work Scale by Gagné et al. (2013) trolled for BP. Although results are mixed, the large amount of
was used to measure the manager’s autonomous budget motiva- research on the relationship between BP and budgetary slack indi-
tion. However, a change was made specifically for the purpose of cates the importance of controlling for it. BP was measured using
this study. The original stem of the question reading ‘Why do you the six-item measurement instrument developed by Milani (1975).
or would you put effort into your current job?’ was changed to Second, prior research revealed that a superior’s ability to detect
‘Why do you or would you put effort into attaining your organ- slack (DETECT) is negatively related to a manager’s creation of
isational entity’s budget?’ The exploratory factor analysis reveals budgetary slack (Merchant, 1985; Onsi, 1973), as ‘slack cannot
that AM is uni-dimensional with an explained variance of 58% and be created where it is easily detected’ (Merchant, 1985; p. 203).
a Cronbach’s alpha coefficient of 0.85. DETECT was measured by the three-item measure developed by
Onsi (1973). The exploratory factor analyses reveal that BP and
3.2.3. Affective organisational commitment (AOC) DETECT are uni-dimensional with explained variances of 65% and
To assess AOC, the eight-item Affective Commitment Scale (ACS) 72%, respectively, and their Cronbach’s alphas are 0.89 and 0.81,
developed by Allen and Meyer (1990) was employed.13 This ques- respectively.
tionnaire has been widely used in research and has been shown
to have acceptable levels of reliability and validity (Meyer and 4. Research results and discussion
Allen, 1991). Exploratory factor analysis reveals that two items
(‘I would be very happy to spend the rest of my career with this 4.1. Statistical method
organisation’14 and ‘I think that I could easily become as attached to
another organisation as I am to this one’) did not load significantly We used structural equation modelling (SEM) to examine the
on the factor and were dropped from the measurement model. role of autonomous budget motivation and affective organisational
The final exploratory analysis indicates that the six retained items commitment in the relationship between PSP and SLACK.16 An
are uni-dimensional and explain 60% of the variance. In the cur- advantage of SEM is that it can simultaneously evaluate the pro-
rent study, the Cronbach’s alpha coefficient for the revised six-item posed hypotheses and test the measurement reliability (Smith and
construct is 0.87. Langfield-Smith, 2004). We conducted our analyses in LISREL 9.1
according to the two-step approach recommended by Anderson
3.2.4. Budgetary slack (SLACK) and Gerbing (1988). This approach has been employed in a number
In line with Dunk (1993), Van der Stede (2000), and Indjejikian of recent accounting studies (e.g. Hartmann and Slapničar, 2009;
and Matejka (2006), the definition of budgetary slack used in this Wong-On-Wing et al., 2010). A structural equation model using the
study focuses on the ease with which budgetary targets can be maximum likelihood (ML) method17 in which AM and AOC mediate
achieved. Budgetary slack occurs when managers ‘negotiate highly the relation between PSP and SLACK was estimated, controlling for
achievable targets’ (Van der Stede, 2000; p. 609), i.e. targets that are the effects of BP and DETECT on both the dependent and mediating
deliberately lower than their best-guess forecast about the future. variables.
Managers can create budgetary slack by intentionally overstating
future costs or understating future revenues (Merchant and Van 4.1.1. Analysis of the measurement model
der Stede, 2011; Onsi, 1973). This lowers the budgetary targets set The first step in the analysis was to develop a measurement
and makes it easier for the manager to attain the required targets. model. This model aims to specify the relationships between
Conversely, a budget contains little slack if it requires consider-
able effort and a high degree of efficiency (Simons, 1987). To reflect
budgetary slack creation, we used the measurement instrument 15
We also controlled for perceived environmental uncertainty, organisational
developed by Dunk (1993). Considerable evidence of the validity strategy, and some background variables (i.e. number of years working in the organi-
sation/current function, age, and gender). As our analyses (results not reported here)
and reliability of this scale has been compiled (e.g. Van der Stede,
indicated that none of these control variables were correlated with the dependent
2000). It is clear from the exploratory factor analysis that the item variable, we decided to omit them from further analyses (Becker, 2005).
‘budgets set for my organisational entity are safely attainable’ does 16
As we reviewed the tolerance and variance inflation factors for each construct,
no evidence of multicollinearity was found. Furthermore, we plotted the residuals
and performed White’s test, but no signs of heteroscedasticity were apparent.
17
In preliminary tests, we discovered that our data are not multivariate normally
13
In some items, the original word ‘organisation’ was replaced by the word distributed, as is the case with most data of perceptual nature (Hunton and Gibson,
‘organisational entity’. Similar changes were made to the original commitment mea- 1999). We tested normality by investigating the skewness and kurtosis indexes asso-
surement scale by Aranya and Ferris (1984) and Wong-on-Wing et al. (2010), who ciated with each of the survey items and conducted Shapiro–Wilk’s test. Although
replaced the word ‘organisation’ with ‘profession’ and ‘bank’, respectively. results indicated that the measures were not normally distributed, we used the
14
This item was also deleted in the study of Viator and Pasewark (2005) due to maximum likelihood (ML) method, as it performs well even under conditions of
significant cross-loadings. non-normality (Boomsma and Hoogland, 2001).
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
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8 J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx
Table 3
Sequential chi-square difference tests.
observed and latent variables (Hair et al., 2010). Our measurement framework for the set of sequential SCDTs. The results of these
model consists of four theoretical latent factors (PSP, AM, AOC, and SCDTs are shown in Table 3.
SLACK) and two control variables (DETECT and BP). The standard- First, we performed a SCDT between the saturated and the the-
ised factor loadings and statistics from the measurement analysis oretical model (see Fig. 1). The results of this test show a significant
are reported in Appendix B. difference (p < 0.01). The next step was to compare the theoretical
Model fit is determined by the degree of correspondence model with the next most likely constrained model. More specif-
between the observed and the estimated covariance matrix. ically, the theoretical model was compared with a constrained
Despite a significant 2 (2 [513]= 1,398.6 < 0.01), which is to model in which the link between PSP and AM was constrained
be expected with a sample size as large as ours (Bentler and to zero. The SCDT between the two models was not significant
Bonett, 1980), the measurement model fits well according to (p = 0.22). The third step was to compare the constrained model
other goodness-of-fit (CMINDF = 2.73 < 3; CFI = 0.93 > 0.90; and and saturated model. Although the result of the SCDT was sig-
NNFI = 0.92 > 0.90) and badness-of-fit indices (RMSEA = 0.08 < 0.10; nificant (p < 0.01), the constrained model provides an adequate fit
SRMR = 0.07 < 0.09) (e.g. Arbuckle and Wothke, 1999; Bentler and (2 [514] = 1400.1, p < 0.01; CMINDF = 2.72; CFI = 0.93; NNFI = 0.92;
Bonett, 1980; Browne and Cudeck, 1993; Hair et al., 2010). Regard- RMSEA = 0.08; SRMR = 0.07). Therefore, our hypotheses were tested
ing item reliability, Hair et al. (2010) suggest that significant item based on the constrained model where the path coefficient between
loadings greater than 0.50 are sufficient to establish reliability. All PSP and AM was constrained to zero.19
items suggest good reliability with all loadings being significant
(p < 0.05) and above 0.50. Next, convergent validity was assessed 4.1.2.2. Testing the hypotheses. We used completely standardised
by examining the composite reliability (CR) and average variance parameter estimates for the constrained model to test our hypothe-
extracted (AVE). As Appendix B confirms, the CR index of all con- ses. The results are shown in Table 4 and Fig. 2 illustrates the
structs is good as all scores equal or exceed the threshold value of significant associations in our path model.
0.70 (Hair et al., 2010). Moreover, most AVE scores are close to, or As noted earlier, the path between PSP and AM (ˇ = 0.10, p > 0.05)
higher than, the threshold value of 0.50 which indicates that at least was constrained to zero due to its insignificance. Consequently, our
50% of the indicator variance is accounted for by construct vari- data failed to support hypothesis H1 (linking higher levels of PSP to
ance rather than noise (Fornell and Larcker, 1981).18 Discriminant higher levels of AM). Consistent with our theoretical expectations,
validity of the constructs was assessed by comparing the square the path estimate between AM and SLACK is negative and signif-
roots of the AVEs with the correlations between the constructs. icant (ˇ = −0.26, p < 0.01). Hypothesis H2, linking higher levels of
As observed from Table 2, the square roots of the AVEs are larger autonomous budget motivation to lower levels of budgetary slack
than the off-diagonal reported correlations, which demonstrates creation, is thus supported. As predicted in hypothesis H3, higher
strong evidence of discriminant validity (Fornell and Larcker, 1981). levels of PSP are positively associated with a managers’ affective
Overall, the results from the measurement model indicate adequate commitment towards the organisation (ˇ = 0.35, p < 0.01). Further-
construct validity for all constructs in the model. more, in support of hypotheses H4, the results indicate that higher
In addition, the correlation analysis in Table 2 indicates a levels of affective organisational commitment are associated with
strong relationship between PSP and AM (r = 0.23), AOC (r = 0.42), lower levels of budgetary slack creation (ˇ = −0.25, i < 0.01). In sup-
and SLACK (r = −0.27). Moreover, we find a significant positive port of hypothesis H5, we found a statistically significant positive
correlation between AM and AOC (r = 0.25). Examination of the association between a manager’s AM and his/her AOC (ˇ = 0.18,
relationships between SLACK and both mediating effects reveals p < 0.05).
that both more AM (r = −0.32) and AOC (r = −0.29) significantly Together, the results regarding the association of PSP with
decrease SLACK. Both control variables (i.e. BP and DETECT) are SLACK through AOC hint toward a pattern of full mediation. To
significantly positively correlated with AM (r = 0.18 and r = 0.17, establish the mediating relationship, we multiplied the statistically
respectively) and AOC (r = 0.26 and r = 0.28, respectively) but sig- significant indirect effects on and from AOC: PSP–AOC (0.35) and
nificantly decrease SLACK (r = −0.26 and r = −0.18, respectively). AOC–SLACK (−0.25), which equals an indirect total effect of −0.09.
As shown in Table 4, the coefficients making up the mediation path
are significantly different from zero. Moreover, all effects are in
4.1.2. Analysis of the structural model
the predicted direction: letting managers participate in strategic
4.1.2.1. Theoretical model fit. Second, the structural model with
planning is positively associated with affective organisational com-
relationships between the latent variables was analysed using the
mitment, and affective organisational commitment is negatively
measurement error variances specified in the first step of the
associated with the creation of budgetary slack. The significance of
analysis (Smith and Langfield-Smith, 2004). To determine the opti-
these effects means that the joint significance test rejects the null
mal model, we used Anderson and Gerbing’s (1988) decision-tree
hypothesis of no mediation. Furthermore, following the Preacher
18 19
The only exception was SLACK with an AVE value (0.44) slightly below 0.50. We refrained from testing an unconstrained model as suggested by Anderson
However, we refrained from deleting items measuring SLACK to enhance its AVE to and Gerbing’s (1988) decision-tree framework as no additional meaningful paths
maintain the content validity of our measure. could be identified in our model.
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
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Table 4
Path coefficients.
Budget participation
0.34**
Autonomous budget
motivation
-0.26**
0.35** -0.25**
Affective
organisational
commitment
and Hayes procedure (2004), we multiplied the direct paths of each 5. Conclusions
of the 1,000 bootstraps to obtain an estimated coefficient for the
indirect effect. The bootstrapped 95% confidence interval ([−0.134; The purpose of our study was to provide empirical evidence
−0.022]) for the AOC mediation path did not include zero, indicat- on whether and how PSP relates to managers’ creation of bud-
ing a significant indirect effect. getary slack through affective organisational commitment and
autonomous budget motivation. Our analysis shows that PSP
indirectly decreases the creation of budgetary slack through the
4.2. Validity tests for statistical robustness
mediating effect of affective organisational commitment. PSP aligns
managers’ behaviours and decisions with the organisation’s goals
To ensure that the results are robust and given the multivari-
and as such instils affective commitment on the managers’ part.
ate non-normality of the data in this study, additional analyses
Affectively committed managers will undertake actions in line with
were conducted. First, the analysis was redone using the robust
their organisation’s goals and create less budgetary slack.
ML method, a distribution-free method robust against small sample
This study provides several contributions to both management
sizes. The use of robust ML slightly improved the fit of the measure-
accounting research and practice. First, our study extends the bud-
ment model (NNFI = 0.95, CFI = 0.95) and qualitatively similar path
getary slack literature by recognising an important influencing
estimates were obtained. Second, the robustness of the model was
factor: PSP. Prior research mainly focused on generic strategies
investigated by incorporating a path between PSP and controlled
but overlooked the effect of PSP although the strategic man-
budget motivation (CM) and between CM and SLACK. This model
agement literature pinpointed its importance. In particular, this
revealed that PSP not significantly increases CM (ˇ = 0.08, p = 0.33)
research shows that PSP decreases managers’ budgetary slack cre-
and that CM not significantly decreases SLACK (ˇ = −0.03, p = 0.27).
ation through affective commitment. The significant proportion of
The probability level and direction of all of the hypothesized
variance explained for the creation of budgetary slack (R2 = 0.25 for
relationships remained unaltered. These investigations suggest an
our model, R2 = 0.13 for the traditional explanation) indicates the
acceptable robustness of the model depicted in Fig. 2.
Please cite this article in press as: De Baerdemaeker, J., Bruggeman, W., The impact of participation in strategic planning on managers’
creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment. Manage. Account.
Res. (2015), http://dx.doi.org/10.1016/j.mar.2015.06.002
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10 J. De Baerdemaeker, W. Bruggeman / Management Accounting Research xxx (2015) xxx–xxx
importance of PSP, autonomous budget motivation, and affective of the results by confirming self-assessments with external mea-
organisational commitment in explaining budgetary slack in addi- sures. Second, a cross-sectional study can only provide presumptive
tion to the traditional explanatory variables. Second, we believe evidence about causality. Alternative methods (e.g. experiment,
that this study contributes to the growing amount of research longitudinal field research) may provide more information about
recognising that the budgeting process cannot be studied in iso- the directional relationships.
lation, as budgeting and strategic planning are both part of the Notwithstanding these limitations, this study provides evidence
organisational planning process (e.g. Covaleski et al., 2003; Kramer on the relationship between PSP and the creation of budgetary
and Hartmann, 2011). Based on our study, it appears that BP is not slack. As the current study is the first to examine this relation-
directly related with managers’ creation of budgetary slack, but that ship, many opportunities exist for further research in this area.
it only indirectly decreases budgetary slack through the mediating One avenue for future research is to focus on other consequences
effect of autonomous budget motivation. PSP, on the other hand, of PSP. Involving managers in strategic planning can, for example,
lowers the creation of budgetary slack through affective organi- also impact managerial and organisational performance. Further-
sational commitment. It is therefore important to study the effect more, the consequences as well as antecedents of PSP must be
of both parts of the planning process simultaneously to understand investigated. Possible antecedents, such as environmental com-
what exactly drives budgetary slack. Third, this study contributes to plexity and the organisation’s competitive strategy, should be
the growing research exploring the interface between accounting studied (Hutzschenreuter and Kleindienst, 2006). Another avenue
and strategy (Dent, 1990). Although strategy has gained signifi- to explore is whether fostering autonomous budget motivation
cant importance in the management and organisational literature can offset the positive effects of lower information asymmetry
(Langfield-Smith, 1997), according to the best of our knowledge, no (due to PSP) on job tension (Jaworski and Young, 1992). Future
accounting research has investigated the impact of PSP despite the research could also investigate the impact of other characteristics
growing amount of strategic management research on this topic. of the strategy process (e.g. the degree of formality, the degree of
Fourth, this study also has some implications for the practice of openness of top management to subordinate managers’ PSP) on
management accounting. In particular, our results demonstrate budgeting outcomes.
the importance of personal variables such as affective organisa- While further research is needed before definitive conclusions
tional commitment and autonomous motivation to understand can be drawn, the findings of our study suggest that studying the
managers’ budgeting behaviour. It are not the formal management whole planning process (i.e. both budgeting and strategic planning)
control systems in itself but it are their effects on these personal is useful for understanding the creation of budgetary slack. The
variables that are important to understand managers’ budgetary antecedents of budgetary slack creation may be more complex and
slack creation. Top management should therefore not only focus on diverse than assumed since budgetary slack creation relates to the
the design of a participatory system – being it either in the strategic broader planning context than merely the direct budgeting setting.
planning or budgeting process – but they should also understand
and manage the psychological effects it evokes on the subordinate
manager’s part. Moreover, our study gives practitioners an under- Acknowledgements
standing of how budgeting and strategy can be related. Hence, it
illustrates the importance and the benefits of managing the strategy We wish to express our gratitude to Sally Widener, Frank
and budgeting processes in an integrated way. Hartmann, Sophie Hoozée, Klaus Derfuss, Anne Boomsma, Pascal
The results of this study are subject to a number of limita- Langevin and Patricia Everaert for their constructive comments on
tions. First, the proposed model considers two mediating factors earlier drafts of this paper. We acknowledge the most valuable
(i.e. autonomous budget motivation and affective organisational comments from two anonymous reviewers and the associate editor
commitment) in the relationship between PSP and SLACK. There are Theresa Libby. We are grateful for helpful comments from the par-
doubtlessly alternative explanations that have not been captured in ticipants of the 9th International Management Control Research
the model tested here to keep the scope of this work manageable. Conference (Nyenrode, September 2013), the participants of the
Other underlying mechanisms that have been examined in rela- 7th Performance Measurement and Management Control Confer-
tion to the creation of budgetary slack include perceived fairness ence (Barcelona, September 2013), as well as the participants of the
(e.g. Wentzel, 2004), trust (e.g. Langevin and Mendoza, 2013), and 37th European Accounting Association Annual Congress (Tallinn,
ethics (e.g. Stevens, 2002). The inclusion of these variables could May 2014). The first author gratefully acknowledges the financial
have produced different results. Future research should explore support provided by a BOF research fund of Ghent University (con-
possible other mediating mechanisms between PSP and SLACK. Sec- tract number B/12354/01) and a special research grant from the
ond, the use of the PSP measurement instrument for the first time National Bank of Belgium.
may impede the results of our study. Although the psychometric
properties of our measurement instrument were satisfying, future Appendix A. Supplementary data
research should further validate and refine it. Third, by choosing
budgetary slack as a dependent variable, we are unable to deter- Supplementary data associated with this article can be found, in
mine whether slack is desirable or not (Van der Stede, 2001). As the online version, at http://dx.doi.org/10.1016/j.mar.2015.06.002
we cannot test whether the presence of budgetary slack is good
or bad for performance, future research should attempt to test
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