Contingent Factors, Extent of Budget Use and Performance: A Structural Equation Approach

Abstract

The present study investigates the contextual factors that impact the extent of budget use and performance based on contingency theory. For this purpose, we carried out a questionnaire survey of Turkish firms. In order to analyse the data, confirmatory factor analysis and covariance-based structural equation modelling were used. We find that the extent of budget use and performance are affected significantly by contextual factors. Size, structure, perceived environmental uncertainty (PEU) and information technology (IT) determine the extent of budget use. The study also finds that performance is significantly affected by the extent of budget use and other contingent factors (i.e., structure, PEU, functionality of IT). Furthermore, there is a mediating role of budget use between contextual factors and performance. P lanning and controlling are two major functions of management, and are used as aids to decisionmaking in allocating financial and human resources, evaluating performance and rewarding personnel. Budgeting has been a primary traditional tool for the planning and controlling operations of business organisations, although both its usefulness and costliness have been questioned. Both profit and nonprofit organisations continue to dedicate a considerable amount of time to budgeting every year. The ultimate aim is to improve performance by controlling costs, coordinating units of organisation, achieving targets and increasing market share. A recent study has provided evidence that traditional annual budgets can add value to organisational management (Khalifeh 2014).Based on contingency theory, this study aims to investigate the contextual factors impacting the extent of budget use and firm performance, in particular, the impact of the extent of budget use upon firm performance, and how it mediates the association between contingent factors and firm performance. The contingencyrelated literature suggests that there is no unique set of management accounting practices (MAPs) applicable to all organisations in all circumstances (Otley 2007;Abdel-Kader and Luther

Impact of the Accounting Information System on Corporate Governance: Evidence from Turkish Non-Listed Companies

“…Recently, Wang and Huynh (2014) provided empirical evidence for the association between management accounting and corporate governance. Budgeting is a primary tool of management accounting, used as a planning and internal controlling device by business organizations (Uyar & Kuzey, 2016). Thus, the process of budgeting should not be considered routine.…”

The Influence of External Contingency Factors and Activity-Based Costing Implementation on Organizational Performance

“…These results are inconsistent with previous studies. For instance, in spite of the significant number of studies such as Jusoh (2008), Mia and Clarke (1999), Uyar and Kuzey (2016), Low et al (2007), which unanimously agreed that EU and MO are significantly associated with organizational performance, this study could not establish the proof of the connection between EU, MO The Influence of External Contingency Factors and Activity-Based Costing Implementation and organizational performance among manufacturing organizations in Iraq.…”

“…The results reported in previous studies on EU (Uyar & Kuzey 2016;Rivard, Raymond & Verreault 2006) and MO (Noble, Sinha & Kumar 2002;Ismail, Isa & Mia 2018b) are inconclusive. One of the possible reasons for these inconclusive results is that managers' use of MA information, such as ABC information, may mediate this relationship (Ismail, Isa & Mia 2018a).…”

“…The benefit of combining financial and nonfinancial performance measurements is to concurrently assess organizational improvements in all the important areas such as products, profits, operations, customers, and market growth (Baines & Langfield-Smith 2003). Some empirical evidences have proved the theoretical argument of a positive association among EU, MO, and organizational performance (Uyar & Kuzey 2016;McManus 2013). In contrast, no association among EU, MO and organizational performance is documented (Houqe 2004;Zhou, Brown & Dev 2009).…”

Contingent Factors Affecting the Financial Performance of Manufacturing Companies: The Case of East Java, Indonesia

“…Any difference noted in the firm's performance is explained primarily by the organisation's resources which should be valuable, rare and not easily imitated or substitutable by rivals. The contingency theory helps to explain how the design of an organisation would only be effective and universally applicable in certain environments when certain conditions are met (Otley, 1980;Uyar & Kuzey, 2016). Since the condition and environment of each organisation is different, its design must also be unique.…”