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Prior research suggests that goal setting with an emphasis on accurate and tight budget targets may influence the extent of subordinates' performance. This study, however, argues that such goal setting alone is not sufficient. The implementation of other accounting controls is needed before improved performance is possible. Specifically, this study investigates: (i) if budgetary performance is increased only when an emphasis on accurate and tight budget targets is complemented with a high extent of cost control; and (ii) if these effects are found only for the production function, but not for the marketing function. The results, based on a sample of 104 senior Australian managers, support a significant two‐way interaction between an emphasis on tight budget targets and cost control affecting budgetary performance. Budgetary performance is high only when both emphasis on tight budget targets and cost control are high. These results are applicable to both the production and marketing functions.

The capacity to plan, manage and control small and medium-sized enterprises (SMEs) is critical to realising their organisational goals. This paper assesses the effectiveness and perception of budgeting and budgetary control systems among SMEs.

Relying on the goal-setting theory (GST) and a methodology that accommodates questionnaires, data were collected from 170 manufacturing SMEs located in Cape Town, South Africa.

Research results affirm that the deployment of budgeting benefits from a positive perception of the value of budgeting and budgetary controls by key SME stakeholders. The study also finds that the perception of budgeting mirrors the level of education of SME operators, as educated respondents understand the value of implementing robust budgeting systems. Despite its focus on manufacturing SMEs, this study suggests that the manufacturing budget is the least utilised budgeting system among these organisations.

The study reinforces the communication power of budgeting and budgetary controls as SMEs and economic agents are not only aware of corporate objectives but are equally incentivised to support the attainment of these objectives.

Despite the extensive application of GST among scholars, its use in budgeting and budgetary control literature, particularly among SMEs in developing contexts, is limited. In line with GST, this study indicates that when agents establish and implement a plan, they are motivated to pursue and realise the set expectations while consistently evaluating themselves for improvement opportunities.

This study examines how two important situational factors (corporate diversification and business unit strategy) and two elements of a firm’s administrative system (accounting‐based budgetary controls and associated incentives) affect the presence of slack in business unit budgets in diversified firms. The relationships among these variables are established by building on theories from organizational economics, the information‐processing view of organizations, and organizational behavior. Data are collected from 37 firms and 153 business units within these firms. The main results indicate: that corporate diversification is positively associated with slack in business unit budgets; and that tight budgetary controls and high‐powered incentives effectively curtail such slack. However, diversification does not seem to drive corporate managers to rely more on these systems to reduce higher budgetary slack associated with diversification. This suggests: that diversified firms employ a conscious strategy of slack at the business unit level to reduce information‐processing needs at the top; or that the design of the internal management control system is a function of factors other than corporate diversification. With respect to the latter explanation, the results indicate that business units that pursue a differentiation strategy receive less tight budgetary controls, which leaves them with the necessary slack to effectively pursue the critical success factors on which their strategies are built.

This paper examines the effectiveness of the reliance on a leader’s reputation as an informal control tool to mitigate subordinates’ budgetary slack. In addition, it seeks to explain whether this relationship is mediated by subordinates’ truthfulness in revealing their private information.

A laboratory experiment was conducted involving 60 undergraduate business students who participated in the experiment. A 1 × 2 between-subjects design was employed for the experimental study. Each subject assumed the role of a production manager responsible for setting a budget target. The experimental task employed involved a simple decoding task adapted from Chow (1983).

The results of this study indicate that budgetary slack is lower when a leader’s reputation is favourable than when it is unfavourable. In addition, it is found that subordinates’ truthfulness in revealing private information fully mediates the relationship between a leader’s reputation and budgetary slack.

This paper extends the limited literature on the reliance of informal controls in mitigating budgetary slack by examining a leader’s reputation as an informal control. The findings of this study provide important implications for the design of effective management control systems.

To modernize budgeting system is a challenge issue in many developing countries. To some scholars (Schick, 1998a, 1998b; Ma, 2009a), developing countries must first put into place basic budgetary controls before moving to more advanced models of budgeting. This approach of “basic first,” however, is questioned by others (e.g., Andrew, 2006). Drawing on China's recent budget reforms, this essay reconfirms the validity of the “basics first” approach. In China, budget reform since 1999 has begun to install budgetary controls for state finance, leading to an enhancement of budgeting capacity and financial accountability. However, governments at the same time have begun to be plagued by the unexpected problem of delays in spending and the accumulation of significant underexpenditures. Contrary to what many people may believe, we contend that this somewhat odd problem arises not because the new budgeting system has exercised too much control but rather because the new system is not yet effective in exerting budgetary controls.

This research examines the interactive effect of accounting controls (Emphasis on meeting tight budget targets, External scanning, Results monitoring and Cost control) and task uncertainty on budgetary slack with a sample of 104 marketing and production managers. The results indicate that two accounting controls (Emphasis on meeting tight budget targets and External scanning) reduce the extent of budgetary slack creation in high task uncertainty situations, but not in low task uncertainty situations. Budgetary slack is lowest when the intensity of accounting controls and task uncertainty are both high. Whilst Emphasis on meeting tight budget targets has a significant effect on slack for both the production and marketing managers, External scanning has a significant effect only for the marketing managers.

Prior studies on the interactive effects of performance evaluative style and budgetary participation on managers' budgetary performance have overlooked several important issues. First, the moderating effects of organisational commitment have largely been overlooked. Since managers, who are highly committed to their organisations, are likely to pursue their organizations' goals much more intensely than managers who are not committed to their organisations, the effects of performance evaluative style and budgetary participation on the budgetary performance of these two groups of managers are likely to differ. Second, prior studies in this research area have concentrated mainly on the manufacturing sector. The services sectors have received relatively little attention. Third, differences between privately owned service organisations and publicly funded service organisations and their effects on performance have also not been considered. To address these gaps in the literature, this study investigates the three‐way interaction between reliance on financial measures for performance evaluation, budgetary participation and organisational commitment affecting budgetary performance in the health services sector. Based on a sample of 170 managers, the results indicate that highly committed managers react very differently to reliance on financial measures for performance evaluation and budgetary participation from lowly committed managers. Differences were also found between managers from the privately funded service organisations and those from the publicly funded service organisations.

The purpose of this paper is to analyse the extent to which the perceived usefulness of financial information for internal decision making is affected by the internal control to which that information is subjected.

The research is positivist and quantitative, based on a cross-sectional analysis developed in the local government context. Data were collected from a survey to decision makers (politicians and chief officials) in charge of the financial area in all Portuguese municipalities. The response rate was approximately 49 per cent, assuring representativeness.

Regarding the perceived usefulness of financial and budgetary reporting for internal decision making, the results in the paper show that municipalities’ internal users’ attitudes towards using accrual-based financial reporting for decision making is changing. Additionally, internal decision makers consider financial and budgetary information as very useful for decision making, and the different types of internal control applicable to that information as very important. The results also clearly point to the existence of a significant and positive relationship between the internal control (including internal auditing) to which financial and budgetary information is subject, and its perceived usefulness for municipal decision making.

The main limitations of this study are related to the way in which information was collected in order to obtain empirical evidence. The questionnaire, sent by e-mail, despite reaching a wide-range and dispersed population, cannot guarantee the truthfulness and integrity of the responses. Findings might have been affected by the fact that respondents may have been sympathetic to the reforms brought by the Official Local Government Accounting Plan (POCAL). Certainly, politicians linked to the political party that promoted those reforms would be predisposed in this way. Another limitation might concern the fact that new laws and regulations passed after POCAL, might have somehow affected the answers regarding the perceived usefulness of budgetary and financial information for internal decision making, as well as the importance of the internal control to which that information is subject.

The results of this study have important repercussions for the implementation of internal control systems at local government level. Particularly, they highlight the need to develop or improve internal control procedures to ensure budgetary and financial information reliability, which in turn determines its usefulness for decision-making purposes.

This research makes a contribution to the (scarce) literature on the relationship between internal control and the perceived usefulness of financial and budgetary information for decision making, particularly in the local government setting. It adds with further empirical evidence concerning the relationship between these two issues, helping to reinforce previous embryonic research in this field. As to policy making, this research also contributes by calling attention for the need to define the types of internal control financial information must be subject, a critical issue while assuring the usefulness of that information for decision making. This is particular important in current contexts of countries moving towards IPSAS-based financial reporting systems.

This paper uses a laboratory experiment to examine the effect of accountability pressure as a monitoring control tool to mitigate subordinates' propensity to create budgetary slack. The results suggest that budgetary slack is (lowest) highest when accountability pressure is (present) absent under a private information situation. The results further reveal that accountability pressure is positively associated with subordinates' perceived levels of honesty, which in turn is negatively associated with budgetary slack creation. The findings of this paper have important theoretical and practical implications for budgetary control systems design.

This chapter examines the effect an informal control namely trust-in-superior and subordinates’ truthfulness in revealing their private information on budgetary slack. A laboratory experiment was conducted. A one-way analysis of variance (ANOVA) and ordinary least squares (OLS) regression were used to test the hypotheses proposed in this chapter. The independent variables were trust-in-superior and subordinates’ truthfulness in revealing their private information. The dependent variable was budgetary slack. The results indicate that trust-in-superior reduces the budgetary slack created by subordinates under private information condition. In addition, the results show that subordinates’ truthfulness in revealing their private information mediates the effect of trust-in-superior on budgetary slack.