JUDUL

DAZAH

UNIVERSm MALAYSIA SABAH

BORANG PENGESAHAN STATUS TESIS

THE EFFECT OF BUDGETARY PARTICIPATION ON MANAGERIAL PERFORMANCE: A STUDY ON THE HOTEL INDUSTRY IN KOTA KINABALU AREA

: SARJANA PENGURUSAN PERNIAGAAN

SESI PENGAJIAN: 2011- 2012

Saya, HERNETHA MICHELLE SINTI SAIKIM mengaku membenarkan tesis sarjana ini disimpan di perpustakaan Universiti Malaysia Sabah dengan syarat-syarat kegunaan berikut:

1. Tesis adalah hak milik Universiti Malaysia Sabah 2. Perpustakaan Universiti Malaysia Sabah dibenarkan membuat salinan untuk tujuan

pengajian sahaja 3. Perpustakaan dibenarkan membuat salinan tesis ini sebagai bahan pertukaran

Institusi Pengajian Tinggi 4. TIDAK TERHAD

Disediakan Oleh; (

Alama . No.96, Taman Grace Land, Lorong Grace Land 2, Bundusan, 88300, Penampang, Sabah

Tarikh: 28 Ogos 2012

THE EFFECT OF BUDGETARY PARTICIPATION ON MANAGERIAL PERFORMANCE: A STUDY ON KOTA

KINABALU AREA

HERNETHA MICHELLE BINTI SAIKIM

DISSERTATION SUBMITTED IN FULFILLMENT FOR THE MASTER OF BUSINESS ADMINISTRATION

PERPUSTAKAAN UNIVERSITI MALAVSiA SABAH

SCHOOL OF BUSINESS AND ECONOMICS

UNIVERSITI MALAYSIA SABAH

2012

DECLARATION

I, Hemetha Michelle Binti Saikim, declare that this dissertation is a result of my own

independent research effort and investigation. It is my original work, except for

quotations, excerpts, equations, summaries and references, which have been duly

acknowledged, which has not been submitted to any other institution for any awards

23rd August 2012

ii

Hemetha Michelle Binti Saikim

PE20117046C

NAME:

MATRIC NO.:

TITLE:

DEGREE:

VIVA DATE:

SUPERVISOR

CERTIFICATION

HERNETHA MICHELLE BINTI SAlKlM

PE20117046 C

THE EFFECT OF BUDGETARY PARTICIPATION

ON MANAGERIAL: A STUDY ON THE HOTEL

INDUSTRY IN KOTA K1NABALU AREA

MASTER IN BUSINESS ADMINISTRATION

oath August 2012

DECLARED BY

Prof. Madya Dr. Rasid Mail

iii

ACKNOWLEDGEMENT

I take this opportunity with much pleasure to thank all the people who have

helped me through the course of my journey towards doing these

dissertations. I sincerely thank my supervisor, Associate Professor Dr. Rasid

Mail, for his guidance and support. I would also like to extend my gratefulness

to all the people that had helped me in completing my dissertation in time

especially School of Business and Economy's Post Graduate Department

University Malaysia Sabah. And also my gratitude to all the respondents that

had takes part in the completion of my paper . .

iv

Abstract

The Effect of Budgetary Participation on Managerial Performance: A study

on the Hotel Industry in Kota Kinabalu Area

The purposes of this study were to investigate the relationship between budget

participation (BP) and managerial performance. This study uses relevant information

from previous research in the theory of work performance and accounting to

formulate the research questions. One-hundred and three managers from the hotel

industry in the Kota Kinabalu area have participated in the study. For this study data

were collected using two methods. The first methods were using mail questionnaire

and the second method using online survey questionnaire. The result of this study

indicated that, the managers participation in the budgeting setting of its organisation

have significantly positive effect on the individual managerial performance. Other than

that, the result also indicates that gender does have a significant moderating effect on

the relationship between budgetary participation and managerial performance. The

result also indicates that age does not have any significant moderating effect between

budgetary participation and managerial performance.

Keywords: Budgetary participation, managerial participation, gender, age, and Hotel

Industry.

v

ABSTRAK

Tujuan kaj(an ini adalah untuk menyiasat hubungan diantara penyertaan belanjawan

dan prestasi pengurusan pekelja. Kajian ini menggunakan maklumat relevan dari

penyelidikan sebelumnya dalam teori prestasi kelja dan perakaunan untuk

merumuskan soa/an penyelidikan. Sebanyak satu ratus dan tiga pengurus dari industri

hotel di kawasan Kota Kinabalu telah mengambi/ bahagian dalam kajian ini. Untukk

tujuan kajian in;' dua cara pengumpulan data telah digunakan. Pertama, se/idik meld

an kedua soal selidik da/am ta/ian. Hasil kajian menunjukkan bahawa penyertaann

pengurus dalam suasana bajet organisasi mempunyai hubungan positif yang ketara.

Selain daripada itu, kajian juga menunjukkan bahawa jantina pengurus juga

mempunyai kesan hubungan yang sederhana ke atas hubungan antara penyertaan

belanjawan dan prestasi pengurusan. Kajian ini juga menunjukkan bahawa, umur

tidak mempunyai sebarang kesan yang sederhana keatas hubungan penyertaan

belanjawan dan prestasi pengurusan.

vi

TABLE OF CONTENT

TITTLE

DECLARATION

CERTIFICATION

ACKNOWLEDGEMENT

ABSTRACT

ABSTRAK

LIST OF CONTENT

LIST OF TABLES

LIST OF FIGURE

LIST OF APPENDIX

CHAPTER 1: INTRODUCTION

1.0 Overview 1.1 Problem Statement 1.2 Research Question 1.3 Research Objectives 1.4 Scope of Study 1.5 Rationale and Significant of Study 1.6 Definition of Terms Used

1.6.1 Budgetary Participation 1.6.2 Managerial Performance 1.6.3 Asymmetric Information 1.6.4 Self-efficacy

1.7 Organisation of Thesis

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction 2.2 Budgetary Participation and Hotel Industry 2.3 Budgetary Participation 2.4 Managerial Performance 2.5 Budgetary Participation and Performance 2.6 Determinants of Budgetary Participation

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1

1 3 4 5 5 6 7 7 8 8 8 9

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10 10 12 16 17 20

2.6.1 Gender 20

CHAPTER 3: RESEARCH METHODOLOGY AND FRAMEWORK 22

3.1 Introduction 22 3.2 Theoretical Framework and Hypothesis 22 3.3 Definition of Variables 23

3.3.1 Independent Variable 23 3.3.2 Dependent Variable 24 3.3.3 Moderating Variable 24

3.4 Hypothesis 25 3.5 Research Design 25 3.6 Sampling Design 26

3.6.1 Target Population and Sampling Frame 26 3.6.2 Sampling Procedure 26 3.6.3 Sample Size 27

3.7 Research Instrument 28 3.7.1 Measurement of Budgetary Participation 28 3.7.2 Measurement of Managerial Performance 29

3.8 Data Collection Method 31 3.9 Data Analysis Method 31

3.9.1 Statistical Analysis 31 3.9.2 Reliability 31 3.9.3 Correlation Analysis 32 3.9.4 Multiple Regression Analysis 32

3.10 Summary 33

CHAPTER 4: DATA ANALYSIS AND FINDINGS 34

4.1 Introduction 34 4.2 Profile of respondents 34 4.3 Reliability Analysis 34 4.4 Hypothesis Statement 41 4.5 Correlation Analysis 41 4.6 Multiple regressions Analysis 42

4.6.1 The effect between budgetary participation 42 and managerial performance

4.7 Hierarchical Regression Analysis 43 4.7.1 The Moderating effect of gender between 43

budgetary participation and managerial performance

4.7.2 The Moderating effect of age between 46 budgetary participation and managerial performance

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CHAPTER 5: DISCUSSION AND CONCLUSION 51

5.1 Introduction 51 5.2 Recapitulation of the Study Findings 51 5.3 Discussion of Findings 52

5.3.1 The effect of budgetary participation on 53 managerial perronnance

5.3.2 The effects of budgetary participation on 54 managerial perrormance in the context of Hotel industry.

5.3.2 The moderating effect of gender and age 54 on the influence of budgetary participation on managerial perrormance

5.4 Contributions of Research 56 5.5 Limitations of the Study 58 5.6 Recommendations for Future Research 58

REFERENCES

APPENDICES

5.7 Conclusion 59

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60

67

UST OF TABLES

Page

Table 3.1 Measurement Items for Budgetary Participation 29

Table 3.2 Measurement Items for Budgetary Participation 30

Table 4.1 Profile of Respondents 36

Table 4.2 Budgetary Participation 37

Table 4.3 Reliability Analysis on Variables of the Study 40

Table 4.4 Pearson Correlations Matrix of Study Variables (N=103) 42

Table 4.5 Regression Analysis of Budgetary Participation and 43

Managerial Performance

Table 4.6 Hierarchical Regression Results of the Moderating Effect of 45

Gender on the relationship between Budgetary participation

and managerial performance

Table 4.7 Hierarchical Regression Results of the Moderating Effect of 48

age on the relationship between Budgetary participation

and managerial performance

Table 4.8 Results of Hypothesis Testing 50

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UST OF FIGURES

Page

Rgure 1 The relationship between budgetary participation and 19

managerial performance with demographic variable as

moderating effects.

Rgure 2 Gender moderating effect between budgetary participation and 46

managerial performance.

Rgure 3 Age moderating effect between budgetary participation and 49

managerial performance.

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UST OF APPENDIX

Page

Appendix A Questionnaire 67

Appendix B SPSS output 71

xii

CHAPTER 1

INTRODUCTION

1.0 Overview

The participation in the budgeting process had been a great interest to

management accounting manager as this will help them in defining the effect

between the manager's participation on the budget setting process to their

performance. Manager's performance in being evaluated in many difference

dimensions in a periodic evaluation. Managers have performed various different

activities in different degrees no matter on what is the specific job or position the

managers are in a given organisation. Manager's participation in budget setting is

one of the tools to be used for this evaluation. The participation of managers in

budgetary process where managers engage in activities in the organisation

including in proposing, negotiating and in discussing their budget proposal

regardless of their job position (Sugioko, 2010). As any other additional

participation in the organisation, it should lead to the increase in the performance.

Research had also shown that, managers always used budget as the means in

showing their leadership style (Brownell and Merchant, (1980).

The purpose of this research is to investigate the effect that budget

participation have on the job performance of an employee and also to examine on

whether or not that the demographic of the respondents have any effects on their

participation on the organisation budgeting target. The budgetary process

understands the ways budget put together in coordinating resources, production

and expenditures where it will be influencing the decision that want to be made. It

is also help in predicting the consequences of any action made in an organisation

and became a standard for monitoring the action of the organisation (Smathers,

1992)

Previous studies have provided with many inconsistent empirical findings in

the effect between budgetary participation and the individual's job performance.

There are studies that demonstrate that budgeting participation had a positive

effect on the job performance of the manager in the organisation (Brownell, 1980;

Mia 1989; Merchant 1981). But there are also researches that show budgeting

partiCipation have no real effect on the managerial performance in the organisation

(Brownell and Hirst, 1986; Linquist, 1995). In many of the literature that is

researching on budgeting partiCipation its literature mainly examines antecedent

effects of a certain variables have on the budgeting participation - performance

linkage where it shows that there is no direct effect between budgeting partiCipation

and job performance, several mediating factors are discuss as these mediating

factors would help the managers in their decision making when dealing with budget

and/or target that represent the goals to be achieved for the organisation so that

several strategies can be formulated to ensure these goals and objectives are

obtained. These antecedent factors are (1) Procedural fairness (Zainuddin and Isa,

2011), (2) asymmetric information (Kren, 1992; Lau and Tan, 2003; Yuen and

Cheung, 2003; Young, 1985), (3) Self-efficacy (Ni, Su, Chung and Cheng), and

attitudes (Ni et al. nd; Brownell and Merchant, 1980; Breaux 1997). Thus the result

of each and every research with the antecedent variable have a different result as

the variable giving the researcher a different view and perspectives from the

different variable that had been used.

As the tourism industry has been growing rapidly in Sabah especially in Kota

Kinabalu, and as the competitiveness increase in the hotel industry it is essential for

the hotelier to become different in their decision making to cater to their customers.

2

Not to mention, because the service industry is different from that of the

manufacturing industry where especially in the hotel industry employees

communication and connection to the customers is needs so that the customers

demand in hotel's products and services can be fulfilled. Services and tourism

industry are two of the industry that had been identified by the State of Sabah to be

the two areas that will provide Sabah with the potential of increasing its growth

potential as Sabah still have many unexploited areas. With the increasing demand

of the Hotel industry in Sabah, it is also important for the employers to know on

their employee and/or managers involvement in budget setting to improve in the

employees and/or managers commitment to the organisation as well as to the level

of their performance.

In summary this study examines the Significant effect of budgetary

participation and performance in the hotel industry in Sabah particularly in Kota

Kinabalu. This current study are also intended to investigate on whether if the

demographic variables have any effect on the managers' budgetary participation

and thus would it affect the managers' performance.

1.1 Problem Statement

Budget had been an important element of management control in the organisation,

as this issues still becoming a subject of debate and argument as problem arises

from the problems with budgeting purposes from the way budget are used while

others dispute that budgeting processes are essentially faulty. Hansen, Otley and

Van (2003), among others, have called for a systematic examination of these issues

against empirical evidence. Hope and Fraser (2003) had strongly argue in regards

of the traditional ways of budgeting where it argue that, managers would simply

ignore their customers in regards of achieving what they had been targeted to

achieve, in doing so misconduct of behaviour happen while achieving these

3

objectives. These objectives is preventing firm's from being flexible and adaptive in

today's environment where many unpredictable events would happen anytime

anywhere and that the firms are not in sync from strategy and thus with the

competitive requirements.

Although there are many studies that had been made all over the place in

regard to the effect of budgetary participation on the job performance of managers

but the results still remain inconsistent, whereby, some result show positive effect,

some negative effect and there are also research that shows unclear effect between

the two variables. Not only the results of these researches are inconsistent but,

there are also a lack in research on the hotel industry in examining the relationship

between budgetary contribution and job performance in the hotel industry.

1.2 Research Question

For the purpose of this study, the research questions are as follows:

• Does budgetary participation have a positive effect with individual's

managerial performance?

• Does demography of the managers have any effect in the relationship

between the budgetary participation and managerial performance?

4

1.3 Research Objectives

For the purpose of this study, research objectives are as follows:

• To investigate the relationship between budgetary participation and

managerial performance.

• To examine the moderating effect of demographic variable on the

relationship between budgetary participation and managerial performance.

1.4 Scope of Study

The service sectors have the largest contribution to the Sabah GOP at 48.9% in the

year of 2005 in which the wholesale and retail trade, and government service were

the biggest contributor the whole number with 24.4% and 21.7% respectively.

Other than in contributing in the GOP of Sabah, service industry also provides with

the highest number of job with 639,000 persons were employed in the service

industry for the year 2006, which accounted for 53.3% of total employment in

Sabah for the year.

The tourism industry play a significant role in contributing the Sabah

economy as Sabah economy is generally contributed from the tourism industry as

Sabah has always been promoted as "Malaysian Borneo" and the word "Borneo"

sounds exotic, spiritual, mystifying and unfamiliar to the worldwide tourists.

5

Since the various regions of Sabah have distinct tourist assets that can be

developed, there are ample opportunities for regional developments. If they are

developed properly, each region able to take advantages of its resource strengths,

the tourist industry should be able to generate widespread regional benefits.

1.5 Rationale and Significant of Study

The significant of this study is for the purpose of enhancing the field of knowledge

in the effect between budgetary participation and performance in the hotel industry.

There had been numerous literatures in regards to examine the relationship

between budgetary participation and managerial performance in manufacturing

sector, but there are not many literatures that focus solely in the hotel industry.

Therefore, the current study would contribute to the body of knowledge in regards

to the effect of budgetary participation on performance in the hotel industry.

The hotel industry has been growing considerably for the past few years,

and as the industry grow so does its competitiveness. Because the nature of the

hotel industry is different from that of the manufacturing industry, where in

manufacturing industry employees contact with the customers is limited in ensuring

the success of the product, whereas in the hotel industry employee contact with

customers is needed in ensuring that the customer is satisfied with the hotel

services.

Not only that, this research is important to the employer as it will give them

an insight on what are the variables that may have an effect on the budget setting

and thus eventually will effect their job performance. As job performance is an

important evaluation that managers need as it is essential in their career

development as well as for their succession planning in the future.

6

As for the employee, this study will have given them some information to

help them to understand better the purpose of budget as well as its outcome and

result. Manager's participation is important in the budget setting as the managers

themselves know their capabilities to work rather than their budget being set by top

management.

Employees (managers') participation in the development of the budget is

significant as this might inspire them to understand, to participate actively, and to

contribute towards the achievement of the budgetary goals. For the purpose of this

research, the literature that had been gather has revealed that there is not many

studies that has been carried out on the effect linking managers' budgetary

involvement and the managers' performance as there are more research that has

been done in the manufacturing industry rather than the hotel industry.

1.6 Definition of Terms Used

1.6.1 Budgetary Participation

Budgetary participation (BP) is defined as the level of involvement of the employees

in an organisation where he/she would be given the opportunity to give their input

the budget setting of the organisation (Shields & Shields, 1998 pg. 49). Usually this

would involve the main or key employees that have the insight of the organisation

work processes. This would give the accountant of the organisation information that

would be useful and that may affect the budget set. Employees involvement in

budget setting would be a good motivational tool as this will help in gaining the

employees commitment in accomplishing the budgeting goals, resulting in

cooperation among employees, thus the budgeting set would be achieved.

7

1.6.2 Managerial Performance

According to Bonache, Maurice, & Moris (2010) Managerial performance has been

defined as the degree to which successful role achievement is accomplisheb.

Several factors need to be consideration when determining the level of the

individual managerial performance. And those factors can be seen on how the

employees manage the task that they have in their daily activities. Job performance

reviews are often performed yearly and can determine raise eligibility, whether an

employee is right for promotion or even if an employee should be fired.

1.6.3 Asymmetric Information

Asymmetric information can be defined as a situation in which it involves the

dissemination of information from one party to the other (Young, 1985).

Asymmetric information may result in a bad deal for one party often but not always

the buyer. Asymmetric information is not as widespread as it once was because of

increased transparency and legal desires for revelation, as well as better

technology.

1.6.4 Self-efficacy

According to Albert Bandura, self-efficacy is "the belief in one's capabilities to

organize and execute the courses of action required to manage prospective

situations" (1995, p. 2). In other words, self-efficacy is a person's belief in his or her

ability to succeed in a particular situation. Bandura described these beliefs as

determinants of how people think, behave, and feel (1994). According to Bandura,

a person's attitudes, abilities, and cognitive skills comprise what is known as the

self-system. This system plays a major role in how we perceive situations and how

we behave in response to different situations. Self-efficacy plays are an essential

part of this self-system.

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1.7 Organisation of Thesis

Chapter one provides the overview of the significance of the study on budgetary

participation and individual's managerial performance. Furthermore, this chapter

would be outlining the overview of the research and would be followed by the

problem statement, objectives and question of the study, the contribution and

scope of the research, and lastly, the definition of terms used in the research. Then,

chapter two would start off with an extensive literature review on the budgetary

participation and the hotel industry, budgetary participation and managerial

performance and determinants of budgetary participation. (i.e. age and gender). In

chapter three, it summarize the research methodology that are use to test the

research framework and the hypothesis that was proposed in the earlier chapter.

In chapter four, it would outline the result of the data that had been

gathered. In the first section, this chapter are going to describe the frequency of

the response gathered, and also to outlining the demographic characteristic of the

respondents. In the section of this study the result of reliability as well as the

descriptive statistics will be discussed. And finally results of correlation analysis and

hypothesiS testing through multiple regression analysis. The chapter will outline

results relating to managers description details, data collection tools results, and the

results of hypothesis testing.

Last but not least, Chapter five would mainly focus on the summary as well

as the discussion that were related to the finding in the study. This chapter would

include the discussion and limitations come up with along the journey of this study

as well as recommendations for future study.

9

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

Chapter Two provides review of literatures applicable to the research objectives of

this study. The chapter start with the review on literatures related the budgetary

participation literature in the hotel industry. Next, the review will be discussing on

literatures on the budgetary participation contribution to the theory. The following

section will provide reviews of literatures with understanding the effect that

budgetary participation have on the performance of the managers. The final section

of this chapter will be discussing on the determinants that will be effecting the

manager's decision on the budgetary process.

2.2 Budgetary Participation and Hotel Industry

In different hotel, hoteliers formulate and implement different business strategies to

differentiate them from other hotelier. The purpose of those business strategies is

for the purpose to create competitive advantages by increasing the performance

levels of hotel. Knowledge on hotel's profitability is one of the essential skills that a

hotel managers need to acquire as well as to know on what strategiC behaviour that

will help in increasing certain level of performance variables and how this behaviour

would effects the performance.

In the hotel industry there are fierce competition among the hotel industry,

other than that hotel industry are characterized by its oriented nature, modified

services and the direct contact of managers and employees with its customers (Mia

and Patiar, 2001) . Because of the character of the hotel business as well as the

fierce competition between the hotelier customer satisfactions is becoming the main

factor that will determine the success of a particular hotel. Because of these view,

most if not all of the hotels within the industry taken great interest and emphasize

in the importance of high quality customer service. Literature shows that the

managers' performances are having a large impact on the hotel success in having

its customer fully satisfied (Winata and Mia, 2005).

Budgetary participation and performance effect is an important recognised

issue for a long time in organisation. Shields and Shields (1998) research is based

on 47 studies on budgeting participation on several outcome variable, such as

managers' job related stress, attitude, information, motivation, satisfaction as well

as performance. From the 47 studies research, 30 of the studies are investigating

the participation-performance effect (Brownell, 1981 and Kren, 1992). And Shields

and Shields study shows that most of the study research is on the manufacturing

industries, and not from the hotel industry. But the important of the impact that

managers' budgetary participation on the performance in the hotel industry is as

important as the managers' budgetary participation from the manufacturing

industries. However, literature search found that there is a lack in the observed

study that examined the possible impact that hotel manager's involvement in

budgetary on their performance.

11

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