Usefulness of the budget: the mediating effect of participative budgeting and budget-based evaluation and rewarding

Purpose This paper contributes to budgeting-related literature by investigating whether the participation of operational managers in budgeting, and budget-based evaluations and the rewarding of operational managers, significantly mediate the relationship between budget use for operational management and the perceived usefulness of the budget. Design/methodology/approach The paper is based on data gathered from a survey of Czech medium- and large-sized companies from the manufacturing sector. The hypothesised relationships are tested using partial least squares structural equation modelling (PLS-SEM). Findings Overall usefulness of the budget, as perceived by principals (top managers), is positively influenced by the scope of budget use, but, more importantly, the positive mediating effects of participative budgeting and budget-based evaluation and rewarding on this relationship are significant and strong. Research limitations/implications The subjective perceptions of respondents were investigated with the understanding that they may not represent actual situations in their organisations. Companies with well-functioning budgeting systems were more likely to take part in the research. Regarding satisfaction, the authors studied the perceived usefulness of the budget. Only medium- and large-sized manufacturing companies located in a post-communist country were analysed and generalisations should, therefore, be taken with caution. Practical implications The results in the studied sample indicate that satisfaction with budgeting is positively correlated with the rewarding and evaluation of operational managers, and with enabling the participation of operational managers in preparing and updating their budgets. Originality/value This research contributes to prior literature on budgeting by investigating the mediating effects of the participation of operational managers in budgeting, and the budget-based evaluation and rewarding of operational managers on the perceived usefulness of the budget by principals in an integrated model using the PLS-SEM approach.

Automated summary

This study investigates the mediating effects of participative budgeting and budget-based evaluation and rewarding on the relationship between budget use for operational management and perceived usefulness of the budget. The results suggest that these mediating factors significantly influence the perceived usefulness of the budget in Czech manufacturing companies.