Antecedents that determine the levels of budgetary participation and their effects on information asymmetry and managerial performance

Abstract

This research investigates the background effects (leadership style, incentive to budget participation and evaluative use of budget) that determine the levels of budgetary participation and its effects on information asymmetry and managerial performance. Descriptive research, developed through survey and quantitative data analysis was conducted with a sample that comprised 116 respondents in charge of managers, analysts, budget coordinators and controllers of industries based in Brazil. For data analysis we used Structural Equation Modeling, with the aid of SmartPLS® software. The results revealed that the previous leadership style had no direct influence on budget participation, only on the incentive to participate. The incentive to budget participation influenced both budget participation and the evaluative use of the budget. The managerial leadership style of being friendly, approachable, and concerned with the subordinate's well-being was negatively and not significantly related to the evaluative use of the budget. The evaluative use of the budget had no significant relation with the budget participation. Regarding the effects of budget participation, the findings revealed a significant relationship with information asymmetry and managerial performance. However, the effects of information asymmetry on managerial performance were not significant, suggesting that budget participation can act as an element that can mitigate such effects, when budget participation is encouraged. It is concluded that budget participation can potentiate managerial performance, minimizing the possible negative effects of informational asymmetry on performance, being the encouraging the budget participation is a determining antecedent to these effects.