Mahmoud Al-Shaibie Saima Batool The Effects of Tight Budgetary Control on Employee Behavior in the Public Sector of Jordan, Pakistan and Sweden Employee’s loyalty, Employee satisfaction, Job related tension and Employee’s tendency towards data manipulation Master’s Thesis in Accounting and Control, 30 ECTS Term: Autumn 2014 Supervisor: Prof Mikael Johnson Examiner: Prof Sven Siverbo Abstract This thesis aims to explore the effects of tight budgetary control on employee behavior focusing on employee loyalty, employee satisfaction, job related tension and tendency towards data manipulation in public sectors The study explores the subject on the population of three countries which includes Sweden, Jordan and Pakistan In Pakistan and Jordan, no previous study has ever been performed which tried to explore effects of tight budgetary control in employee behavior Method: Keeping the above fact in view, method derived for this study was the combination of qualitative and quantitative approach Questionnaires were formulated and sent to employees of the sampled companies receiving 740 responses For qualitative method, employees were interviewed from entire three countries Finding: the study revealed that all three countries are experiencing tight budgetary control whereas Jordan and Pakistan are experiencing it on higher level and Sweden is experiencing it in lower level as compared to Pakistan and Jordan As far employee behavior is concerned, both the method proved that loyalty was negatively related to tight budgetary control for Pakistan and Sweden whereas positively related in case of Jordan Satisfaction is also negatively related to tight budgetary control for Sweden and Pakistan while positively related for Jordan Job related tension and tendency towards data manipulation are positively related to tight budgetary control for all three countries Research type: Master’s thesis Keywords: Tight budgetary control, employee behavior, employee loyalty, employee satisfaction, job related tension and tendency towards data manipulation Table of Contents Chapter: Background 1.2 Introduction 1.2 Problem definition 1.3 Aim 1.4 Research question 1.5 Proposed research method 1.6 Structure of thesis 10 Chapter: Research Methodology and data collection 11 2.2 Research Methodology 11 2.3 Data Collection 11 2.3.1 Surveys 12 2.3.2 Interviews 12 2.3.3 Data analysis techniques 13 Chapter: Literature review 14 3.1 Budget: 14 3.2 Tight budgetary control 16 3.3 Tight budget control as management control tool 17 3.4 Employee interpretation of budget 18 3.5 Behavioral Variables and hypothesis formulation 19 3.5.1 Loyalty 20 3.5.2 Satisfaction 21 3.5.3 Job-related Tension 23 3.5.4 Data Manipulation 24 Chapter: Analysis 26 4.1 Quantitative Analysis 27 4.1.1 Effectiveness of tight budgetary control 27 4.1.2 Loyalty 29 4.1.3 Satisfaction 32 4.1.4 Job Related Tension 35 4.1.5 Data Manipulation 37 4.2 Correlations Analysis 39 4.3 Regression Analysis 41 4.4 Reliability analysis 47 4.5 Qualitative analysis 48 Chapter: Discussion 54 Chapter: Conclusion 55 6.2 Final Discussion 56 References 58 Appendix 64 8.2 Descriptive statistics and percentage analysis 64 8.2.5 Tight Budget Control 64 8.2.6 Loyalty 67 8.2.7 Satisfaction 69 8.2.8 Job-related tension 72 8.2.9 Data Manipulation 74 8.3 Survey Form 76 Chapter: Background 1.2 Introduction Recent economic crises have forced many countries to pay more attention to their budget settings and budget targets Consequently strict checks on expenditures and close monitoring of day to day activities of employees is taking place (Ocran, 2011) instigating dysfunctional behavior by employees (Kihn 2011) Budget is defined as financial plan which mediate all the business activities, where most of the focus is on expenditure (Harrison & Horngren 2008) Budgets are not a recent phenomenon Conventionally, it was defined as a technique of cutting unnecessary costs and used as a basis of employee evaluation and rewards (Argyris, 1953) A system of evaluating the performance of employees based on how company is able to achieve their budget targets keeping the expenditures closely monitored as well as minimum is called budgetary control On the other hand, it is a mechanism which is meant to align employee’s behavior in the direction which management wants them to proceed (Banks & Giliberti, 2008) This study attempts to analyze the effects of tight budget on employee’s behavior Employees perceive budget achievement as a key to get many benefits like bonus, rewards or extra pays and they are stressed to meet the targets by any means Due to which budget targets are said to generate tendency of dysfunctional behavior in employees However, it is worth mentioning that tight budget targets affect different employee behavior differently and it is not always the case when employees tend to behave unfavorably in reaction to strict controls Some employees take tight controls as a challenge and get more motivated when budgetary controls are tight (Bhimani et al., 2008) This study aims to discover these behavioral aspects produced as a consequence of budgetary controls Implementation of tight budgetary control are the upshot of fiscal policies Fiscal policy determines whether tight budgetary controls are to be introduced or not Governments of underdeveloped countries are trying to handle the financial crises situation through adjustments in fiscal policy and imposing budget cuts Consequently, implementation of tight budgetary control is increasing For example, Governments of developing countries are forcing public sector organization to reduce expenditure and survive within allocated budgets Governments are much bothered about allocating resources and cutting undue expenditures from their yearly budgets in recent years (Mirdala, 2009) making the budgetary targets difficult to achieve Developed countries are suffering from budget deficits as well and other critical issues like unemployment now days (Hugh-Jones, 2014) Developed countries must budget cuts so they can decrease its budget deficit, government debt levels and unemployment Tight budgetary control must be incorporated as effective governance tool and elimination of undesirable expenditure is needed for best management of available funds (ibid) The above discussed issues are also confirmed by other studies In a study by Ocran, (2011) it is concluded that governments use fiscal policy as a tool to achieve sustainable economic development Governments reduce spending when they are faced with budget deficits Budget cuts are sometimes necessary in this situation and hence leading to the introduction of tight budgetary control Lastly it is worth mentioning that financial crises affected not only the economy of underdeveloped countries but also developed countries as well As a result unemployment is rising and downward trend in economic growth in recent years is visible (Ocran, 2011; Looney, 2004) For example, in Sweden it is predicted that current economic condition will remain continued in next couple of years therefor Sweden has to cut budgets and apply tight budgetary control (Regeringskansliet, 2013) Eventually, use of budgetary control and budgets will remain in practice Moreover, the role of budget has been evolved over the years and needs to be explored more with different aspects of behavior It seems that difference in interpretation of these targets generates difference of behavior from employees (Boland, 2001) Hence, it is interesting to analyze the direction of behavioral aspects of employees when tight budgetary controls are imposed on them Hence this study aims to explore the effects of tight budgetary control on employee behavior First chapter will discuss aim, problem definition, research questions, introduction to research methods along with motivation for them and structure of remaining thesis 1.2 Problem definition As stated earlier, this study aims to explore the effects of tight budgetary control on employee behavior The study will be conducted on three countries including Sweden, Pakistan and Jordan Motivation to perform this study on this subject and theses three countries are discussed as under Tight budgetary control affects the behavior of employees but how it is influencing is yet to be confirmed There are many previous studies which have examined this but they revealed contradictory results (Bento and White, 2006) Furthermore, motivation to conduct this study is the research gap as no previous study in this area has been done in Jordan and Pakistan Therefore, examining the effects of tight budgetary control on employee behavior will make a contribution to this area Behavioral variables comprise employee loyalty, employee satisfaction, Job-related tension and data manipulation by employees Many researchers referred in their research to conduct a research about relationship of tight budget control and behavioral aspects Kin (2012) sated that “Future research could continue the analysis of budget targets in at least two ways One of them is that individual-level case (field) research would be a promising approach to further examine processing of budget targets and its various behavioral aspects” (p.233) Another study stated that although it has been 50 years since budget and behavioral aspects related studies are being conducted regarding the relationship between budgeting and behavioral variables such as employee’s commitment to organization, motivation, stress, satisfaction and job related tension However, these studies show conflicting results and a new theoretical study is needed to confirm these results (Marginson and Ogden, 2005a) Thus, it is evident that there is a research gap in this area and a study is needed to establish as well as further strengthen the evidence regarding relationship of tight budgetary controls and behavior of employees Kung, et al, (2013) also advised to conduct a research in the area of budgeting decision and behavioral aspects by stating that “future research might also study the effects of budgeting characteristics on employee attitudes and behavior Recognizing the complexity associated with individual responses, it would be interesting to explore the mental states and behaviors of superiors in a budget model to examine the reactions of subordinates to budgeting decisions” (p 137) This study tries to examine the influence of strict controls on few behavioral variables such as satisfaction Leat & El-Kot (2009) pointed out a research gap and stated that it should be examined about what are the factors which affect employee’s satisfaction on a work place Conboy(2010) recommended to conduct a study about tight budgetary control and employee behavior It is further stated that tight budgetary control is not always good Although budgetary targets are placed in practice to achieve organizational targets but they not emerge as beneficial all the time Therefore, a detailed study is needed to explore which factor affect the outcome of application of tight budgetary control and why the desired outcomes are not always received Based on the above recommendations by various researchers, researchers of this thesis decided to conduct the study analyzing the effects of tight budgetary control on employee behavior in public sector of Jordan, Pakistan and Sweden It will be interesting to find an evidence for this area which may help in reducing the inconsistency of previous researchers and establish a new framework Moreover, no study about effects of tight budgetary control and employee behavior has ever been conducted in Jordan and Pakistan Thus, this study will be first of its kind and will contribute to academic literature of both countries Lastly, as recommended by Bhimani et al., (2008) : “one of the first and most interesting areas of behavioral accounting research has been the analysis of budget targets” (p 467) indicating that it is an interesting area to study Keeping in view the above discussed literature employee behavior is confined to four variables which consist of employee loyalty, employee satisfaction, job related tension and tendency towards data manipulation 1.3 Aim Keeping into account the research gap indicated by various authors, aim of this study is to figure out how tight budgetary control affects employee behavior focusing on employee’s loyalty, employee satisfaction, job-related tension and employee’s tendency towards data manipulation in public sector of Jordan, Sweden and Pakistan 1.4 Research question Research question for this study is as under: How tight budgetary control influences the employee behavior This question is sub-divided into following questions How tight budgetary control affects employee’s loyalty How tight budgetary control affects employee’s job satisfaction How tight budgetary control affects employee’s job-related tension Does tight budget control has any effect on tendency of data manipulation by employees 1.5 Proposed research method In this section, method strategy is introduced and explained The term method is defined as combination of procedures and techniques which are used to analyze, interpret and collect data The term methodology is defined as the way research ought to be conducted (Bryman & Bell, 2007) Research methods are categorized as qualitative and quantitative Quantitative approach is designed as a process of measuring data in numbers It is very objective approach whereas qualitative approach revolves around complementing the obtained data with the responses given during interviews (Neill 2007) Bryman & Bell (2007) further stated that cross-sectional design for instance; semi-structured interviews are considered as qualitative method Whereas surveys and structured interviews are considered as a quantitative method Motivation for choosing the method Qualitative method is used to develop a theory and quantitative method is used to confirm the theory Quantitative method is considered as more rational for comparison (Finn et al 2000) and qualitative method is more useful for justifications (Saunders et al, 2009) It seems that a more rational outcome can be drawn when comparisons are accompanied by theoretical justifications The idea of combination of methods can be supported by Saunders et al (2009) as they stated that when basic data for a research is not available a combination of qualitative and quantitative method is most suited approach (Saunders et al, 2009) In past, no research about tight budget control in Pakistan and Jordan has been conducted so suggestion of Saunders et al, 2009 seems to be worthwhile Looking into these perspectives, researchers of this thesis decided to use a blend of qualitative and quantitative methods Subsequently, method to conclude this study consists of combination of quantitative and qualitative method to measure the effects of tight budgetary control on employee behavior focusing on employee’s loyalty, employee satisfaction, job related tension and employee’s tendency towards data manipulation Primary data approach is used for this study because no secondary data is available to be used as a support for this study To get data for quantitative method, questionnaires will be sent to the employees working in public sector organizations of Jordan, Pakistan and Sweden To get qualitative responses semi structured interviews will be conducted 1.6 Structure of thesis The structure of remaining study is as under: Chapter two presents research methodology It explains research method, data collection instruments, brief description of data analysis tools, bases of hypothesis construction Chapter three aims to create a theoretical frame work by expressing previous researches focusing on variables of this study subsequently forming the bases of hypothesis for this study Literature about budgetary controls, tightness of budgets, fiscal policy, behavioral variables and employee’s interpretation of budget is presented Chapter four attempted to draw findings of qualitative and quantitative data and constructing an 10 8.2.8 Job-related tension  Sweden Statements Strongly Moderately Slightly agree agree agree Neutral Slightly Moderately Strongly disagree disagree disagree 1% 7% 15% 25% 17% 24% 11% 5% 32% 20% 27% 7% 6% 3% 2% 6% 11% 10% 14% 20% 37% Table 28: Sweden, Job-related tension Statements N Minimum Maximum Mean Std Deviation 243 1.00 7.00 4.6420 1.5046 243 1.00 7.00 3.2840 1.4016 243 1.00 7.00 5.3333 1.7534 Table 29: Sweden, Job-related tension  Jordan Statements Strongly Moderately Slightly Slightly Moderately Strongly Neutral agree agree agree disagree disagree disagree 9% 16% 19% 28% 3% 16% 9% 9% 22% 22% 25% 16% 3% 3% 25% 34% 6% 22% 13% 0% 0% Table 30: Jordan, Job-related tension 72 Statements N Minimum Maximum Mean Std Deviation 240 1.00 7.00 3.8333 1.8311 240 1.00 7.00 3.3333 1.4938 240 1.00 5.00 2.5333 1.3869 Table 31: Jordan, Job-related tension  Pakistan Strongly Moderately Slightly Slightly Moderately Strongly Neutral agree agree agree disagree disagree disagree Statements 17% 10% 37% 17% 10% 3% 7% 23% 27% 20% 14% 3% 7% 7% 40% 13% 20% 7% 10% 3% 7% Table 32: Pakistan, Job-related tension Statements N Minimum Maximum Mean Std Deviation 240 1.00 7.00 3.3000 1.6189 240 1.00 7.00 2.9333 1.7726 240 1.00 7.00 2.7000 1.8685 Table 33: Pakistan, Job-related tension 73 8.2.9 Data Manipulation  Sweden Statements Strongly Moderately Slightly Slightly Moderately Strongly Neutral agree agree agree disagree disagree disagree 3% 4% 16% 17% 6% 16% 38% 0% 4% 5% 25% 8% 11% 47% 1% 6% 10% 37% 4% 5% 37% Table 34: Sweden, Data Manipulation Statements N Minimum Maximum Mean Std Deviation 243 1.00 7.00 5.2222 1.7884 243 2.00 7.00 5.5556 1.6058 243 1.00 7.00 4.9877 1.7498 Table 35: Sweden, Data Manipulation  Jordan Statements Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 25% 38% 3% 9% 13% 9% 3% 3% 34% 22% 19% 13% 9% 0% 3% 34% 25% 22% 9% 6% 0% Table 36: Jordan, Data Manipulation 74 Statements N Minimum Maximum Mean Std Deviation 240 1.00 7.00 2.7000 1.7386 240 1.00 6.00 3.1667 1.2958 240 1.00 6.00 3.1000 1.1955 Table 37: Jordan, Data Manipulation  Pakistan Strongly Moderately Slightly Slightly Moderately Strongly Neutral agree agree agree disagree disagree disagree Statements 34% 27% 13% 17% 3% 3% 3% 30% 27% 23% 3% 7% 3% 7% 57% 10% 3% 13% 7% 7% 3% Table 38: Pakistan, Data Manipulation Statements N Minimum Maximum Mean Std Deviation 240 1.00 7.00 2.5333 1.5894 240 1.00 7.00 2.6667 1.7421 240 1.00 7.00 2.3667 1.8744 Table 39: Pakistan, Data Manipulation 75 8.3 Survey Form Survey Questionnaire 28.04.2014 Karlstad Business School Dear Respondent, We will be highly obliged if you like to participate in this short survey and help us to complete our master thesis in Accounting and Control at Karlstad University We are trying to figure out the employee behavior during performance of their duties under close monitoring, high workload, tension and conditional rewards This questionnaire should take no more than 10 minutes of your time Subject of thesis: Effects of Tight Budgetary Control on Employee Behavior in the Public Sector of Jordan, Pakistan and Sweden Researcher’s names: Mahmoud AL-shaibie & Saima Batool Supervisor's name: Prof Mikael Johanson All the answers will be treated anonymously and no one will be able to identify you The information provided by you will not be used for any other purpose than the above mentioned Your contribution is highly valued, and we appreciate your time and effort Best Regards, 76 Gender Male Female Education level Bachelor’s Master’s Doctoral Study Ph.D Other………… Are you being evaluated annually Yes 4) No Failure to perform your duties effects your monetary rewards 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 5) Your manager emphasizes too much on your duties 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 77 6) You can make change in your duties 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 7) Your manager accepts when you don’t comply with your duties 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 8) Your manager monitors your day to day operations 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 78 9) Duties assigned by the management are easy to achieve 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 10) Your management change your assigned duties frequently during the certain period 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 11) You take part in your duty setting process 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 79 12) Your company is a good company ( i.e company takes care of employees) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 13) You like your company 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 14) If you would get a job in another company with same benefits, you will leave your company 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 80 15) You are proud to talk about your company with people 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 16) 1.Strongly agree You liked the company more before increased emphasis on your duties by your manager Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 17) Monitoring of your duties is more than what is required (i.e you think it too high) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 81 18) You like your job 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 19) You give your maximum output in your work (i.e you work with your full capabilities) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 20) Your working conditions are good (i.e comfortable sitting environment ) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 82 21) Your salary is competitive 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 22) Your working hours are appropriate 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 23) You get appreciated from your manager when you perform good 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 83 24) The environment of your organization is friendly (i.e relationship between you and your high-ups are good) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 25) Increased scope and emphasis (control) on your duties motivates you to perform better (i.e you get excited to work harder when get a difficult target) 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 26) It is difficult for you to meet your job requirements 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 84 27) You easily manage your work-pressure 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 28) You skip less important duties when you are achieving your all duties 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 29) You feel stressed because of close monitoring of your daily activities 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 85 30) When work-load is too high, you try to make your operational reports look good even when your job quality is poor 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 31) You skip unnecessary transactions from records to show favorable results 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 32) Making some adjustments to records is rational as work-load is too high 1.Strongly agree Moderately agree Slightly agree Neutral Slightly disagree Moderately disagree Strongly disagree 86 ... their opinion about how they feel about tight budget control and the work environment before incorporation of tight budget control In rest of the time employees were interviewed about questions... How tight budgetary control influences the employee behavior This question is sub-divided into following questions How tight budgetary control affects employee? ??s loyalty How tight budgetary control. .. Based on the above recommendations by various researchers, researchers of this thesis decided to conduct the study analyzing the effects of tight budgetary control on employee behavior in public sector