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Budget functions and firm performance: Survey and archival evidence
Wei - Heng Lin,
Chung Yuan Christian University
Chung - Yuan Hsu, National Cheng - Chi University
Chao - Jung Chen, National Cheng - Chi University
ABSTRACT. We contrast the relationship between budget function and firm performance across subsamples with different level of agency cost. Except for the measurement of budget functions, all variables are measured from archival databases. Four functions of budget are considered: planning, communication, control and performance evaluation. We find that control function has an adverse effect on firm performance in the high agency cost subsample. Emphasis on control function intensifies the adverse effect of agency cost on firm performance. The performance evaluation function of budget is positively associated with firm performance. Emphasis on evaluation function moderates the adverse effect of agency cost on firm performance. We further use quantile regression to explore the moderating effects at different level of performance. Results indicate that planning function can alleviate agency problems for good performers, but not for poor performers.
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