Tight Budgetary Control, Business Strategy, External Environment and Firm Performance
 
Despite the increasing role of non-financial information and continuous criticisms of budgetary processes, budgetary controls are becoming more integrated with firms' information system to provide cost effective practices and means of tight control. While there has been extensive research on accounting- based budgetary controls, little has been done to understand the effect of tight budgetary controls on firms' performance. This paper reports the findings of a study designed to examine the relationship between tight budgetary control and firms' performance. Additionally, the effects of two contingent factors, namely, business strategy and external environment are considered. Tight budgetary control was measured using an instrument developed by Van der Stede (2001) as a means to re-validate the instrument. Questionnaires were distributed to top managers of manufacturing firms in Indonesia. Using multiple regression analysis, the results indicate that prospector strategy has a positive influence on the relationship between tight budgetary control and firms- performance. However, defender strategy and external environment do not appear to moderate the relationship between tight budgetary control and firms' performance. This study has implications for managers and may assist in the understanding on budgetary control practices in Asian countries.

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