Tight budgetary control, business strategy, external environment and firm performance / Muhammad Dahlan, Sofiah Md Auzair and Wan Madznah Wan Ibrahim

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 accountingbased
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.