Intrinsic and Extrinsic Motivation and Participation in Budgeting: Antecedents

and Consequences

ABSTRACT: Based on Self-Determination Theory _SDT; Ryan and Deci 2000b; Gagné and Deci 2005_, the present research proposes
and tests a motivation-based model of participation in budgeting that distinguishes among intrinsic motivation, autonomous extrinsic
motivation, and controlled extrinsic motivation for participative budgeting. The proposed model was tested using a survey conducted among
managers of an international bank. The results suggest that while intrinsic motivation and autonomous extrinsic motivation for participation
in budgeting are positively related to performance, controlled extrinsic motivation is negatively associated with performance. These findings
highlight the importance of distinguishing among various forms of motivation in participative budgeting research and suggest that the
mechanism by which the information benefits of participation in budgeting are obtained may be more complex than assumed. The results
also provide evidence of the viability of using the proposed model to study commonly assumed reasons for participative budgeting within a
general theoretically based framework of motivation.

INTRODUCTION

F ollowing the work of motivation theorists _e.g., Lepper et al. 1973; Deci 1975; Lepper and Greene 1978;

Deci and Ryan 1985_, the present research proposes and tests a motivationbased model of participation in
budgeting _PB_. The current study distinguishes between
intrinsic and extrinsic motivation for PB. Individuals are intrinsically motivated if they view PB as an end in
itself. For example, they may derive a sense of accomplishment and satisfaction from the mere act of
participating. On the other hand, they are extrinsically motivated if they participate as a means to achieve
some separable objective.

Based on Self-Determination Theory _SDT; Ryan and Deci 2000b; Gagné and Deci 2005_, the present study
further distinguishes between autonomous and controlled forms of extrinsic motivation. In the present
context, individuals would be motivated by autonomous extrinsic motivation if they truly identified with the
value of PB, whereas they would be motivated by controlled extrinsic motivation if they participated because
they were pressured by an external force _e.g., superior’s demand_ or an internal force _e.g., their own sense
of anxiety_. Research _Vallerand 1997; Gagné and Deci 2005_ shows that unlike intrinsic motivation and
autonomous forms of extrinsic motivation, controlled forms of extrinsic motivation can produce negative
consequences.

The present research is motivated by several factors. First, considering the extant motivation research
literature _see, for example, Ryan and Deci 2000b; Gagné and Deci 2005_, a review of prior studies in PB
_see, for example, Covaleski et al. 2003; Shields and Shields 1998_ highlights the inadequate use of the term
“motivation.” In particular, research in PB does not differentiate among different types of motivation.
Distinguishing among various types of motivation is important since they have been shown to lead to
different consequences _for a review, see Ryan and Deci 2000b; Gagné and Deci 2005_. The present study
seeks to provide preliminary evidence of the significance of differentiating among intrinsic motivation,
autonomous extrinsic motivation, and controlled extrinsic motivation in PB research.

Second, in an analysis of published PB research Shields and Shields _1998, 57_ note that most studies do not
explicitly state their assumed reasons for PB. They argue that, “a desirable, if not necessary, condition for
research on participative budgeting to make more systematic progress in developing a general theory is to
focus on understanding why it exists.” Extant research _e.g., Vallerand 1997; Ryan and Deci 2000a; Gagné
and Deci 2005_ asserts that individuals’ stated reasons for a behavior indicate the underlying motivation for
that behavior. Consistent with that argument, the present research proposes that the stated reasons for PB
reflect various underlying forms of motivation for PB. This enables the reasons for PB to be studied within a
general theoretically based motivation framework. For example, the commonly assumed reasons related to
individuals’ sense of personal satisfaction, feeling of accomplishment, and feeling of belonging and
identification, as well as reasons related to goal setting and information sharing, all indicate the underlying
motivation for PB.

Third, research in PB has generally been studied from the perspective of the firm and that of the individual
employee _Covaleski et al. 2003_. Whether individuals’ perspectives coincide with that of the firm is
important. Consider, for example, the information sharing purpose of PB. On one hand, from the firm’s
perspective, information sharing is a main reason for PB _Shields and Shields 1998_ and a major mechanism
by which the benefits of PB are achieved _Covaleski et al. 2003_. In particular, according to economic models
of PB, management induces the subordinate to reveal private information in order to allocate resources more
efficiently _Baiman and Evans 1983; Penno 1984_. On the other hand, from the individual subordinates’
perspective, research in motivation _e.g., Vallerand 1997; Ryan and Deci 2000b; Gagné and Deci 2005_
predicts that inducing employees to share information may lead to the controlled form of extrinsic motivation
for PB, which may have possible negative consequences. To the extent that the two perspectives do not
match, the intended benefits of PB are less likely to be obtained. The present study provides preliminary
insights into the extent to which individuals’ perspective relating to the commonly assumed information
sharing reason corresponds with that of the firm.

In summary, the present research examines PB from the perspective of the individual participant. It
integrates the commonly assumed reasons for PB within a single framework based on motivation theory.
Specifically, it studies those reasons for PB in terms of intrinsic motivation, autonomous extrinsic motivation,
and controlled extrinsic motivation. The current research also examines antecedents and the consequence of
different forms of motivation for PB. Based on the motivation and the PB research literature, individual
variables _e.g., organization commitment_ and situational variables _e.g., environment dynamism_ are
postulated as antecedents of individuals’ different types of motivation for PB. The different types of
motivation are in turn predicted to influence important consequences _e.g., individuals’ performance_.

The proposed model was tested using a survey conducted among managers of an international bank. The
results suggest that individuals can be both intrinsically motivated and extrinsically motivated to participate
in the budgeting process. Specifically, both intrinsic motivation and autonomous extrinsic motivation are
positively correlated with PB. Moreover, while intrinsic motivation and autonomous extrinsic motivation are
positively associated with performance, controlled extrinsic motivation is negatively associated with
performance. As for the antecedents, organizational commitment is positively associated with all forms of
motivation and PB. Environmental dynamism, on the other hand, is negatively related to autonomous
extrinsic motivation and PB.

The present study has implications for both research and practice. First, the proposed model enables the
study and integration of research on the reasons for PB within a theoretically based framework of motivation.
Second, the finding of a differential effect of intrinsic motivation, autonomous extrinsic motivation, and
controlled extrinsic motivation on performance suggests the need for further examining the various forms of
motivation for PB. Third, from a practice standpoint, the findings of the present study, which focused on
individual participants’ motivations, indicate that their view of PB may differ from that intended by top
management. In particular, this suggests that the mechanism by which the information benefits of PB are
obtained may be more complex than assumed.

The remainder of this paper is organized as follows. The following section presents the theoretical background
of the study. Next, a motivation-based model of PB is proposed and hypotheses are developed. The research
method is then described, followed by the results and their discussion and implications.

THEORETICAL BACKGROUND
Intrinsic and Extrinsic Motivation
Motivation theorists _Lepper et al. 1973; Deci 1975; Lepper and Greene 1978; Deci and Ryan 1985_
distinguish intrinsic from extrinsic motivation. In general, a person is described as intrinsically motivated if he
or she performs an activity for its own sake, and derives pleasure and satisfaction from participating in the
activity. In contrast, an individual who is extrinsically motivated performs an activity as a means to an end.
He or she does not engage in the activity for the inherent pleasure that may be experienced while performing
it, but instead in order to receive something positive or to avoid something negative once the activity is
completed _Deci 1975_.

More recently, self-determination theory _SDT; Ryan and Deci 2000b, 2002_ has further differentiated among
different forms of extrinsic motivation that vary in their relative autonomy or self-determination. Extrinsic
motivation is of an autonomous type when behavior is performed out of choice because individuals value the
behavior. In contrast, extrinsic motivation is of a controlled _i.e., nonautonomous_ type when one’s behavior
allows for satisfaction of an externaldemand or reward contingency, or to avoid guilt or anxiety _Ryan and
Deci 2000b, 72_.1 The distinction among the various types of motivation is important since research _see, for
example, Vallerand 1997_ in general provides evidence of positive outcomes for intrinsic and the autonomous
form of extrinsic motivation, and negative outcomes associated with the controlled form of extrinsic
motivation. More specifically, Gagné and Deci _2005, 346–347_ note that with respect to performance,
intrinsic motivation and autonomous extrinsic motivation are superior to controlled extrinsic motivation,
especially on relatively complex tasks such as PB.

Reasons for Participation in Budgeting

Psychology-based PB research _e.g., Ronen and Livingstone 1975; Hopwood 1976; Brownell and McInnes
1986_ generally considers three mechanisms by which the benefits of participation are achieved. These are
value attainment, the motivational and the cognitive mechanisms. According to Locke and Schweiger _1979_,
if employees are able to attain their values by participating, increased morale and job satisfaction will result.
Values are broadly defined as what employees want. They can be tangible _e.g., money_ or intangible _e.g.,
self-expression_.

From the motivational mechanism perspective, participation may lead to employees’ increased trust and
sense of control, more ego involvement, increased identification with the organization, the setting of higher
goals, and increased goal acceptance. These factors presumably result in increased performance through less
resistance to change and more acceptance of, and commitment to, specified goals _Locke and Schweiger
_1979_. From the cognitive mechanism perspective, participation is seen as a conduit for information
exchange, and it provides for better upward communication and understanding of the job and the decision-
making process. These factors are believed to lead to improved performance by increasing the flow of
information _Locke and Schweiger _1979_.

The foregoing discussion highlights three important points. First, the term “motivation,” as is employed in the
participative budgeting literature, is inadequate since it does not differentiate among the different types of
motivation. Second, it is unclear whether the information reasons as described in the participative budgeting
literature reflect autonomous or controlled types of extrinsic motivation. According to SDT, information
reasons would reflect controlled extrinsic motivation if PB is used by management to induce subordinates to
reveal information that they otherwise would not _see Covaleski et al. 2003_. Third, the value attainment
mechanism may reflect different forms of motivation depending on the specific value _e.g., money versus
selfexpression _ sought by the individual. In light of the preceding three observations, the following section
proposes a motivation-based framework for studying the commonly assumed reasons for PB.

A MOTIVATION-BASED MODEL OF PARTICIPATION IN BUDGETING

Extant research _e.g., Vallerand 1997; Ryan and Deci 2000a; Gagné and Deci 2005_ argues that the stated
reasons for a behavior _e.g., PB_ indicate individuals’ motivation for that behavior. Consistent with that
notion, the present research attempts to integrate the foregoing reasons for PB within a general motivation-
based framework _see Figure 1_. Several features of the proposedmodel are noteworthy. First, central to the
model is the distinction among intrinsic motivation, autonomous extrinsic motivation, and controlled extrinsic
motivation for PB. On one hand, individuals may be intrinsically motivated to participate because they view
their participation as an end in itself. For example, their participation gives them a sense of accomplishment
and satisfaction. On the other hand, individuals may be extrinsically motivated to participate because they
view their participation as a means to an end. This extrinsic motivation may be of the autonomous form if, for
instance, PB is viewed as a means for the participant him/herself to set higher goals or goals on which he/she
will be evaluated. In contrast, the extrinsic motivation may be of the controlled type if, for example, PB is
perceived to be a means for management to obtain information from the participant.

1 According to SDT _Ryan and Deci 2000b_, autonomous extrinsic motivation consists of identified and integrated regulation. With
identified regulation, behavior is performed out of choice because individuals value the behavior. In integrated regulation, individuals not
only internalize the reasons for their behavior, but they also assimilate them to the “self.” In contrast, external and introjected
regulations are controlled types of extrinsic motivation. In the case of external regulation, behavior is performed primarily to satisfy an
external demand or to obtain an externally imposed reward contingency. In introjected regulation, individuals partly internalize the
reasons for their actions although they have not accepted the regulation as their own. One is motivated by introjected regulation when
one performs certain tasks to avoid a sense of guilt or anxiety, or to enhance one’s ego.

Second, the proposed model enables the integration and study of the reasons for participation described in
the research literature _Shields and Shields 1998; Locke and Schweiger 1979_ within a theoretically based
motivation framework. The present research specifically examines the commonly assumed reasons related to
individuals’ sense of personal satisfaction, feeling of accomplishment, and feeling of belonging and
identification, as well as reasons related to goal setting and information sharing. Following research in
motivation, these reasons are presumed to indicate the form of motivation for PB.

Third, the model incorporates both antecedents and consequences of different types of motivation for PB.
Consistent with the PB literature _Shields and Shields 1998_, the motivation-based model predicts an
association between antecedents _e.g., individual and situational variables_ and motivation for participation,
and a relationship between motivation for participation and consequences _e.g., performance_. Although the
present study examined specifically organizational commitment, environmental dynamism, and performance,
other antecedent and consequence variables can be explored using the proposed model.2 The remainder of
this section develops expectations regarding the relationships between the three types of motivation and
both their antecedents and consequences.

Antecedents and Motivation for Participation in Budgeting

Organizational Commitment
Organizational commitment is loyalty to the organization, and has been defined as “the strength of an
individual’s identification with and involvement in a particular organization” _Porter et al. 1974, 604_.
Subsequent research _see review by Ketchand and Strawser _2001__ has distinguished between the
continuance commitment and the affective commitment dimensions of organizational commitment. The
continuance commitment dimension reflects individuals’ desire to remain with their organization because
departing costs are high. In contrast, Ketchand and Strawser _2001, 223_ note that the affective commitment
dimension reflected in Porter et al.’s _1974_ definition “is based on an individual’s emotional attachment to
an organization formed because that individual identifies with the goals of the organization and is willing to
assist the organization in achieving these goals” _emphasis added_.

Two key components of this definition pertain specifically to the different forms of motivation. First, according
to Deci and Ryan _2000, 235_, “a secure relational base provides a needed backdrop for intrinsic motivation.”
Individuals with high levels of organization commitment, and thus emotional attachment, are therefore
expected to be more intrinsically motivated to participate.

Second, identification with demanded behaviors reflects individuals’ acceptance of the behavior as their own,
i.e., the internalization of demanded behaviors _Ryan and Deci 2000b_. Hence, the degree to which
individuals identify with the goals of the organization is expected to be positively associated with the
autonomous form of extrinsic motivation.

The relationship between organizational commitment and controlled extrinsic motivation is less clear given
that controlled extrinsic motivation consists of two types of behavioral regulation, i.e., introjected and
external regulation _see footnote 1_. Whereas introjected regulation reflects some level of internalization of
the demanded behavior, external regulation involves none _Ryan and Deci 2000b_. Studies by Gagné and
Koestner _2002_ and Gagné et al. _2004_ find that organizational commitment is positively associated with
introjected regulation, but negatively associated with external regulation. Based on the above, we propose a
nondirectional hypothesis of the effect of organizational commitment on controlled extrinsic motivation.
Finally, consistent with Clinton _1999_, who posits commitment as an antecedent of budgetary participation,
it is expected that the stronger individuals’ identification with and their involvement in a particular
organization, the higher the level of PB. Based on the foregoing, the related hypotheses are stated as follows:
H1a: There is a significant positive association between organizational commitment and intrinsic motivation
for participation in budgeting.
H1b: There is a significant positive association between organizational commitment and autonomous
extrinsic motivation for participation in budgeting.
2Task difficulty was also measured as a third antecedent variable. It is omitted from the study due to the very low reliability of the
measurement scale.

H1c: There is a significant association between organizational commitment and controlled extrinsic
motivation for participation in budgeting.
H1d: There is a significant positive association between organizational commitment and the level of
participation in budgeting.

Environmental Dynamism
Environmental dynamism is defined as the degree to which factors in the organization’s environment remain
constant over time or continually fluctuate _Duncan 1972_. According to Ryan and Deci _2000b, 70_, “the
inherent tendency to seek out novelty and challenges, to extend and exercise one’s capacities, to explore,
and to learn” typifies intrinsic motivation. In the present context, it is posited that individuals’ intrinsic
motivation to participate will be positively associated with environmental dynamism, to the extent that
individuals view PB in a dynamic environment as novel and challenging.

The current study further posits that in high uncertainty situations caused by a dynamic environment,
managers may feel pressured to participate in order to obtain information to better cope with unanticipated
events _Brownell and Hirst 1986_. Consequently, the extrinsic motivation is more likely to be of the controlled
than of the autonomous type. Finally, consistent with Shields and Shields _1998, 60_, who posit that
environmental characteristics are antecedents of PB, we propose that environment dynamism is positively
associated with PB. Accordingly, the related hypotheses are stated as follows:
H2a: There is a significant positive association between environmental dynamism and intrinsic motivation for
participation in budgeting.
H2b: There is a significant negative association between environmental dynamism and autonomous extrinsic
motivation for participation in budgeting.
H2c: There is a significant positive association between environmental dynamism and controlled extrinsic
motivation for participation in budgeting.
H2d: There is a significant positive association between environmental dynamism and the level of
participation in budgeting.

Motivation and Participation in Budgeting

Earlier studies _e.g., Merchant 1981; Brownell and McInnes 1986_ have examined the effect of PB on
participants’ motivation to work toward budget attainment. Prior studies _e.g., Mia 1988_ have also examined
how work motivation serves as a moderator in the relationship between PB and performance. However, no
prior study has examined employees’ motivation to participate in the budgeting process, which is the focus of
the current research.

Although various forms of motivation may lead to different performance outcomes, research on motivation
_Vallerand 1997, 279_ shows that those who are extrinsically motivated may be just as motivated to engage
in a given activity as those who are intrinsically motivated. Hence, all three forms of motivation are expected
to be positively associated with the extent of PB. The related hypotheses are:
H3a: There is a significant positive relationship between intrinsic motivation for participation in budgeting
and the level of participation in budgeting.
H3b: There is a significant positive relationship between autonomous extrinsic motivation for participation in
budgeting and the level of participation in budgeting.
H3c: There is a significant positive relationship between controlled extrinsic motivation for participation in
budgeting and the level of participation in budgeting.

Motivation and Performance

The proposed model posits an association between three forms of motivation for PB and the individual
participant’s performance. Research _Vallerand 1997; Koestner and Losier 2002; Baard et al. 2004_ provides
evidence of positive consequences produced by both intrinsic and autonomous extrinsic motivations. In
contrast, a negative relationship is most often observed between controlled extrinsic motivation and
performance. Consistent with those findings, the related hypotheses are stated as follows:
H4a: There is a significant positive relationship between intrinsic motivation for participation in budgeting
and performance.
H4b: There is a significant positive relationship between autonomous extrinsic motivation for participation in
budgeting and performance.
H4c: There is a significant negative relationship between controlled extrinsic motivation for participation in
budgeting and performance.

Participation in Budgeting and Performance

In general, the relationship between PB and performance has been equivocal. This has lead to research that
examines the extent to which the relationship is conditional on other budgeting and/or nonbudgeting
variables. For example, studies by Brownell _1985_ and Govindarajan _1986_ provide support for the
hypothesis that the relationship between participation and performance is contingent upon characteristics of
the environment. The present study does not examine and predict the effect of contingencies. Consequently,
the hypothesized association between PB and performance is based on the review of empirical evidence. A
meta-analysis by Greenberg et al.
_1994_ provides evidence of a positive relationship between PB and performance. Similarly, a study by
Wagner _1994_ finds that despite apparent inconsistencies in initial results of earlier reviews, research
suggests that participation can have positive effects on performance. Thus, the following hypothesis is stated:
H4d: There is a significant positive relationship between participative budgeting and performance.

METHOD
Participants
The survey was administered to 101 managers of a large international bank in Hong Kong. Because the
sample is drawn from a single organization, external validity is limited. However, the focus of the present
study was on the test of a general motivation-based model of PB. Thus, although the findings of the study
may not be generalizable to other organizations, it provides control over the potential confounding effect of
unobserved heterogeneous practices that may be present across different firms _Otley and Pollanen 2000,
486–487_.

Sixty-one percent of the participants were male. Total years of work experience at the bank ranged from four
to 30 years. The participants held management positions in a variety of departments at the branch level.
Total years in a managerial position ranged from less than one year to ten years. Participants’ age ranged
from 26 to 55. None of the demographic variables was significantly related to any of the study variables.

The survey was administered during two sessions of a training seminar attended by the managers. There
were 51 managers at the first session and 50 at the second. The participants were not compensated and
participation was voluntary. Everyone who attended the seminar participated in the survey. No significant
differences in responses were found between the two groups. Therefore, the data were combined for
statistical analyses.

Measurement of Variables
Organizational Commitment
Organizational commitment was measured using the nine positively worded items from Mowday et al. _1979_.
A review of organizational commitment research by Ketchand and Strawser _2001_ indicates that the nine-
item version of the original questionnaire had relatively high reliability in prior studies _e.g., Price and Muller
1981; Blau 1987; Nouri and Parker 1998_, and it strongly correlated with the eight-item Affective
Commitment Scale developed by Meyer and Allen _1984_. This is consistent with findings of others _e.g.,
Carsten and Spector 1987; Farkas and Tetrick 1989; Settoon et al. 1996_ that the six negative items in the
original 15-item questionnaire
measure an intent-to-quit factor. The word “organization” in the original instrument was replaced by the word
“bank.”3 Participants were asked to respond to questions related to the degree to which they feel committed
to their organization _bank_. A seven-point Likert scale was used, ranging from “strongly disagree” to
“strongly agree.” Higher _lower_ scores indicate a relatively higher _lower_ commitment to the organization.

Environmental Dynamism
The instrument developed by Duncan _1972_ was used to measure environmental dynamism. This measure
has been used in prior accounting studies including Fisher _1996_ and Chenhall and Morris _1986_.
Participants were asked to examine a group of eight environmental characteristics generally believed to be
crucial to decision-making.4,5 Two items related to government regulation _“impacts of government
regulation” and “constraints from bank regulators”_ were excluded from the analysis because different
branches of the same bank _all resided in Hong Kong_ presumably operate under similar regulatory
conditions. For each characteristic, participants were asked to indicate on a five-point Likert scale how often
they perceived the item changed. The scale items range from 1 _never_ to 5 _very often_. Low _high_ scores
indicate a relatively static environment _dynamic environment_.

Participation in Budgeting
This study used the Milani _1975_ instrument to measure participation. Prior studies _e.g., Parker and Kyj
2006; Mia 1988; Brownell 1982_ report good reliability for this scale. Participants were asked to rate their
level of budget participation under each of six items on a five-point Likert scale. 6 The responses were coded
so that higher _lower_ scores reflect a relatively higher _lower_
level of participation.

3 Aranya and Ferris _1984_ and Ferris _1981_ made similar changes to the original questionnaire. For example, to measure commitment
to the profession, the word “organization” was replaced by the word “profession” _Aranya and Ferris,
1984_.
4 Item 6 _negotiating_ was changed slightly to ensure the suitability of the instrument to bank managers. Specifically, “Purchasing, selling
or contracting for goods or services, contacting suppliers, dealing with sales representatives” was changed to “Negotiating with
customers on loans, deposits, etc.”
5 Item 8 on the original instrument referred to “constraints from suppliers.” Since this does not apply to bank managers, that item was
reworded to read, “constraints from bank regulators.”
6 Prior to the study, we ensured that the stated organization policy of the bank and the organizational culture at the bank allowed and
encouraged PB. It is worth mentioning, however, that the perceived level of support for PB might differ at the branch level, which would
result in some variance in the level of PB across branches.

Performance
Performance was measured using the self-rating instrument developed by Mahoney et al. _1963, 1965_. This
scale has been used in many accounting studies including Hall _2008_, Parker and Kyj _2006_, Marginson and
Ogden _2005_, Chong and Chong _2002_, Wentzel _2002_, and Otley and Pollanen _2000_. The instrument
consists of performance measures along eight dimensions, as well as an overall performance measure.
Participants were asked to self-rate their performance on a scale from 1 _low performance_ to 9 _high
performance_ on each dimension and on the overall measure. According to Mahoney et al. _1963, 1965_, the
eight dimensions of performance account for about 55 percent of managerial performance. In this study, the
regression of participants’ overall rating on their ratings of the eight individual dimensions resulted in 78.2
percent explained variation. Thus, the overall rating for each participant was used as the performance
measure.

Motivation for Participation in Budgeting

The scales for the different forms of motivation were developed following SDT researchers _e.g., Ryan and
Connell 1989; Vallerand 1997_, who argue that the perceived reasons for engaging in an activity provide a
valid measure of motivation. According to Ryan and Connell _1989, 750_, reasons are phenomenally
accessible and they represent the primary basis by which individuals account for their actions. As such, they
provide a direct means of assessing the perceived autonomy of one’s actions. Similarly, Vallerand _1997,
284_ argues that self-reports of individuals’ reasons for engaging in an activity provide a direct means of
measuring motivation that is independent from its determinants and consequences.

In this study, the different forms of motivation were measured by assessing individuals’ perceived reasons for
PB. A total of seven items _see the Appendix_ were used. The items were derived from the list of motivational,
cognitive, and value attainment factors suggested by Locke and Schweiger _1979_ and Locke et al. _1986_.
The three intrinsic motivation items referred to feelings of accomplishment, personal satisfaction, and
belonging resulting from the mere act of participation. In contrast, the four extrinsic motivation items referred
to participation as a means to an end. Autonomous extrinsic motivation was measured using two items that
referred to PB as a means for the participant to set higher goals and to set goals on which he/she will be
evaluated. The two controlled extrinsic motivation items referred to PB as a means for the participants to
provide information and for the supervisors to better utilize information. Thus, while the autonomous items
emphasized choice on the part of the participant, the controlled items implied external demands from the
firm or the supervisor.

For each of the seven reasons, participants were asked to indicate the extent to which they agreed that the
item was a reason for participating in the budgeting process. Responses were measured on a seven-point
Likert scale ranging from 1, “strongly disagree,” to 7, “strongly agree.”

RESULTS
Descriptive Statistics
Descriptive statistics for the measured variables are presented in Table 1. For each variable, theoretical range
and an actual range is presented, along with the mean and standard deviation. The correlation coefficients
among the seven variables are also included in Table 1. As shown in Table 1, the mean Intrinsic Motivation
was 5.31, the mean Autonomous Extrinsic Motivation _Autonomous-EM_ was 5.50, and the mean Controlled
Extrinsic Motivation _Controlled-EM_ was 5.16. These means were not significantly different _F-ratio _ 2.17, p _
0.12_. The two types of extrinsic motivation were positively correlated _r _ 0.32; p _ 0.01_, and Intrinsic
Motivation was only positively correlated with Autonomous-EM _r _ 0.28; p _ 0.01_, but not with Controlled-EM
_r _ 0.14; p _ 0.15_.

Statistical Analyses
The model shown in Figure 1 was tested using the two-step structural equation modeling _SEM_ procedure
recommended by Anderson and Gerbing _1988_. This approach has been employed in a number of
accounting studies _e.g., Bamber and Iyer 2002; Chong and Chong 2002; de Ruyter and Wetzels 1999; Maiga
and Jacobs 2005_. The procedure consists of first evaluating the measurement model to adjust for
measurement error. This step provides evidence of the convergent and discriminant validity of the measures.
In the second step, the SEM is then estimated based on the results of the measurement model analysis.

In order to achieve reliable maximum likelihood estimation, a sample-size-to-parameter ratio of 5 or more is

recommended _Hayduk 1987_. Given the large number of parameters being estimated relative to the sample
size in this study, the partial aggregation form of SEM was employed following de Ruyter and Wetzels _1999_,
Settoon et al. _1996_, Bagozzi and Heatherton _1994_, and Williams and Hazer _1986_. According to that
approach, the scale scores were used as indicators of the latent variables rather than the individual items.
Specifically, the indicator for each latent variable was first computed by averaging the items for each scale,
except for performance. Subsequently, each scale’s reliability and variance were used to incorporate
measurement error into the SEM analysis.

Measurement Model
Exploratory factor analysis. Given that the three measures of motivation for PB were developed
specifically for the study, an exploratory factor analysis was performed to test if these three measurements
represented three separate constructs. The principal-component method of factor analysis was used. The
seven items were subjected to a factor analysis with varimax rotation. This yielded three factors with
eigenvalues greater than 1. The results _see Table 2_ show that the three Intrinsic Motivation items _a, b, and
c_ loaded on one factor, which accounted for 43.55 percent of the variance. Similarly, the two Autonomous-
EM items _d and e_ loaded on a second factor, which accounted for 24.60 percent of the variance. The two
Controlled-EM items _f and g_ loaded on a third factor, which accounted for 14.70 percent of the variance. In
all, the threefactors accounted for 82.85 percent of the variance. The Cronbach alpha for the Intrinsic
Motivation, Autonomous-EM, and Controlled-EM scales were 0.88, 0.89, and 0.56, respectively.
Confirmatory factor analysis. Confirmatory factor analysis _CFA_ was first performed on each conventional
measure, and then on the measurement model as a whole, to assess convergent and discriminant validity.
The initial model for organizational commitment _OC_ did not provide an adequate fit _Chisquare _df _ 27_ _
153.84, p _ 0.01; GFI _ 0.75; AGFI _ 0.59; NFI _ 0.82; CFI _ 0.84_. Following the re-specification procedure
suggested by Anderson and Gerbing _1988_, one item _“For me this is the best of all possible banks for which
to work”_ was deleted due to low standardized loading. The revised measurement model achieved an
acceptable fit _Chi-square _df _ 17_ _ 41.67; p _ 0.01; GFI _ 0.92; AGFI _ 0.83; NFI _ 0.95; CFI _ 0.97_ with
reasonable reliability _0.94_ and all item loadings over 0.50.

The initial model for environmental dynamism _ED_ did not provide an adequate fit _Chisquare _df _ 9_ _
42.87, p _ 0.01; GFI _ 0.86; AGFI _ 0.67; NFI _ 0.47; CFI _ 0.49_. Two items _“Actions of competitors” and
“Keeping pace with technological advances”_ were deleted due to low standardized loadings. The revised
model provided an adequate fit _Chi-square _df _ 2_ _ 5.27; p _ 0.07; GFI _ 0.97; AGFI _ 0.87; NFI _ 0.88; CFI _
0.91_. The reliability was 0.81 and the item loadings were all over 0.50.

The initial model for PB _PB_ provided an adequate fit _Chi-square _df _ 9_ _ 29.21, p _ 0.01; GFI _ 0.92; AGFI _
0.82; NFI _ 0.93; CFI _ 0.95_. The reliability was 0.91 and the item loadings were all over 0.50.

A confirmatory factor analysis was then performed on all the measures using scale average score to
determine the overall fit of the measurement model. All possible links were drawn between the seven
constructs, which lead to a saturated model, i.e., degree of freedom was 0. The procedure suggested by
Anderson and Gerbing _1988_ was used to assess discriminant validity of the seven constructs shown in the
theoretical model. First, the correlation was fixed at 1.0 for pairs of constructs with high correlations.
Following Bamber and Iyer _2002_, the correlations over 0.45 _OC→Intrinsic Motivation; OC→PB_ were fixed at
1.0. Then, a Chi-square difference test was performed to compare the constrained and unconstrained models.
The Chi-square difference test showed significantly _ΔChi-square _ 8.78 _Δdf _ 2_, p _ 0.01_ inferior fit for the
constrained model. This provides evidence of the discriminant validity of the constructs _Anderson and
Gerbing 1988_.

Structural Model
Theoretical model fit.
The decision-tree framework for the sequential Chi-square difference tests _SCDTs_ among nested models
recommended by Anderson and Gerbing _1988_ was used to determine the optimal model. The results of the
procedure are shown in Table 3.

The first step consists of performing a Chi-square difference test between the saturated model and the
theoretical model _see Figure 1_. The results of the comparison showed significant difference _p _ 0.01_. The
next step is to compare the theoretical model with the constrained model. When estimating the theoretical
model, the coefficient estimate between ED and Controlled-EM _path coefficient _ 0.06, p _ 0.66_ and that
between Controlled-EM and PB _path coefficient _ 0.06, p _ 0.63_ were not significant. Therefore, the
theoretical model was compared with a constrained model where these two insignificant links were
constrained to 0. The Chi-square difference between the two models was not significant _p _ 0.19_. The third
step was to compare the constrained model and the saturated model. Although the result of the Chi-square
difference test was significant _p _ 0.03_, the constrained model provides an adequate fit _Chi-square _df _ 7_
_ 15.88, p _ 0.03; GFI _ 0.96; AGFI _ 0.85; NFI _ 0.93; CFI _ 0.96_. Thus, the tests of the hypotheses are based
on the constrained model _see Figure 2_ where the path coefficients between ED and Controlled-EM, and
between Controlled-EM and PB were constrained to 0.7

Hypothesis tests. Standardized parameter estimates for the constrained model are used to test the
hypotheses. The results are shown in Figure 2.

The standardized parameter estimates between OC and Intrinsic Motivation _path coefficient _ 0.65, p _ 0.01_,
OC and Autonomous-EM _path coefficient _ 0.30, p _ 0.01_, OC and Controlled-EM _path coefficient _ 0.57, p _
0.01_, and OC and PB _path coefficient _ 0.57,
p _ 0.01_ are all positive and statistically significant. These results are consistent with H1a, H1b, H1c, and
H1d. As noted earlier, the path between ED and Controlled-EM _path coefficient _ 0.06, p _ 0.66_ is not
significant. The path between ED and Intrinsic Motivation _path coefficient _ _0.13, p _ 0.19_ is also
insignificant. Thus, H2a and H2c are not supported. As predicted in H2b, the path between ED and
Autonomous-EM _path coefficient _ _0.28, p _ 0.01_ is negative and significant. The path coefficient between
ED and PB _path coefficient _ _0.19, p _ 0.02_ is significant but negative. This does not support H2d.
Consistent with H3a and H3b, the path coefficient between Intrinsic Motivation and PB _path coefficient _
0.24, p _ 0.01_ and between Autonomous-EM and PB _path coefficient _ 0.20, p 0.01_ are positive and
significant. As noted earlier, the path between Controlled-EM and PB _path coefficient _ 0.06, p _ 0.63_ is
insignificant. Thus, H3c is not supported.
As predicted in H4a and H4b, both Intrinsic Motivation _path coefficient _ 0.35, p _ 0.01_and Autonomous-EM
_path coefficient _ 0.32, p _ 0.01_ are positively associated with Performance. In contrast, the path coefficient
between Controlled-EM and Performance _path coefficient _ _0.32, p _ 0.01_ is negative. H4c is, therefore,
supported. H4d is supported as well. The path coefficient between PB and Performance _path coefficient _
0.28, p _ 0.05_ is both positive and statistically significant.

7 According to the decision-tree framework proposed by Anderson and Gerbing _1988_, when the Chi-square difference between the
constrained model and saturated model is significant, an unconstrained model _i.e., a model with additional paths drawn compared with
the theoretical model_ may be identified to replace the original theoretical model. Since no additional meaningful path could be identified
in our theoretical model _Figure 1_, we decided not to continue with such re-specification. This decision is based on Anderson and
Gerbing’s _1988, 416_ recommendation that “respecification decisions should not be based on statistical considerations alone, but rather
in conjunction with theory and content considerations.”

DISCUSSION
The present study proposes a motivation-based model of PB from the perspective of individual participants.
The model distinguishes among intrinsic motivation and the autonomous and controlled forms of extrinsic
motivation for PB. In the tested model, associations are predicted between two antecedents _organization
commitment and environment dynamism_ and participants’ arious forms of motivation for participation. The
different forms of motivation are also predicted o be associated with individual participants’ performance.

The remainder of this section first examines the results and discusses their potential implications. he study’s
limitations are then described, followed by suggestions for future research.

Motivation for Participation in Budgeting

There was no significant difference across the levels to which participation was motivated by ntrinsic
motivation, autonomous extrinsic motivation, or controlled extrinsic motivation. Moreover, imilar to the
findings of Ryan and Connell _1989_, the two types of extrinsic motivation were positively correlated. This
suggests that individuals can be motivated to participate by autonomous and controlled motivation
simultaneously. This is consistent with Levesque and Pelletier’s _2003_ observation among a significant
percentage of their study participants.

Antecedents and Motivation for Participation in Budgeting

Organizational commitment was positively and significantly associated with all three forms of motivation, as
well as with the extent of PB. This finding indicates that individual variables can be important antecedents of
PB. While the focus of research on participative budgeting has primarily been on environmental,
organizational, and task variables _Shields and Shields 1998_, the present study suggests that individual
factors may be equally important antecedents. In addition, the positive effect of organizational commitment
on controlled extrinsic motivation suggests that the items we used to measure controlled extrinsic motivation
might reflect introjected as opposed to external regulation _see footnote 1_. Introjected regulation is in effect
when the individual has taken in, but has not fully internalized the value of the behavior _Gagné and Deci
2005_. In the current context, managers may have partially accepted the value of PB as a conduit for the
organization to obtain useful information.

Environmental dynamism was negatively, but not significantly, associated with intrinsic motivation. Recall
that it was hypothesized that the association between these two variables would be positive to the extent
that individuals perceived the dynamic environment as novel and challenging. One possible explanation is
that this perception was counterbalanced by the contrasting view that a dynamic environment creates
pressure for employees to participate in order to cope with the uncertainties of a constantly changing
environment. In such a case, PB would be less likely viewed as autonomous, and intrinsic motivation would be
undermined _Deci and Ryan 2000_. Consequently, the counterbalancing views may have resulted in a
nonsignificant association between environmental dynamism and intrinsic motivation.

As hypothesized, environmental dynamism was negatively correlated with autonomous extrinsic motivation.
However, it was not significantly correlated with controlled extrinsic motivation as we predicted. Another
unexpected finding is that environmental dynamism was negatively associated with PB. The more participants
perceived the environment to be dynamic, the lower was their level of involvement in the PB process. A
possible explanation for these two unexpected findings is that participants may have a poor understanding of
the environment when it is dynamic. Consequently, they may be less likely to participate because they do not
have the necessary knowledge of the environment to make a useful contribution. Indeed, Locke et al. _1986,
70_ note that employees who find themselves in such a situation “will realize that they should not participate
in the decision and will feel embarrassed or inadequate.” Similarly, Hopwood _1973_ argues that as
environmental dynamism increases, the formal accounting system is less able to capture managerial
behaviors that are needed to achieve organizational goals _p. 11_. Consequently, participating in the
budgeting process _which is a formal component of management accounting system_ could be viewed as less
useful when environmental dynamism is high.

Motivation for Participation in Budgeting and Performance

The findings suggest that both intrinsic motivation and autonomous extrinsic motivation were positively
related to PB and performance. This is consistent with research _for a review, see Ryan and Deci 2000b;
Gagné and Deci 2005_ that provides evidence that intrinsic motivation, as well as autonomous extrinsic
motivation, produce positive consequences.

Controlled extrinsic motivation, on the other hand, was not significantly related to PB, and it was negatively
associated with performance. The more participants were motivated by controlled extrinsic motivation to
participate, the lower was the reported level of performance. These results indicate that there may be
differences between the way individuals and the organization view PB. In particular, while the latter intends
for PB to be viewed as a means to exchange information, employees in the current sample seem to view it as
controlling. They were thus motivated by controlled extrinsic motivation, which negatively affected their
performance.

The results of this study should be interpreted in light of its limitations. First, the scales for measuring
different types of motivation were conveniently constructed using reasons for PB that were described in prior
research. The three scales do not fully capture the breadth of those constructs. The operationalization of
extrinsic motivation, in particular, was limited to only goal
setting _in the case of autonomous extrinsic motivation_ and information reasons _in the case of controlled
extrinsic motivation_. Second, the study employed self-reported measures of motivation, participation, and
performance. A multi-method approach would improve the validity of the findings. Third, the sample of
participants was drawn from a single organization. While this provides a homogeneous sample and eliminates
some of the noise associated with a crosssectional study, it also limits the generalizability of the findings.

The evidence pertaining to different types of motivations for PB suggests several possibilities for future
research. First, the present study did not examine other common reasons for participation, such as to
improve coordination between subunits or to reduce job-related tension _Shields and Shields 1998_. Future
studies can investigate the extent to which these reasons reflect autonomous and controlled motivation, and
their impact on performance. Second, the relationship between other antecedent variables and different
forms of motivation can be studied. For example, future research can examine the impact of budget
emphasis, information asymmetry, and budgetbased compensation on the different types of motivation.
Third, Ryan and Deci _2000a, 64_ note that, “Given the clear significance of internalization for both personal
experience and behavioral and performance outcomes, the critical applied issue concerns how to promote the
autonomous regulation of extrinsically motivated behaviors.” Research can examine specific aspects of the
participation process that lead to increased intrinsic motivation or more autonomous extrinsic motivation.

While further research is needed before definitive conclusions can be drawn, the findings of the current study
suggest that studying the various types of motivation for PB may be useful for understanding its
effectiveness, and the cognitive mechanism by which the information benefits of PB are presumably obtained
may be more complex than assumed since it may reflect controlled
forms of extrinsic motivation.

APPENDIX
Measure of Motivation for Participation in Budgeting*
Below are a number of reasons why people participate in the budgetary process. Please indicate the extent of
your agreement or disagreement to the following responses to the statement,
“I participate ...”
a. Because participation in budgeting gives me a feeling of accomplishment.
b. Because participation in budgeting gives me a great sense of personal satisfaction.
c. Because participation in budgeting gives me a feeling of belonging and increased identification with the
bank.
d. Because participation in budgeting is a means through which I am able to set higher goals.
e. Because participation in budgeting is a means through which I set the goals on which I will be evaluated.
f. Because participation in budgeting is a means for me to provide information that is important for my job.
g. Because participation in budgeting is a means through which my superior allows for better utilization of
information on the job.
* Participants’ responses were measured on a seven-point Likert scale ranging from 1, labeled “strongly
disagree,” to 7, labeled “strongly agree.” Items a, b, and c are the intrinsic motivation reasons, d and e are
the autonomous extrinsic motivation reasons, and f and g are the controlled motivation reasons.