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A THE RELATIONSHIP BETWEEN EXECUTIVE VISION, COMPUTERISED

ACCOUNTING INFORMATION SYSTEM CAPABILITY, EMPLOYEE IT SKILLS
AND FIRM PERFORMANCE

Conference Paper · December 2013

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Proceedings of the 4th International Conference on Public Policy and Social Science, UiTM
Sabah Malaysia, December 2013
ISBN 978-983-40482-6-6

THE RELATIONSHIP BETWEEN EXECUTIVE VISION,

COMPUTERISED ACCOUNTING INFORMATION
SYSTEM CAPABILITY, EMPLOYEE IT SKILLS AND
FIRM PERFORMANCE
1 2 3
Mohamad Azmi Nias Ahmad , Malcolm Smith , Zubaidah Ismail and
4
Mohd Saiyidi Mokhtar Mat Roni
1
Faculty of Accountancy and Law, University Teknologi MARA (UiTM), Pahang, Malaysia
azminias@gmail.com
2
Faculty of Business and Law, Edith Cowan University, Joondalup, Western Australia
profmalcolmsmith@hotmail.com
3
Faculty of Business and Law, Edith Cowan University, Joondalup, Western Australia
z.ismail@ecu.edu.au
4
Faculty of Accountancy, University Teknologi MARA (UiTM), Melaka, Malaysia
saiyidi@yahoo.com

ABSTRACT

This study uses a resource-based view (RBV) to explain firm performance of 192 small and medium
enterprises (SMEs) in Malaysia. Three explanatory variables are examined: Executive vision (EV) at
the business and strategic level, computerised accounting information systems (CAIS) capability at the
organizational level and employee IT skills (EITS) at the individual level. The study tests for the direct
relationships of each of these variables to firm performance. Three aspects of firm performance
measures firm efficiency and effectiveness, acceptance by customers and quality of decision made. A
survey method was used to collect data and hierarchical regression analysis is used to test this
relationship. Results show positive impacts of EV and CAIS, respectively on firm performance while
EITS appear to have no effect in firm performance for the firms sampled.

Keywords: Computerised Accounting Information Systems, Employee IT Skills, Executive Vision,

Firm Performance, Small and Medium Enterprises,

INTRODUCTION

SMEs form a significant segment in most countries’ economy. What drives performance in
SMEs has been largely investigated (Athanassiou, Crittenden, Kelly, & Marquez, 2002;
Bharadwaj, 2000; Cragg, King, & Hussin, 2002; Kim, Shin, Kim, & Lee, 2011). In Malaysia, in
particular the importance of ICT as a pre-requisite for competiveness has been highlighted to
the extent that the government has willingly provided financial assistance to SMEs in this
regards.

A data processing system is needed to process raw data into understandable information for
decision-making. Financial reports produced by computerized accounting information system
(CAIS) assists decision makers of small and medium enterprises (SMEs) to make routine or
non-routine decisions (Levy & Powell, 1998). A firm that is capable of optimising its
information usage can have a competitive edge over competitors in the industry.

However, many benefits of CAIS do not seem to be attractive to some SMEs. The notion
stems from various factors. Notably, there is no proper planning or vision among managers
resulting in CAIS being considered as a lavish item instead of an indispensable planning and
control tool. Limited employee expertise could explain why SMEs are also unable to correctly
align their accounting information system (AIS) needs with firm-wide requirements. And
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ISBN

finally, SME employees are lacking inappropriate IT skills to allow for the adoption of
comprehensive CAIS.

Resource-based view (RBV) theory is used in this study to map how three elements impact
on firm performance. This includes executive vision at business & strategic level, CAIS
capability at organizational level and employee IT skills at individual level. The findings of this
study will contribute to the body of literature on AIS and SMEs and encourage among SMEs
to consider carefully and plan for their CAIS, to incorporate long-term goals and ensure that
all components of CAIS are in place for both firm efficiency and effectiveness.

THEORETICAL BACKGROUND

The resource based theory (RBV) has received increase attention in recent years among AIS
researchers. RBV was first introduced by Penrose’s (1995) publication entitled ‘The theory of
the growth of the firm’. She mentioned that most firms utilised a combination of various
resources in order to operate successfully. According to (Barney, 1991), these resources are
said to be ‘valuable, rare, imperfectly imitable, and non-substitutable’. When all these are in
place, it is presumable that the firm will have continuous competitive advantage as long as it
remain distinguishable from competitors (Serra & Ferreira, 2010). Recently, many studies
have adopted RBV to explain the relationship between IT and firm performance (Barney,
1991; Bharadwaj, 2000; Kim et al., 2011; Powell & Dent-Micallef, 1997).

This study examines three levels of resources on firm performance: EV at the business and
strategic level, CAIS capability at the organizational level and EITS at the individual level. EV
is related to how well those resources are managed and optimised by the top management,
capability is refers to how SMEs manage their resources such as CAIS capability, and skills
are associated with employee’s IT skills as depicted in figure 1.

Figure 1: Conceptual framework

Executive
vision H1

H2
CAIS Firm
capability performance
H3
Employee
IT skill

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

The importance of CAIS as a business tool has been highlighted in much of the literature.
Many have begun to see significant relationship between IT/IS/CAIS success and firm
performance (Bharadwaj, 2000; Kim et al., 2011). SMEs purchase accounting software to
fulfil its reporting needs although some view it as a costly investment (Cragg et al., 2002),
while some firm make ad hoc decision on CAIS to manage its reporting and monitoring
(Ismail & King, 2005). In more recent study, however, it was reported that SMEs have made
full use of the CAIS output and incorporated it into the organization’s long-term plans (Al-

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Qudah, 2011). CAIS in most SMEs is generic and mostly off-the-shelf applications, although
some are programmable to suit differing and unique operations of firms.

EV reflects top management belief and confidence in the usefulness of ICT/CAIS (Teo &
Ranganathan, 2003; Ussahawanitchakit & Yeunyong, 2009). According to
Ussahawanitchakit and Yeunyong (2009), if executives are confident that CAIS is a useful
tool, it will translate into action plan towards achieving organizational goals. Several studies
confirmed that executive vision is associated with firm performance (Athanassiou et al.,
2002; Jayaraman, Khorana, Nelling, & Covin, 2000; Lee & Peterson, 2000). Therefore, the
following hypothesis is developed:

H1: There is a positive relationship between executive vision and firm performance

CAIS refers to the collection, classification and processing of raw transactions to produce
meaningful and readable financial reports to users. The integration, speed, accuracy,
automatic document production and back-up capability will improve SMEs' strategic decision
making. CAIS capability is also affected by other firm-specific elements such as the use of
AIS as a control mechanism and general IT internal control weaknesses of a firm. In so far as
there is system fit (Abernethy & Guthrie, 1994) and alignment of system to goals (Ismail &
King, 2005) CAIS has a positive impact on firm performance. Therefore, the following
hypothesis is proposed:

H2: There is a positive relationship between CAIS capability and firm performance

In this study, employee skills refer to skills relating to how competent employees perform
tasks in CAIS (Kahn, 2007). Greenstein and McKee (2004) stated that employee's IT
knowledge if combined with appropriate IS/IT capability can maximize CAIS success. This in
turn, promotes accounting system output to be more accurate, fast and relevant
(Ussahawanitchakit & Yeunyong, 2009). Therefore, the following hypothesis is proposed:

H3: There is a positive relationship between employee IT skills and firm performance

RESEARCH METHODOLOGY

The study used a survey approach. The survey instrument was pilot tested on 42 middle
managers. Minor modifications were made based on several comments regarding how the
questions were structured. The questionnaires were then sent to a sample of 1000 SMEs in
Malaysia. The subjects were randomly selected from the SME Corp website. There were 201
respondents. Nine were excluded from analysis because they were incomplete. The
response rate was 19.2%. This is quite low but is considered common for mail survey
(Dillman, 2000).

The instrument has forty three items which measured of both dependent and independent
variables. The dependent variable in this study is firm performance. This study emphasized
non-financial indicators of firm performance.

Firm performance is measured by 8 items about firm's efficiency and effectiveness,

acceptance by the customers and quality of decisions. These items are adopted from Kim,
Shin, Kim and Lee (2011), Ravarini (2010), Ussahawanitchakit & Yeunyong (2009), Cragg,
King and Hussin (2002) and Powell and Dent-Micallef (1997). Respondents were asked to
indicate their belief of the effects of CAIS on the firm's performance in the past two years. A
five-point Likert scale is used.

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Independent variables consisted of executive vision, CAIS capability and employee IT skills.
Executive vision is measured by 5 items. Following Ussahawanitchakit and Yeunyong
(2009), executive vision is measured in terms of its inspiring, optimizing and belief in
computerized AIS (both software and hardware). Respondents were asked their perception
and responses on top management's visions in providing adequate capital, human resource,
IT/IS infrastructure, training and system security.

For CAIS capability , the measure was adopted from Ismail and King's (2005) nineteen AIS
capacity items. CAIS capability was measured with respect to precision of information,
information content, provide adequacy of reports and provision of sufficient information. For

Employee IT skills, it was measured by a 13 items scale that has four measurement factors
(Chui Young, Young Ju, Soon Suk, Ji Chul, & Seung Kweon, 2010). The four factors are IT
perception, IT knowledge, IT operation and IT endeavour. Chui Young, Young Ju, Soon Suk,
Ji Chul, and Seung Kweon (2010), based their 13 items scale on previous literature and
performed a validity and reliability test.

RESULTS

The population of the study is SMEs listed on the SME Corp website. From this sampling
frame, 300 SMEs were selected using simple random sampling techniques. The
questionnaires were mailed and 192 were returned and uses for analysis. Of those who
completed the survey, 55 percent were in service, 29 percent manufacturing and 16 percent
agriculture industry. Respondents’ job function were predominantly accounting (62%),
followed by Information Management/Technology (22%) and others (16%). About 70 percent
of the sample is middle manager and 30 percent are top management who had been in the
firms for below 3 years (51%), between 3 to 5 years (32%) and over 5 years (17%)

Prior to conducting any formal statistical analyses, preliminary steps were taken to ensure
the quality of data (Sekaran, 2003). Firstly, inspection of missing data was conducted. Hair
(2006) suggested four step process to identify missing data. Step one is to determine the
type of missing data. It was found that the missing data was not caused by the research
design but it was due to ignorable missing data. Step two is to determine the extent of
missing data. The statistics showed that each variable have missing values of 0.5%.
Therefore the extent of missing data is not substantial enough to warrant any action.
According to Hair (2006), less than 10% of individual case of missing data can be ignored.

Step three is to diagnose the randomness of the missing data. It was examined using
missing value analysis (MVA). The purpose of using MVA is to detect any possible
systematic missing data. Little’s missing completely at random (MCAR) was used to observe
whether the missing value is at random way. MCAR outcome is required because it allows
researcher to remedy it using imputation methods. The H0 was established where the data is
said to be missing completely at random. The test showed that, Little’s MCAR is not
significant (p = 0.710). Therefore, we fail to reject H0. The final step is to select the imputation
method. This study is using expectation maximum (EM) imputations technique because it
predicts the best value for the missing data and determines the most likelihood values.

Secondly, construct reliability test using Cronbach’s Alpha was conducted using SPSS
version 20. The purpose of this test is to assess the internal consistency reliability of the
instrument used. The outcome of the test is presented in Table 1. The results clearly shows
that the Cronbach’s Coefficient Alpha values for the four constructs are above 0.7 which is

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considered as acceptable, hence the instrument is appropriate for use in this study (Field,
2009; Hair, 2006; Nunnally, 1978; Sekaran, 2003; Smith, 2011)

Thirdly, the test of normality was performed. Although Kolmogorov-Smirnov statistics

indicated that all variables were significant hence non-normal, test of normality is sensitive
and “often signal departures from normality that do not really matter (p.46)” (Tabachnick &
Fidell, 2007). To make sure, that the data is approximately normal, we identified outliers
using boxplot. Windsoring technique was later used to correct the outliers. Skewness and
kurtosis statistics showed that the z-scores of the variables were within +/-1.96 suggesting
approximate normal distribution. This was later confirmed through visual indicator of
histogram and normal Q-Q plot.

Finally, to test the validity of the instrument, the 43 items in the questionnaire were subjected
to principal axis factoring with varimax rotation to demonstrate validity of the research tool.
According to Nunnally (1978), varimax rotation is suitable since it minimizes the ‘correlation
across factors and maximizes within factors in order to yield ‘clear’ factors. He suggested
that factor with loading higher than 0.50 for further analysis. However, factor loading higher
than 0.40 is considered sufficient to be retained (Gorsuch, 1974). The analysis result showed
that the KMO value was 0.872 suggesting that the data was suitable for factor analysis.
Factor loading for each construct had values of greater than .50 and items loaded onto the
same components.

Table 1: Reliability and validity of variables understudy

Number of Cronbach’s Factor
Construct
items Alpha loading
Executive vision 5 .741 .53-.72
CAIS capability 17 .891 .42-.77
Employee IT skills 13 .905 .47-.77
Firm performance 8 .801 .67-.76
Total 43 .918

To test for the impact of executive vision, CAIS capability and employee IT skills on firm
performance, a hierarchical multiple regression analysis (MRA) was used. Before interpreting
the results of the MRA, several assumptions were tested, and checked. First, stem-and-leaf
plots and boxplots indicated that each variable in the regression was normally distributed and
free from univariate outliers. Second, an inspection of the normal probability plot of
standardized residuals and the scatterplot of standardized residuals against standardized
predicted values indicated that the assumptions of normality, linearity and homoscedasticity
of residuals were met. Third, Mahalanobis distance, as in table 2, did not exceed the critical
χ2 for df = 3 (at α = .001) of 16.27 for any case in the dataset, indicating that multivariate
outliers were not of a concern. Finally, relatively high tolerances for all three predictors in the
final regression model were found, indicating that multicollinearity would not interfere with our
ability to interpret the outcome of the MRA.

Table 2
Residuals Statistics
Min Max Mean Std. N
Deviation
Mahalanobis Distance .069 14.27 2.984 2.827 192
Cook's Distance .000 .090 .007 .015 192
Centered Leverage Value .000 .075 .016 .015 192

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It was found that executive vision accounted for a significant 12.5% of the variance in impact
to firm performance with R2 = .125, F (1, 190)=27.14, p < .001. CAIS was added to the
regression equation, and accounted for an additional of 4.6% in the variance with ΔR2 = .047,
ΔF (1, 189) = 10.611, p = .001. Finally, employee IT skills was entered into the MRA model
resulting in a non-significant additional 2% in the variation, ΔR2 = .001, ΔF (1, 189) = .291, p
= .950. In combination, executive vision, CAIS capability and employee IT skills explained
17.3% of the firm performance with R2 = .173, F (1, 188) =.291, p < .001. Cohen’s f2 was later
computed showing a result of f2 = .209. According to Cohen (1988), the combined effect of
this value can be considered as medium.

Table 3
Unstandardized (B) and standardized (β) regression coefficients, and Squared Semi-
Partial Correlations (sr2) for each predictor variable on each step of a hierarchical
multiple regression predicting the impact executive vision, CAIS capability and
employee IT skills on firm performance (N = 192)
Variable R R2 B [95% CI] β sr2 Sig F
Change
Step 1
Executive vision .354 .125 .362 [.225, .499] .354 .125 .000

Step 2
Executive vision .293 [.152, .433] .286 .074
CAIS capability .414 .171 .262 [.103, .420] .226 .047 .001

Step 3
Executive vision .292 [.151, .432] .285 .074
CAIS capability .247 [.079, .415] .213 .037
Employee IT skills .416 .173 .037 [-.098, .171] .038 .001 .590

Note. C1 = confidence interval

The results above indicated that the study supported H1 and H2, that EV and CAIS affect
performance positively and H3 was rejected showing that EITS had no effect.

DISCUSSION AND CONCLUSION

The results of this study clearly suggest that the attributes of AIS success i.e. executive
vision and computerised accounting information systems (CAIS) capability are essential to
firm performance. This is consistent with the resource based view which states that
information can create competitive advantage for the firm and increases firm performance.
According to Barney (1991), resources that are considered to be ‘valuable, rare, imperfectly
imitable, and non-substitutable’ could be the winning formula for SMEs.

This finding provides empirical evidence that executive vision in terms of top management’s
involvement in providing capital, human resource, infrastructure, training and security, is
essential to produce a quality information system. In addition, the use of CAIS will expedite
the process of collecting, classification and processing of raw transactional data to produce
meaningful and readable financial and non-financial information for the decision makers to
increase in firm performance. However, the finding suggest that employee IT skills is not
critical. This may be because CAIS has become user-friendlier and basic computing skill is

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sufficient to accomplish data entry process and basic information retrieval. As CAIS in most
SMEs is generic, employees require little training for them to get accustomed to the system.

In terms of limitations, the study examines three predictor variables, with an exclusion of
other contributing variables such as IS/IT capability and managerial IT skills. The study also
looks at only direct relationship between each variable to firm performance but not how they
interact with each other. Corporate governance and strategic decision making are two
additional predictors that warrant further inspection. Therefore, future study shall look at this
context to find how they interact and affect firm performance. Next, the usual limitations
associated with mail survey such as response bias and non-response bias is not discussed
in this study although these issues were adequately addressed methodologically. Finally, the
sample of the study falls within the perimeters of the list available on SME Corp website.
There are other SMEs scattered around the country, which are not listed with SME Corp in
Malaysia.

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