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An Assessment of Leadership Styles for Optimum Budget

Performance
J. J. ADEFILA
Department of Accounting, University of Maiduguri, Nigeria.
S. B. ADEYEMI
Department of Accounting, University of Lagos, Nigeria.
&
J. O. ADEOTI
Department of Business Administration, University of Ilorin, Nigeria.
Abstract
The use of budget as a technique for planning and control is universal in modern
organizations especially, in the commercial business entities. However, for budget to succeed
in its mission of enhancing the value of the business, human factor is of prime importance. In
managing the volatile nature of human resources in achieving organizational objectives, there
is no universally accepted leadership style. There is diverse of opinions as to which type of
leadership style is the best. Sonic scholars even disregard the possible influence of leadership
style in budget performance. This study investigated the impact of leadership style in budget
performance in Nigeria. It sampled a cross-section of experienced junior and upper
management staff in quoted and unquoted companies to gain an insight into the influence of
leadership style in budget performance. The data were analysed using exploratory, descriptive
and inferential statistics. The study revealed that in both the quoted and unquoted companies,
the use of participative management style appeared to have a greater influence on budget
formulation, implementation and performance compared with authoritarian leadership style.
However, the authoritarian style was more prevalent in the unquoted companies. Generally,
the respondents believed that leadership style has significant influence on budget
performance. On this note, it was recommended that managers should be wary of pseudoparticipation in budgeting because of its likely negative impact. In addition, no specific
leadership style should be completely discountenanced. A contingency approach is advocated
in the management of budgets, particularly during period of crisis.
Introduction
Leadership and budget are two management concepts that have been heavily
researched by management and accounting scholars (Coad, 1999; Arowomole, 1995;
Brownell, 1983; Handy, 1981; Becker and Green, 1978; Schiff and Lewin, 1978; Vroom and
Yetton, 1976; Ronen and Livingstone. 1975, Ghiselli. 1971; Fiedler, 1967; Likert, 1961;
McGregor, 1960; and Argyris. 1952). The results of the investigations yet remain difficult to
generalize in application just as their enduring validity is still questionable. Every year, many
organizations across the world, record alarming negative variances when actual results are
compared with budgets. With unabated experience of these unfavourable variances, business
organizations tend to accumulate heavy losses in their business segments. Mostly, failed
budgets are attributed to leadership problem. Consequently, many enterprises opt for
restructuring, culminating in downsizing and persistent changes in leadership. When two of
the common definitions of management are examined, the concepts of leadership and budget
become more vivid. Management has been defined as getting things done through others
(Robbins and Coulter, 2000). This is a leadership centred definition. The same concept means

planning, organizing, controlling, and directing (Koontz and ODonnell, 1976; Brech 1963
and Fayol, 1916) a technique-oriented view. Inherent in the first definition is an identifiable
personality (superior) around whom the task at hand revolves. This is me manager. However,
the manager needs to employ some techniques in view of the environmental uncertainties that
impinge upon, usually threaten and possibly frustrate managements operations. Paramount
among these is budget, a tool for planning and controling the organisations activities so that
they lack no sense of direction and minimize the impact of the devil (uncertainty) that stalks
the mission of every organization.
However, while budget is definitive (can be measured monetarily or quantitatively),
leadership is a volatile behavioural concept in a wide continuum of available complex events.
A number of leadership styles are available for the achievement of a specific budget goal.
Whereas managers and accountants rarely disagree on the computation of the budget, once
the framework for its preparation has been predetermined (e.g. by what proportion should
next years sales be above last years figure?), the leadership style adopted by a superior often
provokes sharp and divergent views from accounting researchers and managers alike. Thus,
the leadership style adopted by a superior has a kind of influence on budget formulation and
performance.
The paper presents a Nigerian perspective to leadership styles and budget; and
evaluates the Nigerian situation for the purpose of enhancing managerial performance in
relation to budgeting.
Modem managements are confronted with complex budget tasks that require a cautious
human approach to accomplish. This study reviews a potpourri of alternative management
styles and their possible influence on budget performance.
Concept and theories of leadership style
In examining the nature and style of leadership, there is a need to dispel the
misconception that all managers are leaders. Robbins and Coulter (2000) offer the following
explanation to the managers versus leaders discourse:
Managers are appointed. Their ability to influence is based
on the formal authority inherent in their positions. In
contrast, leaders may either be appointed or emerge from
within a group. Leaders can influence others to perform
beyond the actions dictated by formal authority.
According to Brownell (1983), leadership can be described as a dynamic process ma
group whereby one individual influences the others to contribute voluntarily to the
achievement of group tasks in a given situation. Following the above thinking, Goleman
(2000) states that: Since the Industrial Revolution, companies have needed a mix of
leadership skills such as high standards of managerial skills, being able to plan and budget,
organize and manage their staff, control and solve problems. Today however, rapid changes
in the environment may have altered the requirements for successful leadership. Leaders and
managers arc needed to bring about changes to stay ahead of competition while at the same
time, maintaining a stability of business operations. To do this they need to create a climate
for performance, including flexibility, responsibility, and high standards.
Many management scholars, in pursuit of effective and efficient achievement of
organizational objectives, have identified a myriad of leadership styles. These include trait
theories,

behavioural theories and contingency theories among others. These warrant further
explanation in this paper.
Trait theories
These relate to those factors, isolating characteristics that differentiate leaders from
non-leaders. These qualities include intelligence, charisma, decisiveness, enthusiasm,
strength, integrity and self-confidence. Although it has been difficult to link these specific
characteristics to all leaders, attempts to identify traits consistently associated with leadership
have been adjudged more successful. Kirkpatrick and Locke (1991) have identified six traits
on which leaders are seen to differ from non-leaders. These are drive, the desire to lead,
honesty and integrity, self-confidence, intelligence, and job-relevant knowledge.
Behavioural theories
Researchers concentrate on what effective leaders actually did. The goal of
researchers under behavioural theory construction is to possibly assess critical behaviour
determinants of leadership, which can be used to identify latent talents to be trained as
leaders. Lewin and Lippitt (1938) report the autocratic-democratic continuum in their study.
Three specific leadership behaviours or styles are explored: autocratic, democratic,
and laissez-faire. An autocratic leader typically centralizes authority, dictates work methods,
makes unilateral decisions, and limits subordinate participation. Under the democratic style of
leadership, the leader involves the subordinates in decision making, delegates authority,
encourages participation in deciding work methods and goals, and uses feedback as an
opportunity for, coaching subordinates. The laissez-faire header gives the subordinates
complete freedom to make decisions and complete the work in whatever way they deem fit.
Vie merely provides necessary materials and answers questions. In terms of productivity, the
laissez-faire style is found in the study to be the least, but the democratic and autocratic styles
record mixed fortunes.
In a subsequent study, Tannenbaurn and Schmidt (1973) proposed that in deciding
which leadership behaviour to choose, managers should look at other extraneous factors.
These are: forces within the managers themselves (comfort level with any alternative
considered); forces within the subordinate (such as readiness to assume responsibility) arid
forces within the situation (for example, time pressures). They concluded that managers
should move toward more subordinate-centred styles in the long run because of the positive
influence, such behaviour would have on increasing employee motivation, decision quality,
teamwork, morale and employee development.
Contingency theories
The contingency theories of leadership were developed because the trait and
behavioural theories could not achieve consistent results. This lack of satisfaction led to the
criticism captured by Robbins and Coulter (2000) thus:
The relationship between leadership style and effectiveness suggested that under
condition a, leadership style x would be appropriate, whereas style y would be more suitable
for condition b, and style z for condition c. But what were the conditions a, b, c, and so forth?
It is one thing to say that leadership effectiveness depended on the situation and. another to be
able to isolate those situational conditions.
There is a plethora of successful studies that have identified several moderating
factors relating to the task being performed (e.g complexity. type, technology and size of
project). Sometimes, other situational factors have been uncovered: style of the leaders
immediate supervisor, group norm, span of control, external threat and stress, and
organizational culture (Barrow, 1977).

Fiedler.(1967) pioneered the development of contingency model for leadership in which he


proposed that effective group performance depends on a proper match between a leadersstyle of interacting with subordinates and the degree to which the situation gives control and
influence to the leader. In other words, a certain leadership style would be most effective in
different situations. The significance of the model is to define the leadership styles and the
different situations, and then to identify the appropriate combinations of style and situation.
Through the use of Fiedlers least-preferred co-worker (LPC) questionnaire, it is possible to
classify leaders as relationship-oriented or task-oriented. The model identifies three
situational variables: header member relations, task structure and position power. In situations
that are highly favourable or highly unfavourable, task-oriented leaders tend to perform best.
On the other hand, in moderately favourable or unfavourable situations, relationship-oriented
leadership styles are preferable.
Methodology
This study employed a standardized questionnaire administered to examine the
Nigerian perspective to leaderships. The research instrument elicited information on the
perception of subordinates who were close to the managers saddled with responsibilities
when budget formulation and implementation decisions were made. A total of 180
respondents were sampled using stratified technique. The strata consisted the organized
private sector, the small-scale entrepreneurships and the public service in Lagos. It was
anticipated that budgeting practice might vary across the strata, and that these variation might
be both statistically and functionally significant.
A number of statements and questions were used in the research instrument to act as
indicators of the nature of leadership styles and their effects on employees for budget
achievement. The statements/questions used to measure the impact of leadership style in
budget formulation and performances were adapted from the methodological appendix of
Sathe (1982) as reported by Goad (1999). Those employed to measure decision making in
organizations were derived from the Nigerian based survey research of Arowomole (1995).
Employees perceptions of their leaders behaviour were derived using statements designed
by (Baas 1985). One underlying attraction of the eclectic instrument adopted in this paper is
that, the previously validated questionnaires would provide high reliability for the variables
measurement.
A seven-point Likert-type response scale was used on the majority of questionnaire
items. The respondents indicated their extent of agreement or disagreement with a particular
statement: strongly agree (7), agree (6), slightly agree (5), neither disagree nor agree (4),
slightly disagree (3), disagree (2) and strongly disagree (I). It was assumed that this scale
provides intervally-measured data. The respondents were largely middle and top management
staff of public limited companies and private enterprises in Lagos, with experience in budget
formulation and implementation.
Results and Discussion
The descriptive statistics of mean, standard deviation, percentages and range were
computed and the parametric statistics (t-tests) were applied to measure the differences in
group means. Data analysis was done, using Statistical Package for Social Sciences (SPSS).
An exploratory data analysis for homogeneity of variance (Levenes test) was performed. The
variances of the sample groups are, therefore, regarded as roughly equal and the assumption
of homogeneity of variance is tenable.

Information on Respondents and Their Organization


Table I shows a profile of the respondents. (A total of 143 responses (79.4%) were received,
of which 112 (78%) were usable. The high overall response shows the significant level of
interest in this subject across the middle and top management cadres in quoted and unquoted
Nigerian companies). An analysis of the respondents organization type, gender the level
attained in an academic/professional qualification, total number of year of experience,
number of years spent in current organisation and the total number of employees are stated in
Table 1 (i)-(vi) of particular significance is the high quality of academic and professional
qualifications. Many of the respondents are bachelor and masters degree holders in
Accounting and Business studies with professional accounting certification.
TABLE 1: RESPONDENTS PROFILE
(i)
Type of
Organisation
Organization type
Frequency
Percent
Private Enterprises
61
54.5
Public Ltd. Co.
51
45.5
Total
112
100
Source: Questionnaire

(ii) Gender of Respondents


Gender
Frequency Percent
Female
37
33
Male
75
67
Total
112
100

(iii) Academic and Professional Qualification


Frequency Percent
First degree and below
59
52.7
Masters degree and
28
25
above
Degree + Professional
25
22.3
Qualification
Total
112
100
Source: Questionnaire

(iv) Experience (Total number of years


Frequency Percent
1-5
46
41.1
6-10
34
30.4
11-15
21
18.8
16-20
6
5.4
Above 20 years
5
4.5
112
100

(v) Experience in Current organisation (years)


Frequency Percent
Below 1 year
22
19.6
1-3 years
52
46.4
4-5 years
16
14.3
Above five years
22
19.7
Total
112
100

(vi) Number of employers


Frequency
Below 100
58
100-500
28
501-1000
10
1001-5000
7
Above 5000
9
Total
112

Percent
51.8
25
8.9
6.3
8
100

Source: Questionnaire

Table 2: Leadership and budget performance


Type of Organisation
The level of budget
achievement could be
improved provided my boss
changes his leadership style
Private Enterprises
N
61
Std Deviation
2.00
Mean
4.44
Range
6
Public Ltd. Companies N
51
Std.
1.52
Deviation
5.04
Mean
6
Range
Total
N
112
Std.
1.81
Deviation
4.71
Mean
6

High budget performance


depends on the leadership
style adopted in an
organisation
64
1.35
5.87
5
51
1.24
5.78
6
112
1.29
5.83
6

Range
Source: Computation from Questionnaire
From the table, responses from both the private enterprises (unquoted companies) and
the public limited companies (quoted companies) indicate above average mean scores (4.405.87). The standard deviations are between 1.24 and 2.00. Overall, leadership style was rated
as being of remarkable relevance in budgeting in Nigeria.
Table 3 shows the cross tabulation of the leadership style mostly used in managing
budgets in Nigerian business organisations. The unquoted companies record a higher
percentage for both participative style and defective participative style (41.1%) in comparison
with the 28.3% for the quoted companies. On the other hand, the public limited companies
utilize authoritarian style i.e. 13.4% compared with 9.8% recorded for the private enterprises.
In summary, the companies leadership used participative style, authoritarian style, defective
participative style and defective authoritarian style in that order.
Table 3: The leadership styles mostly used in managing budget in Nigerian corporate
organizations
The Leadership Styles Mostly Used In Managing Budgets In
Nigerian Corporate Organisations
Total
Participative Defective
Authoritarian Defective
Style
Participative Style
Authoritarian
Style
Style
Private
Enterprises 34
12
11
4
61
Count % of Total
30.4%
10.7%
9.8%
3.6%
54.5%
Public Ltd. Companies 25
7
15
4
51
Count % of Total
22.35
6.3%
13.4%
3.6%
45.5
Total
59
19
26
8
112
Count % of Total
52.7%
17.0%
23.2%
7.1%
100%
Source: SPSS Output Generated for Data Analysis

Leadership Style and Budget Decisions


The motivation process for budget performance usually starts with budget formulation
and budget decisions. Decision-making is critical at every budgeting stage. Therefore, the
respondents opinion was sought about the type of leadership style perceived as the best in
budget decision-making. Ten questionnaire items were included in the general category of
leadership style and budget decisions. Table 4 shows the descriptive statistics and the results
of t-test for the questionnaire items.
TABLE 4: The descriptive statistics and the results of t-test.
N

Private Enterprises.
Participative
Authoritarian
Public Ltd. Companies
Participative
Authoritarian

Mean

Std
Deviation

46
15

3.9848
3.8400

0.8511
0.5767

32
19

4.1938
3.8579

0.7206
0.7834

Levenes Test for


Equality of
Variances
F
Sig.
2.952 0.091

0.807

0.373

Tstatistics

df

p-value

0.613

59

0.542

1.558

49

0.126

Source: SPSS Output Generated for Date Analysis


The four categories of leadership styles slated in table 3 were condensed into
participative and authoritarian types of leadership. The findings are separately reported for
both the private (unquoted) enterprises and the public limited (quoted) companies. The
significance of each style was determined for each type of organization. In making decisions
relating to budgets, both participative (mean score of 3.98) and authoritarian (mean score of
3.84) were recorded. The inferential test result shows t(59) = 0.6 13; p > 0.05. This is an
indication that there is no significant difference between the means of the two leadership
styles. In other words, the type of leadership style employed equally affects the degree of
subordinates involvement in decision making in Nigerian unquoted companies. Similar
findings were also reported for the public limited companies. However, the p-value here was
lower, i.e. t(49) = 1 .558; p> 0.05. The t-test fails to show significance between the adoption
of participative and authoritarian leadership styles in making budget decisions.
Leadership Style and Budget Implementation:
Table: 5 reported the statistical summary of responses to two questionnaire items
designed to assess the effect of leadership style on budget performance across the public and
private companies. The responses from the private corporate enterprises yielded a mean score
of 4.93 and a standard deviation of 1.30 for participative style and 3.97 and I .73 for
authoritarian style. These figures suggest that participative style had a greater influence on
budget performance. The inferential statistic computed revealed that, t (59) = 2.302; p < 0.05.
As revealed in the table, p-value of 0.025 indicates a significant difference in the degree of
influence exerted on budget performance by leadership styles.

TABLE 5: Leadership style and budget implementation


Mean

Private Enterprises.
Participative
Authoritarian
Public Ltd. Companies
Participative
Authoritarian

Std
Deviation

N
46
15

4.9248
3.9667

1.3022
1.7265

Levenes Test for


Equality of
Variances
F
Sig.
2.322 2.322
1.7265

32
19

5.5156
3.9479

1.1251
1.2121

1.1251 0.369
1.2121

T-start

df

p-value

0.133

59

0.025

0.546

49

0.000

Source: SPPSS Output Generated for Data Analysis.


The public limited companies record a mean of 5.52 and 3.95 for participative and
authoritarian styles respectively. With these figures, it appears that the use of participative
style was more prevalent in Nigerian quoted companies, and though marginally, the private
enterprises utilized authoritarian style to a higher extent than the public limited companies
did. The t-test reveals that t (49) = 4.667; p < 0.05. This means that there is a significant
difference between the uses of participative and authoritarian leadership styles in the public
limited companies.
In order to determine the impact of leadership style in budget formulation decisions
and implementation responses to twelve questionnaires items were analyzed. The relevant
statistical results are contained in Table 5.
TABLE 6: The impact of leadership styles on budget formulation and implementation.
Mean

Private Enterprises.
Participative
Authoritarian
Public Ltd. Companies
Participative
Authoritarian

Std
Deviation

N
46
15

4.1431
3.8611

0.7878
0.6406

32
19

4.4141
3.8728

0.6543
0.6464

Levenes Test for


Equality of
Variances
F
Sig.
1.202 0.277

0.044

0.834

T-start

df

p-value

0.225

59

0.214

2.869

49

0.006

Source: SPSS output Generated for Data Analysis.


In relation to the private corporate enterprises category, authoritarian style has a mean
and standard deviation scores of 3.86 and 0.64 respectively. Conversely, 4.14 and 0.79 were
recorded for mean and standard deviation in respect of the participative style. T-test (59) =
1.225; p < 0.05. The actual p-value is 0.214, meaning that the mean scores were not
significantly different for the private enterprises. A different pattern was recorded for the
means and standard deviations under the public limited companies. However, while the result
under unquoted enterprises was not significant at p 0.05, that of quoted companies was not
only significant at p = 0.05 but also significant at p = 0.01. This shows that the style of
leadership has more pronounced effects in budgets under quoted companies than in unquoted
enterprises.

Conclusion and Recommendations


This study has shown that the type of leadership style adopted in budgeting affects the
performance of an organization. Specifically, the participative leadership style was rated
above the other types of leadership with respect to impact on performance. This finding is
contrary to the result reached by Kerr and Jermier (1978) that leadership style will always be
effective regardless of the situation.
The present study has also revealed that decision-making in budgeting should be
democratic whether in public or private companies. This is at variance with the conclusion
reached by Jaggi (1973) that authoritative style results in high job satisfaction in developing
countries, which implies a high budget performance. If authoritarian style has a significant
positive impact on budgeting, this is gradually, becoming less pronounced. One possible
reason is that the quality of todays employees is higher, especially with reference to
intellectual depth owing to high academic and professional qualifications. Todays captains
of industry would do better to adopt democratic or participative principles in corporate
governance.
Overall, in Nigerian companies impositions of budgets are becoming unpopular. A
participatory situation in which upper-management elicits the subordinates inputs before the
approval of budgets is much in vogue, If the subordinate builds-a wide slack into the budget,
the super/or should not undertake a unilateral amendment. This requires an intelligent effort
to convince and gain genuine acceptance of the subordinate. After budget approval comes
implementation of the plan. Argyris (1952) found that budgets were thought of as pressure
devices used by management on supervisors. This perception would definitely not facilitate
the best level of commitment from the subordinates. In a participatory budget environment
subordinates must not only take part in budget formulation, they should be part of the critical
decisions affecting the employment, deployment and control of human and financial
resources. This is desirable if the budget practice is not to be regarded as unilateral or pseudoparticipatory, a practice that tends to provoke less subordinate commitment, avoidance of
responsibility and low budget performance.
Nevertheless, this is not to suggest the total exclusion of authoritarian style. It is still
useful, particularly when dealing with the very junior cadres, and occasionally in order to
restore orderliness in times of corporate crisis. In other words, the current thinking is that a
leader should be aware of the various leadership styles and regard them as useful items in a
human/financial resource management toolbox, available for the corporate craftsman to use
as the need arises.
The results of this study suggest that there is generally a favourable agreement that
participative leadership style has a greater impact on budgeting than authoritarian style.
Further areas of research include the replication of this study in the public service.
Such a study would be particularly useful in view of the protracted crisis experienced in
budget formulation and implementation in Nigeria since the nations transition to liberal
democracy in 1999.
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