Directory UMM :Data Elmu:jurnal:J-a:Journal of Accounting and Public Policy:Vol20.Issue1.2001:
Journal of Accounting and Public Policy 20 (2001) 45±71
www.elsevier.com/locate/jaccpubpol
The usefulness of ®nancial and non®nancial
performance information in resource
allocation decisions
Jacqueline L. Reck *
School of Accountancy, University of South Florida, 4202 East Fowler Avenue, BSN 3403, Tampa,
FL 33620-5500, USA
Abstract
In this article I evaluate the impact of adding non®nancial performance information
to reports containing ®nancial information. I consider the association between non®nancial information and the resource allocations and performance evaluations made by
individuals involved with the governmental budget process. Tests indicated that the
allocation decisions made by these individuals were not signi®cantly associated with
non®nancial information. However, non®nancial information was in¯uential in the
performance evaluations of both the agency and the agency's director. Although I found
no association between non®nancial information and resource allocations, I found an
association between ®nancial information and resource allocations. Additionally, ®nancial information signi®cantly impacted the performance evaluation of the agency
director.
An additional test of the importance of non®nancial information in resource allocations involved resource scarcity. As discussed in the paper, I hypothesized that under
scarcity non®nancial information and ®nancial information would become more important to the allocation process. My results indicated that non®nancial information
had no impact on allocation decisions made under scarcity. The association between
®nancial information and resource allocations was opposite that predicted. Ó 2001
Elsevier Science Ltd. All rights reserved.
*
Tel.: +1-813-974-4186; fax: +1-813-974-6528.
E-mail address: [email protected] (J.L. Reck).
0278-4254/01/$ - see front matter Ó 2001 Elsevier Science Ltd. All rights reserved.
PII: S 0 2 7 8 - 4 2 5 4 ( 0 1 ) 0 0 0 1 8 - 7
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
1. Introduction
In this article I examine how adding non®nancial information to government budget requests in¯uences budget allocation decisions and performance
evaluations. A study of non®nancial information is important since there has
been a strong interest shown (Bisgay, 1995, p. 62; AICPA, 1994, p. 5; GASB,
1994, par. 54±56) in increasing accountability through the reporting of non®nancial performance measures. The Governmental Accounting Standards
Board (GASB) (GASB, 1994, par. 6) has been particularly interested in the
reporting of non®nancial information and has lead in encouraging experimentation with non®nancial measures.
Since governments have no bottom line or net income ®gure for assessing
performance, non®nancial performance measures are thought to be of special
relevance to users of governmental reports. However, there is little theoretical
or empirical research into the actual relevance of non®nancial measures to
governmental users. Such research into the relevance or bene®ts of non®nancial information is of particular interest to policy makers and management
given the cost that can be associated with developing, collecting and reporting
non®nancial information. Of relevance to managers and policy makers is how
non®nancial information will in¯uence resource allocation decisions. The belief
that non®nancial information can in¯uence allocation decisions is identi®ed by
the GASB (1987, par 77c), in Concepts Statement 1 which states that non®nancial information,
when combined with information from other sources, helps users
assess the economy, eciency, and eectiveness of government
and may help form a basis for voting or funding decisions. (Emphasis added.)
Of primary interest in this article is whether funding support is aected by
inclusion of non®nancial information in reports. Surveys (Poister and
McGowan, 1984, p. 390; Chamberlain, 1990, pp. 78±97; Jones et al., 1985, p.
62; Daniels and Daniels, 1991, p. 30) have indicated that users perceive non®nancial performance indicators as important in allocating resources and assessing government performance; however, two studies (Reed, 1986; Schrader,
1995) have looked at whether non®nancial indicators do impact users' decisions. Reed's study (1986, p. 131) found that when subjects are provided with
only non®nancial indicators, the indicators are used in budget allocation decisions. Schrader (1995, p. 453) found that when subjects were asked to rate
eciency and eectiveness of a government agency non®nancial performance
measures resulted in dierent ratings than did ®nancial measures. Although the
studies by Reed (1986) and Schrader (1995) indicate that non®nancial information is relevant they do not address: (1) why non®nancial performance
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
47
measures may impact users' decisions, (2) whether users will derive incremental
decision bene®t from non®nancial performance measures relative to currently
available ®nancial measures, or (3) whether the presence of resource scarcity
in¯uences the association between ®nancial information, non®nancial information, and decisions. By addressing these three issues this article adds to
extant research on the relevance of non®nancial information to governmental
users.
Resource allocation decisions while made by legislative bodies are in¯uenced
by budget oces (Hay and Wilson, 1995, p. 512). Budget ocials do reviews of
budgets and make budget recommendations to legislative ocials; as a result,
budget ocials are heavily involved in the budget approval process (Freeman
and Shoulders, 2000, p. 75). The lack of prior research regarding budget ocials' allocation decisions combined with their ability to in¯uence legislative
decisions are the reasons budget ocials were selected as the subjects of this
article. The budget ocers were asked to make budget recommendations on a
®ctitious city's department of health.
Contrary to prior research ®ndings (Reed, 1986, p. 131; Schrader, 1995, p.
453), this article found that non®nancial performance information is not relevant in budget ocers' resource allocation decisions. Rather, it is currently
available ®nancial information that is signi®cantly associated with the resource
allocation. This article reports, however, that non®nancial indicators are signi®cantly associated with the respondent's evaluation of unit and individual
performance. Unexpectedly, I found that when resources are scarce, the
association between ®nancial information and the allocation of resources
declines.
The rest of this article is organized as follows. Section 2 describes the institutional background. In Section 3 the theory and hypotheses are developed.
The methodology and results are presented in Section 4, while Section 5 gives
conclusions of this article.
2. Institutional background
Much of the literature presented in this section and Section 3 is an amalgamation of public budgeting research and accounting research. The public
budgeting research has focused on the eects of adopting budget formats that
require inclusion of non®nancial information (Poister and McGowan, 1984, p.
390; Grizzle, 1987, p. 34; Chamberlain, 1990, pp. 78±87). While accounting
research (Jones et al., 1985, pp. 3±5; Wilson, 1990, p. 1; Daniels and Daniels,
1991, p. 15) focuses primarily on external reporting of accounting information,
both literatures are included since studies noted below indicate that there is a
relationship between information available to internal and external users.
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Speci®cally, while management may have access to more timely accounting
information and less aggregated information than is provided in most external
accounting reports, it is not believed that management has access to dierent
types of accounting information due to the fact that most information systems
are designed to meet external report needs (Smith, 1995, p. 281; Hyndman and
Anderson, 1995, p. 3). By focusing on the incremental value of combining
non®nancial information with a budget and actual report, this article contributes to research that attempts to address the question of whether the new
information has bene®t.
The GASB has issued Concepts Statement 2 on Concepts Related to Service
Eorts and Accomplishments (SEA) (GASB, 1994). As stated in Concepts
Statement 2, the objective of SEA is to ``provide more complete information
about a governmental entity's performance than can be provided by the operating statement, balance sheet, and budgetary comparison statements and
schedules. . .'' (GASB, 1994, par. 55). To accomplish SEA's objective the
GASB (1994, par. 6) is encouraging governments to experiment with reporting
data on inputs, outputs, outcomes and eciency. Because government does not
have a ®nancial outcome measure (net income), and performance is not directly
observable, provision of non®nancial information is necessary (Van Daniker,
1994, p. 59; Baker, 1992, p. 600; Moe, 1984, p. 766) to meet users' needs
concerning government performance.
Two major uses of ®nancial and non®nancial information are accountability (stewardship) and decision-making (GASB, 1987, par. 5). This article
focuses on accountability because of the increased demand for government
accountability and because the GASB Concepts Statement 1 (GASB, 1987,
par. 5±6) identi®es accountability as the cornerstone of governmental ®nancial reporting. Concepts Statement 2 (GASB, 1994, par. 20) recognizes that
accountability is subject to a number of taxonomies. The taxonomy used by
GASB (GASB, 1994, par. 20) identi®es four types of accountability: (1) ®nancial resources (stewardship, operations accountability and viability), (2)
compliance (meeting legal and regulatory requirements), (3) eciency (use of
resources and economy), and (4) eectiveness (attainment of program goals
and objectives).
Survey research (Jones et al., 1985, pp. 87±92; Wilson, 1990, pp. 44, 50;
Daniels and Daniels, 1991, p. 30) indicates that those groups involved in the
resource allocation process (legislators and management) are interested in using ®nancial information for assessing ®nancial accountability and compliance
accountability. Survey research (Jones et al., 1985, p. 94; Daniels and Daniels,
1991, p. 30) also supports an interest in receiving non®nancial performance
measures. Poister and McGowan (1984, p. 390), Grizzle (1987, p. 34; 1993,
p. 974) and Chamberlain (1990, pp. 78±87) have found that eciency and
eectiveness accountability measures are perceived as particularly useful in
allocating resources and assessing performance. Although non®nancial per-
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
49
formance measures 1 are perceived as being useful, little non®nancial performance information is actually available (Chamberlain, 1990, p. 91; Hyndman
and Anderson, 1995, p. 3), and consequently little empirical research exists on
actual use of non®nancial performance measures.
Two studies (Reed, 1986, p. 111; Schrader, 1995, p. 443) that have looked at
the use of non®nancial performance measures have found a relationship between perception and use. Reed (1986, p. 128) found that the budget allocation
decisions of budget preparers and examiners were aected by outcome and
impact measures. While Reed's (1986, p. 117) study did not directly address the
accountability issue, subjects were told to allocate funds to projects exhibiting
``prior success'', which was de®ned in terms of eciency and eectiveness
variables (two types of accountability de®ned by GASB). The premise of
Schrader's (1995, p. 445) exploratory study on service eorts and accomplishments (SEA) was that inclusion of accountability measures would improve
the decision process. Schrader (1995, p. 455) found that when governmental
auditors were asked to rate a program on the de®ned terms economy, eciency
and eectiveness there were signi®cant dierences in ratings when subjects were
provided with just ®nancial statements versus SEA measures. The studies by
Reed (1986) and Schrader (1995) are somewhat supported by interviews with
the State of Georgia budget planners and analysts (Lauth, 1985, p. 72), who
indicated that non®nancial measures were used, at least somewhat, in preparing gubernatorial budget recommendations.
The next section provides insight into why non®nancial performance information may be relevant to groups involved in the resource allocation process.
3. Theory and hypotheses
3.1. The principal±agent model and accountability information
The exchange of information necessary in an accountability relationship is
highlighted in the following de®nition, which provides that accountability involves: (1) establishing a set of relationships which identi®es who (agent) is
accountable to whom (principal), (2) utilizing methods and procedures through
which the agent provides an accounting of eort, eciency and eectiveness,
and (3) distributing rewards and sanctions for agent performance (Weissman,
1983, p. 323).
The preceding de®nition of accountability is formalized in agency theory.
Under agency theory the right to information stems from the need to ensure
1
Eciency and eectiveness tend to be assessed with non®nancial performance measures such as
input, outcome and impact (GASB, 1994, par. 55).
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
that the agent has actually performed the services or objectives desired by the
principal (Gjesdal, 1981, p. 208, 211). The complexity of the tasks required of
the agent and the unobservability of the agent's eort (information asymmetries) provide the agent with incentives to shirk (Alchian and Demsetz, 1972,
pp. 780±781; Baiman, 1982, p. 166). To limit shirking the principal must
monitor the agent's eort or require the agent to incur costs of providing
monitoring information (Jensen and Meckling, 1976, p. 308).
Monitoring of agent eort can be accomplished using observable measures
(Gjesdal, 1981, p. 212). External ®nancial reports are one source of observable
measures that can be used for monitoring agent eort (Gjesdal, 1981, pp. 208±
209; Holmstrom, 1979, p. 89; also see Reck, 2000, p. 339). In the basic principal±agent model a principal contracts with an agent for the agent to select
and undertake certain actions or levels of eort (Jensen and Meckling, 1976, p.
308). The principal pays for, and enjoys the net outcome 2 of the agent's eort
(Demski, 1980, p. 89; Baiman, 1982, p. 171). The principal±agent model is
de®ned in monetary terms with net outcome representing a payo determined
by the agent's eort and random events or states of nature 3 (Holmstrom, 1979,
p. 75; Baiman, 1982, p. 173; Feltham and Xie, 1994, p. 431). Under the basic
model the principal's objective is to maximize economic eciency or the net
monetary outcome (Baiman, 1982, p. 165). The principal's problem is to
choose a contract which will ensure the maximum amount of net monetary
outcome (Baiman, 1982, p. 165).
In a government setting the basic principal±agent model needs to be adjusted for the fact that there is no clearly de®ned objective, such as maximizing
net monetary outcome, on which a contract can be constructed. To the contrary, principals may have multiple objectives for government, the least of
which may be economic eciency (Moe, 1984, p. 761, 765). When monetary
outcome cannot be used to evaluate the agent's eort, Baker (1992, p. 612) has
shown that a performance measure can be used to indirectly measure the
principal's objective if both the principal's objective and the performance
measure are related to the agent's eort. To the extent the performance measure captures the agent's eort it can be used to measure attainment of the
principal's objective (Baker, 1992, p. 612). To capture agent eort, principal±
agent models have focused on the creation of a single measure that is as
congruent as possible with the principal's objective (Feltham and Xie, 1994, p.
434). Feltham and Xie (1994, p. 430) point out that using a single measure may
not be ecient if more than one objective is involved, or if there is not one
2
Net outcome is the total outcome of the agent's eort less the reward paid to the agent.
States of nature are assumed to be random, uncontrollable events (Feltham and Xie, 1994, p.
431) and as such are not the subject of this paper; though it is recognized states of nature will
impact behaviors and outcomes.
3
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
51
good measure of the objective (both of which may be true in government). As
Baker (1992, p. 599) indicates, performance measures are indirect measures of
the principal's objective and as such it is highly likely that one performance
measure will imperfectly measure the objective (i.e., there will be noncongruity
between the agent eort and the objective as a result of using an indirect
measure). The use of more than one performance measure by the principal can
increase congruity if the added measures induce the agent to increase eort
toward attaining the principal's objective (Feltham and Xie, 1994, p. 430).
Baker's (1992, p. 599) and Feltham and Xie's (1994, p. 447) models suggest
that accountability measures can be used to assess the agent's performance as
long as the ®nancial and non®nancial information and the principal's objective(s) are related to the agent's eort. While government budget ocials
(principals) do not have the objective of maximizing pro®t they may have other
objectives which can be captured to a degree by ®nancial and non®nancial information (Moe, 1984, pp. 759±761). Budget ocials have career objectives, or
reputation (Moe, 1984, p. 767). To enhance or maintain their reputation, budget
ocials (principals) will want to ensure, at a minimum, that agents (department
heads/managers) are complying with budgetary (legal) requirements (Moe,
1984, p. 762). Concern about meeting ®scal targets and future ®nancial viability
may also aect the budget ocer's reputation. Using compliance accountability
measures and ®nancial accountability measures to assess an agent's eorts
concerning attainment of ®scal targets and continued viability would be useful
to budget ocials (Jones et al., 1985, p. 39, 43). Reputation will also be aected
by the principal's ability to carry out the policies of elected ocials (Moe, 1984,
p. 771). If budget ocials are concerned that program objectives re¯ect policy
then use of eciency and eectiveness measures will increase agent eort toward
the implementation of policy. Since currently available ®nancial measures
cannot accurately re¯ect the eort being expended by an agent to implement
policy, ®nancial measures create an incongruity between the principal's objective and agent eort (GASB, 1994, par. 4±5; Feltham and Xie, 1994, p. 434). The
theoretical need for eciency and eectiveness measures is supported in the
survey literature discussed in Section 2 of my paper and in the work done by
Reed (1986, p. 131) and Schrader (1995, p. 453) that show principals want and
will use eciency and eectiveness information.
Based on the preceding discussion, ®nancial and compliance accountability
measures should be relevant to the principal in assessing the agent's eort. The
provision of ®nancial information will allow for the principal's assessment of
agent eort in the areas of compliance and ®nancial accountability. Reporting
currently provides information on ®nancial and compliance accountability.
Once eort has been assessed the principal will act to reward or sanction eort
(Jensen and Meckling, 1976, p. 323; Weissman, 1983, p. 323). Assuming (as do
all subsequent hypotheses) that all agents provide budget request information,
it is hypothesized that:
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
H1: Financial information has an eect on the principal's evaluation such that the reward will be higher when ®nancial information
is favorable than when ®nancial information is unfavorable. 4
If the theoretical models and the institutional literature (Reed, 1986, p. 131;
Chamberlain, 1990, pp. 78±87; Schrader, 1995, p. 453) are correct, non®nancial
performance information should also increase the principal's ability to assess
the agent's eort. Non®nancial information is especially important in determining whether overall policy objectives have been met. The posited value of
non®nancial performance information suggests that it will have an impact on
the principal's evaluation. Therefore, it is hypothesized that:
H2: Non®nancial performance information 5 has an eect on the
principal's evaluation such that the reward will be higher when favorable non®nancial performance information is present, and lower
when unfavorable non®nancial performance information is present.
Feltham and Xie (1994, pp. 439±440) have posited that increasing the
number of performance measures will enhance the principal's ability to assess
agent performance if the measures contain relevant and unique information.
Information provided by ®nancial measures and non®nancial performance
measures should be relevant (Feltham and Xie, 1994, p. 439) in assessing agent
performance since each of the measures has been identi®ed in Section 2 of this
paper as addressing a dierent type of accountability perceived as important by
government principals. Information provided by the measures should also be
unique (Feltham and Xie, 1994, p. 439) since the focus of ®nancial measures is
on the inputs provided to agents; whereas, the focus of non®nancial performance measures is on the outputs and outcomes achieved by agents. If ®nancial and non®nancial performance measures are relevant and unique, they
will measure important but dierent factors (Feltham and Xie, 1994, pp. 439±
440); therefore, no interaction is expected.
3.2. The impact of resource scarcity
6
A factor which has become increasingly important in any assessment of
government is resource scarcity. Case studies (Wolman, 1980, p. 238; Levine
4
Reward is measured by the three dependent variables de®ned in Section 4. For a de®nition of
favorable and unfavorable ®nancial information the reader is referred to the independent variables
section of the paper.
5
In this paper non®nancial performance information is represented by measures of eciency and
outcome. For a de®nition of favorable and unfavorable non®nancial information the reader is
referred to the independent variables section of the paper.
6
As used in this paper, resource scarcity and ®scal stress refer to declining fund sources.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
53
et al., 1981, p. 621, 623; Higgins, 1984, p. 351) indicate that under conditions of
resource scarcity attention increasingly focuses on management performance.
For governments with fewer resources available for allocation, attention to
improving performance is considered preferable to decreasing service levels. In
a study of ®ve state universities, Rubin (1980, p. 169) found that during
scarcity more criteria for evaluation were established.
DeMarco and Holley (1984, p. 179) found that when principals were provided with accountability measures, allocation of scarce resources became
more rational with greater attention given to agent eort. Therefore, it is hypothesized that an interaction will occur between accountability information
and resource scarcity such that:
H3: Accountability information will have a greater eect on the rewards given under resource scarcity than on rewards given under no
resource scarcity.
DeMarco and Holley (1984, p. 179) indicate that resource scarcity will have
an eect on resource allocation rewards. However, the hypothesis does not limit
the analysis to resource allocations since there is some indication that governments with fewer resources would prefer to increase eciency and eectiveness
before decreasing service levels. Therefore, it is possible that allocations will not
be aected by resource scarcity as will other types of evaluations.
4. Design and statistical analysis
4.1. Sample
The sample was drawn from cities that had populations that ranged from
25,000 to 1,000,000. 7 Carroll's Municipal/County Directory (1995) was employed to determine city size, see which individuals were in budget positions,
and to select the sample (see Reck, 2000, p. 340). Nine hundred individuals
were included in the study. To ensure that the correct individuals were identi®ed, individuals surveyed were asked to verify that they were involved in the
budget process for their city. All respondents included in this study indicated
that they were involved with the budget process.
Individuals surveyed were asked to provide demographic information which
was used to determine whether there were any signi®cant dierences among
respondents that could impact the results of the study (see Reck, 2000, p. 240).
Demographic variables collected were political party of the individual, political
party in power, type of government, gender, age, ethnicity, education, expe7
See Reck (2000, p. 348) for the reasons for this choice.
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
rience with non®nancial performance measures, size of city, how many years
subjects had held their current position, and whether they or their families had
used the services of a government department similar to the department used in
the experiment.
4.2. Variables of interest
In a government setting, a principal's assessment can result in a number of
dierent rewards or sanctions. The agent can be terminated if the principal
believes the behavior deviates excessively from the principal's goals (Baiman,
1982, p. 166). This happens when incumbents are not reelected, when bureau
directors are asked to resign, and when employees are terminated (Moe, 1984,
p. 764; Mueller, 1989, p. 248). Because it can sometimes be dicult to terminate agents 8 another option available to the principal, and the option examined in this article, is changing resource allocations (Ijiri, 1983, p. 78;
Weissman, 1983, p. 323; Weingast, 1984, pp. 154±156). This article used resource allocation (ALLOC) as an indicator of the principal's satisfaction or
dissatisfaction with the agent's performance. The measure of resource allocation was dollars awarded the department of health of a ®ctitious city.
The de®nition of accountability implies that agents with the most exemplary
performance will receive the greatest reward. However, this may not always be
true in governmental settings. While a government principal may judge an
agent's performance to be exemplary, allocations (rewards) may not be
maintained or increased because of the belief that the eciently performing
agent is not as needy as other agents. 9 Additionally, in a government setting
there may be a separation between the performance of the agency and the
individual managing the agency. While the agency may not be performing as
desired, the principal's objective (such as implementing social policy) may
preclude sanctioning the agency by reducing resource allocations (Moe, 1984,
p. 766). Since the possibility exists that allocation actions will not re¯ect
judgment about performance, a second set of variables was used to ascertain
the principal's judgment about performance. Respondents were asked to rate
performance at both the unit (or agency) level, and the individual (or manager)
level. At the unit level, performance (SCORE) was evaluated using a 100-point
scale with 50 representing average performance. To tie performance evaluation
to the individual and resources allocated the individual, subjects were also
8
Moe (1984, pp. 764±765) points out that the civil service and union contracts make it dicult to
make changes in the labor force.
9
The statement is based on Berg (1984, p. 78) and the state budget experience of the author,
which indicates agents who do not spend their full allocation will receive reductions in future
funding allocations because it is believed the agency does not need all funds requested.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
55
asked to indicate their willingness to award the agent a merit pay raise
(MERIT) based on information provided. Willingness to provide a merit pay
raise was indicated on a seven-point Likert type scale.
Financial information (FIN), non®nancial performance information
(PEFF), and resource scarcity (SCARCE) were the independent variables
tested. 10 The independent variables were included in a budget request made by
a ®ctitious department of health (see Reck, 2000, p. 326). Financial information
was represented by accounting information presented in a line-item operating
budget format. 11 The budget request provided accounting information for the
prior period and the current period. Individuals surveyed were assigned to receive one of two types of accounting information ± favorable or unfavorable. If
there were no signi®cant variances from the original budget, information was
classi®ed as favorable. Additionally, favorable information was indicated by a
stable spending pattern. A stable spending pattern was used since decreased
spending may have been perceived by subjects as an indication of decreased
support for the program, or a decreased need for the program, neither of which
relates to the agent's performance. Unfavorable accounting information was
represented by unfavorable spending variances and an upwardly revised operating budget. In the unfavorable condition expenditures had increased rather
than remaining stable (see Reck, 2000, p. 340).
Non®nancial performance information was represented by eciency and
eectiveness measures. The measures used were constructed from recommendations provided by Hatry et al. (1990, pp. 223±224) and various government
reports (Missouri Department of Health, 1993, pp. 17, 22, 41; City of Columbia, Missouri, 1995b, pp. 60±61). Individuals surveyed were assigned to
receive favorable, unfavorable, or no eciency and eectiveness measures.
When eciency and eectiveness measures improved, or were projected to
improve, the information was considered favorable; conversely, if the eciency
and eectiveness measures showed decreases the information was considered
unfavorable (see Reck, 2000, pp. 340±341).
Resource scarcity was determined by level of revenues and the level of the
unreserved fund balance as a percentage of expenditures. In the no scarcity situation revenues increased at a slightly greater rate than in¯ation and the unreserved fund balance was near the city's desired target of 15% of a year's
expenditure requirements. When resources were scarce, revenue increases were
insucient to cover in¯ation and service demands, and unreserved fund
10
Due to the study's resource constraints, compliance and ®nancial accountability (®nancial
information) were tested together as were eciency and eectiveness accountability (non®nancial
information).
11
For an example of a line-item budget format, the City of Columbia, Missouri's (1995a, pp. 5,
13, 120±125) budget was reviewed.
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J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
balances, relative to annual expenditures, fell to below 5%. 12 A description of
dependent and independent variables, as well as covariates is provided in Table 1.
While covariates are included for control purposes, based on additional
research (Reck, 2000), it is not expected that the covariates will aect the independent variables. Applying the same methodology, I (Reck, 2000, p. 345)
found that use of ®nancial and non®nancial measures was not aected by
budget ocials' individual characteristics, such as moral judgment and political beliefs.
4.3. Test instrument
13
Individuals surveyed received a scenario in which they were told they were
an ocial in budgeting for a ®ctitious city (Reck, 2000, p. 346). Based on the
information furnished, respondents provided a budget allocation for the city's
department of health. Additionally, respondents rated the overall performance
of the department of health and indicated how likely they would be to award a
merit pay raise to that department's director.
Individuals surveyed received information about both the city and the department of health (Reck, 2000, p. 346). Total revenues for the last two year's,
the current year's revenue projection, and ®nancial condition measures were
provided for the city. The city's budget request and current period budget,
broken down by department, were provided. The mission statement, the department's objectives, and brief justi®cations for requested budget increases
were provided along with the line-item budget for the prior period, current
period and requested period. Expected and actual ®gures for four eciency and
®ve eectiveness measures were included for the prior period and the current
period. 14
The 900 individuals were randomly assigned to one of 12 treatment cells
created by the 2 3 2 between-subjects factorial design. The 12 treatments
were created by two levels of ®nancial information (favorable [FF], or unfavorable [UF]), three levels of non®nancial performance information (favorable
[FP], none [NP], or unfavorable [UP]), and two levels of resource scarcity (no
scarcity [NSC], or scarcity [SC]).
Each individual was mailed a questionnaire and the scenario appropriate to
his/her cell assignment. The original mailing and two follow-up mailings resulted in 234 usable responses, or a 26.0% usable response rate.
12
Unreserved fund balances below 5% of annual operating expenditures are considered a sign of
®scal stress by rating agencies (Hay and Wilson, 1995, p. 409).
13
I conducted pre-testing and made adjustments to the instrument based on the pre-testing (this
is described in Reck (1996, pp. 59±61), and Reck (2000, pp. 348±349)).
14
To view the test instrument see Reck (1996, pp. 122±127) and Reck (2000, pp. 346±348). Those
sources show all information in the instrument.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
57
Table 1
Description of variables
Name of variable
Dependent variables
ALLOC
SCORE
MERIT
Description
The amount of resources respondents allocated to the department of
the health, as measured in dollars.
The overall performance score the respondent awarded the department. The performance score was awarded on a 100-point basis
with 1 indicating the lowest performance and 100 the highest
performance
The likelihood the respondent would award the director of the
department a merit raise based upon the information the subject
received. Likelihood was rated on a 1±7 scale with 1 indicating no
likelihood and 7 indicating certainty
Independent and moderator variables
FIN
A measure of the two accounting information treatments: favorable
budget information (coding 1), or unfavorable budget information
(coding 2)
PERF
A measure of the three performance information treatments: favorable
performance information (coding 1), no performance information
(coding 2), or unfavorable performance information (coding 3)
SCARCE
A measure of the two resource scarcity treatments: weak ®nancial
position with a shortfall of revenue (coding 1), or strong ®nancial
position with no revenue shortfall (coding 2)
Covariates
GOVPARTY
TYPEGOV
USEEE
GENDER
L_C
AGE
EDUC
MAJOR
Relates to the governing party of the city: Democrat (coding 1),
nonpartisan (coding 2), Republican (coding 3), or other
(coding 4)
Relates to the title of the individual governing the day-to-day
operations of government: city administrator (coding 1), city
manager (coding 2 ), mayor (coding 3), or other (coding 4)
Relates to whether the city's government uses eciency and eectiveness measures: yes, the city uses such measures (coding 1) or no, the
city does not use such measures (coding 2)
Female (coding 1) or male (coding 2)
The respondent's own assessment of his or her political beliefs. In the
test instrument the order of presentation was conservative, liberal and
moderate. The statistical analysis indicated: conservative (coding 1),
moderate (coding 2) and liberal (coding 3)
The respondent's age in years
The respondent's level of education: high school (coding 1), associate's (coding 2), bachelor's (coding 3), master's (coding 4),
doctoral (coding 5), or other advanced degree (coding 6)
Indicator of the respondent's educational background. In the test
instrument the order of presentation was accounting, business
administration, ®nance, public administration, and other. The statistical analysis indicated: accounting (coding 1), ®nance (coding 2),
business administration (coding 3), public administration
(coding 4), or other (coding 5)
58
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 1 (Continued)
Name of variable
Description
ETHNIC
The respondent's ethnic category as de®ned by the federal government:
African±American (coding 1), Asian/Paci®c Islander (coding 2),
Hispanic (coding 3), Native American (coding 4), or white
(coding 5)
The number of years the respondent has held his or her current
position
The respondent's political aliation: Democrat (coding 1), independent (coding 2), Republican (coding 3), or other (coding 5)
An indication of whether the respondent or his/her family has ever
used the services of the city's health department: no (or city has no
health department) (coding 1) or yes (coding 2)
The population of the respondent's city. Obtained from Carroll's
Municipal/Country Directory (1995)
EXPER
PARTY
USE
CITYPOP
A review of Table 2 indicates that over half of the respondents were from
nonpartisan governments, and worked with city managers. The majority of the
respondents (58.8%) worked for governments that do not use eciency and
eectiveness measures. Respondents tended to be white (91.8%), male (76.5%),
and in their forties (mean 42.99). Over half (51.5%) of the respondents hold
master's degrees, with almost half (46.6%) identifying accountancy as their
primary ®eld of study. Respondents were relatively equally divided among
Republicans, Democrats and independents; however, respondents overwhelmingly (90.5%) considered themselves to be moderates or conservatives.
Three sources of information were used to test for nonresponse bias. The
three sources were the original sample, The Municipal Year Book 1995 (International City/County Management Association, 1995) 15 and early versus
late responders. 16 In general, respondents did not appear to be substantially
dierent than the population sampled.
15
The Municipal Year Book (1995) compiles data on cities with populations over 2500. It uses a
variety of sources for collecting data, including surveys. The Municipal Year Book (1995) response
rate for cities the size of those used in this study exceeds 1000 for all variables analyzed.
16
Respondents were compared to the original sample of 900 on the variables GENDER and
CITYPOP. Analysis indicated that at an alpha of 0.05 the null hypothesis that the distribution of
respondents was the same as the distribution of the original sample could not be rejected for
GENDER or CITYPOP. Comparison of respondents to The Municipal Year Book (1995) sample
on the variables TYPEGOV, USEEE, and ETHNIC indicated the samples were substantially the
same on the variables TYPEGOV, and USEEE. However, for the variable ETHIC a larger
percentage of African±Americans (3.4%) responded to this study than were present in The
Municipal Year Book (1995) sample (1.5%). The overall small number of African±Americans
(randomly distributed) was not expected to create a signi®cant bias. On the self-reported measure
GOVPARTY, between early and late respondents, individuals from Republican majority governed
municipalities tended to be slightly more often late (Chisq 10.39, 2 df; p < 0:01) in their responses
then those individuals from nonpartisan or Democrat majority governed municipalities.
59
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 2
Demographic characteristics of subjects
Variable
Frequency 1
Frequency 2
Frequency 3
Panel A: frequencies of discrete variables
GOVPARTY
(n 219)
TYPEGOV
(n 234)
USEEE
(n 233)
GENDER
(n 234)
L_C
(n 231)
EDUC
(n 231)
MAJOR
(n 232)
ETHNIC
Nonpartisan
(64.5%)
City manager
(58.8%)
Do not use
(58.8%)
Male
(76.5%)
Moderate
(49.4%)
Master's degree
(51.5%)
Accountancy
(46.6%)
White
(n 232)
PARTY
(n 230)
USE
(n 233)
(91.8%)
Republican
(36.1%)
Have not used
(84.5%)
Republican
(23.7%)
Mayor
(16.7%)
Do use
(41.2%)
Female
(23.5%)
Conservative
(41.1%)
Bachelor's degree
(46.3%)
Public admin
(22.8%)
African±American
(3.4%)
Independent
(33.9%)
Have used
(15.5%)
Democrat
(23.3%)
City administrator
(14.5%)
±
±
Liberal
(9.5%)
Associate's degree
(1.3%)
Business admin
(15.9%)
Asian/Paci®c Islander & Hispanic
(1.7% each)
Democrat
(28.7%)
±
Panel B: descriptive statistics of continuous variables
Variable
n
Mean
Median
S.D.
AGE
EXPER
CITYPOP
42.50
6.00
54.25
8.09
5.96
130.90
230
234
231
42.99
7.51
101.84
4.4. Statistical analysis
Because the dependent variables were highly correlated, factor level planned
comparisons were conducted using MANOVA tests followed by planned
comparisons using ANOVA (Stevens, 1992, pp. 152, 160). The multivariate
tests provided an indication of the overall signi®cance of the variables, thereby
allowing for a univariate analysis of individual variables.
4.4.1. Descriptive statistics
Spearman correlations among the dependent variables and independent
variables are presented in Table 3. As anticipated, the dependent variables
(ALLOC, SCORE and MERIT) were signi®cantly and positively correlated
(p < 0:05, two-tail test). Spearman correlations between the dependent and
independent variables were in the expected direction, with unfavorable
60
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 3
Spearman correlation coecientsa
Panel A: Spearman correlation of dependent and independent/moderator variables with covariates
(n 234)
ALLOC
SCORE
MERIT
FIN
PERF
SCARCE
ALLOC
±
SCORE
0.438
±
MERIT
0.336
0.663
±
FIN
)0.124
)0.064
)0.132
±
PERF
)0.182
)0.610
)0.463
)0.064
±
SCARCE
0.248
0.042
0.028
0.071
)0.069
±
GOVPARTY
)0.065
)0.140
)0.017
0.060
0.032
)0.021
TYPEGOV
0.037
0.022
0.042
)0.036
)0.067
0.076
USEEE
)0.009
0.020
0.064
)0.016
0.069
0.085
GENDER
)0.063
)0.097
0.022
0.129
0.107
0.110
L_C
0.091
0.084
0.072
0.018
)0.042
)0.059
AGE
)0.081
)0.084
)0.055
)0.026
0.096
0.015
EDUC
)0.129
)0.071
)0.039
0.084
0.096
)0.010
MAJOR
0.018
0.090
)0.005
)0.001
)0.032
0.023
ETHNIC
)0.075
)0.130
)0.062
)0.037
)0.009
0.025
EXPER
)0.085
)0.038
)0.047
)0.029
0.050
)0.062
PARTY
)0.018
0.021
0.061
)0.014
)0.073
0.034
USE
0.033
0.137
0.069
)0.040
)0.002
)0.040
CITYPOP
0.049
0.050
0.000
)0.021
0.006
0.037
a
Highlighted correlations are signi®cant at the 0.05 level, for a two-tail test. See Table 1 for variable
descriptions.
information correlated with lower levels of the dependent variables. There were
no signi®cant correlations among independent variables.
Table 3 also presents the correlations of the dependent and independent
variables with the covariates. Two covariates (GOVPARTY and USE) were
correlated with the dependent variable SCORE. A MANOVA 17 was conducted to determine if either of the covariates contributed signi®cantly to explaining the level of the dependent variables. Neither of the covariates
signi®cantly in¯uenced (alpha 0.05, two-tail test) the level of the dependent
variables. 18
Table 4 indicates that when both FIN and PERF were favorable mean levels
of ALLOC, SCORE and MERIT were at their highest levels relative to the
other cells. Unexpectedly, the lowest level for ALLOC tended to occur when
FIN was unfavorable and no PERF information was provided, rather than
when both FIN and PERF were unfavorable. The in¯uence of FIN on the
17
A MANCOVA was also conducted using all 13 covariates. The results indicated none of the
covariates was signi®cant.
18
There were no signi®cant interactions between covariates and independent variables.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
61
Table 4
Descriptive statistics by treatment for dependent and independent variables (n 234)a
Financial information
(FIN)
Favorable information
ALLOC
SCORE
MERIT
Unfavorable information
ALLOC
SCORE
MERIT
Non®nancial performance information (PERF)
Favorable
information
No information
Unfavorable information
3258.71
(46.76)
n 36
79.53
(15.19)
n 36
4.57
(1.68)
n 36
3234.45
(92.95)
n 44
61.34
(22.28)
n 38
2.57
(1.54)
n 41
3236.18
(42.51)
n 46
42.98
(16.83)
n 45
2.45
(1.39)
n 46
3236.38
(104.42)
n 40
76.92
(15.24)
n 39
4.18
(1.75)
n 40
3187.84
(109.87)
n 31
43.33
(26.24)
n 27
1.67
(1.12)
n 30
3225.38
(88.08)
n 37
42.61
(22.42)
n 35
1.92
(1.23)
n 37
a
Means are followed by (standard deviation) and cell size. The dependent variables are listed for
each cell; ALLOC resource allocation, SCORE unit performance score, and MERIT likelihood of unit manager receiving a merit raise.
dependent variables was as expected, with favorable FIN generally resulting in
larger ALLOC, SCORE and MERIT than unfavorable FIN. Of interest was
the fact that variability of ALLOC was considerably greater when FIN was
unfavorable than when FIN was favorable. The in¯uence of PERF on SCORE
and MERIT was re¯ected in the means. When PERF was favorable, SCORE
and MERIT had higher mean levels than when PERF was unfavorable.
4.4.2. Tests of hypotheses
Table 5 provides the results of the MANOVA analysis. MANOVA indicated FIN (F 3:69; p 0:006, two-tail test) and PERF (F 23:92;
p < 0:001, two-tail test) had an overall eect on the dependent variables. As
expected, MANOVA showed there was no signi®cant interaction
(F 1:13; p 0:34, two-tail test) between FIN and PERF.
To test hypotheses one and two directional comparisons were made. Since
direction was hypothesized, the following discussion of the results for H1 and
H2 is based on one-tail tests. The dierences between factor level or treatment
62
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 5
General factor level eects using MANOVA (n 234)
Independent variablea
F-valueb
p-valuec
FIN
PERF
SCARCE
FIN*PERFd
FIN*SCARCE
PERF*SCARCE
3.69
23.92
0.73
1.13
1.33
1.31
0.006
www.elsevier.com/locate/jaccpubpol
The usefulness of ®nancial and non®nancial
performance information in resource
allocation decisions
Jacqueline L. Reck *
School of Accountancy, University of South Florida, 4202 East Fowler Avenue, BSN 3403, Tampa,
FL 33620-5500, USA
Abstract
In this article I evaluate the impact of adding non®nancial performance information
to reports containing ®nancial information. I consider the association between non®nancial information and the resource allocations and performance evaluations made by
individuals involved with the governmental budget process. Tests indicated that the
allocation decisions made by these individuals were not signi®cantly associated with
non®nancial information. However, non®nancial information was in¯uential in the
performance evaluations of both the agency and the agency's director. Although I found
no association between non®nancial information and resource allocations, I found an
association between ®nancial information and resource allocations. Additionally, ®nancial information signi®cantly impacted the performance evaluation of the agency
director.
An additional test of the importance of non®nancial information in resource allocations involved resource scarcity. As discussed in the paper, I hypothesized that under
scarcity non®nancial information and ®nancial information would become more important to the allocation process. My results indicated that non®nancial information
had no impact on allocation decisions made under scarcity. The association between
®nancial information and resource allocations was opposite that predicted. Ó 2001
Elsevier Science Ltd. All rights reserved.
*
Tel.: +1-813-974-4186; fax: +1-813-974-6528.
E-mail address: [email protected] (J.L. Reck).
0278-4254/01/$ - see front matter Ó 2001 Elsevier Science Ltd. All rights reserved.
PII: S 0 2 7 8 - 4 2 5 4 ( 0 1 ) 0 0 0 1 8 - 7
46
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
1. Introduction
In this article I examine how adding non®nancial information to government budget requests in¯uences budget allocation decisions and performance
evaluations. A study of non®nancial information is important since there has
been a strong interest shown (Bisgay, 1995, p. 62; AICPA, 1994, p. 5; GASB,
1994, par. 54±56) in increasing accountability through the reporting of non®nancial performance measures. The Governmental Accounting Standards
Board (GASB) (GASB, 1994, par. 6) has been particularly interested in the
reporting of non®nancial information and has lead in encouraging experimentation with non®nancial measures.
Since governments have no bottom line or net income ®gure for assessing
performance, non®nancial performance measures are thought to be of special
relevance to users of governmental reports. However, there is little theoretical
or empirical research into the actual relevance of non®nancial measures to
governmental users. Such research into the relevance or bene®ts of non®nancial information is of particular interest to policy makers and management
given the cost that can be associated with developing, collecting and reporting
non®nancial information. Of relevance to managers and policy makers is how
non®nancial information will in¯uence resource allocation decisions. The belief
that non®nancial information can in¯uence allocation decisions is identi®ed by
the GASB (1987, par 77c), in Concepts Statement 1 which states that non®nancial information,
when combined with information from other sources, helps users
assess the economy, eciency, and eectiveness of government
and may help form a basis for voting or funding decisions. (Emphasis added.)
Of primary interest in this article is whether funding support is aected by
inclusion of non®nancial information in reports. Surveys (Poister and
McGowan, 1984, p. 390; Chamberlain, 1990, pp. 78±97; Jones et al., 1985, p.
62; Daniels and Daniels, 1991, p. 30) have indicated that users perceive non®nancial performance indicators as important in allocating resources and assessing government performance; however, two studies (Reed, 1986; Schrader,
1995) have looked at whether non®nancial indicators do impact users' decisions. Reed's study (1986, p. 131) found that when subjects are provided with
only non®nancial indicators, the indicators are used in budget allocation decisions. Schrader (1995, p. 453) found that when subjects were asked to rate
eciency and eectiveness of a government agency non®nancial performance
measures resulted in dierent ratings than did ®nancial measures. Although the
studies by Reed (1986) and Schrader (1995) indicate that non®nancial information is relevant they do not address: (1) why non®nancial performance
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
47
measures may impact users' decisions, (2) whether users will derive incremental
decision bene®t from non®nancial performance measures relative to currently
available ®nancial measures, or (3) whether the presence of resource scarcity
in¯uences the association between ®nancial information, non®nancial information, and decisions. By addressing these three issues this article adds to
extant research on the relevance of non®nancial information to governmental
users.
Resource allocation decisions while made by legislative bodies are in¯uenced
by budget oces (Hay and Wilson, 1995, p. 512). Budget ocials do reviews of
budgets and make budget recommendations to legislative ocials; as a result,
budget ocials are heavily involved in the budget approval process (Freeman
and Shoulders, 2000, p. 75). The lack of prior research regarding budget ocials' allocation decisions combined with their ability to in¯uence legislative
decisions are the reasons budget ocials were selected as the subjects of this
article. The budget ocers were asked to make budget recommendations on a
®ctitious city's department of health.
Contrary to prior research ®ndings (Reed, 1986, p. 131; Schrader, 1995, p.
453), this article found that non®nancial performance information is not relevant in budget ocers' resource allocation decisions. Rather, it is currently
available ®nancial information that is signi®cantly associated with the resource
allocation. This article reports, however, that non®nancial indicators are signi®cantly associated with the respondent's evaluation of unit and individual
performance. Unexpectedly, I found that when resources are scarce, the
association between ®nancial information and the allocation of resources
declines.
The rest of this article is organized as follows. Section 2 describes the institutional background. In Section 3 the theory and hypotheses are developed.
The methodology and results are presented in Section 4, while Section 5 gives
conclusions of this article.
2. Institutional background
Much of the literature presented in this section and Section 3 is an amalgamation of public budgeting research and accounting research. The public
budgeting research has focused on the eects of adopting budget formats that
require inclusion of non®nancial information (Poister and McGowan, 1984, p.
390; Grizzle, 1987, p. 34; Chamberlain, 1990, pp. 78±87). While accounting
research (Jones et al., 1985, pp. 3±5; Wilson, 1990, p. 1; Daniels and Daniels,
1991, p. 15) focuses primarily on external reporting of accounting information,
both literatures are included since studies noted below indicate that there is a
relationship between information available to internal and external users.
48
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Speci®cally, while management may have access to more timely accounting
information and less aggregated information than is provided in most external
accounting reports, it is not believed that management has access to dierent
types of accounting information due to the fact that most information systems
are designed to meet external report needs (Smith, 1995, p. 281; Hyndman and
Anderson, 1995, p. 3). By focusing on the incremental value of combining
non®nancial information with a budget and actual report, this article contributes to research that attempts to address the question of whether the new
information has bene®t.
The GASB has issued Concepts Statement 2 on Concepts Related to Service
Eorts and Accomplishments (SEA) (GASB, 1994). As stated in Concepts
Statement 2, the objective of SEA is to ``provide more complete information
about a governmental entity's performance than can be provided by the operating statement, balance sheet, and budgetary comparison statements and
schedules. . .'' (GASB, 1994, par. 55). To accomplish SEA's objective the
GASB (1994, par. 6) is encouraging governments to experiment with reporting
data on inputs, outputs, outcomes and eciency. Because government does not
have a ®nancial outcome measure (net income), and performance is not directly
observable, provision of non®nancial information is necessary (Van Daniker,
1994, p. 59; Baker, 1992, p. 600; Moe, 1984, p. 766) to meet users' needs
concerning government performance.
Two major uses of ®nancial and non®nancial information are accountability (stewardship) and decision-making (GASB, 1987, par. 5). This article
focuses on accountability because of the increased demand for government
accountability and because the GASB Concepts Statement 1 (GASB, 1987,
par. 5±6) identi®es accountability as the cornerstone of governmental ®nancial reporting. Concepts Statement 2 (GASB, 1994, par. 20) recognizes that
accountability is subject to a number of taxonomies. The taxonomy used by
GASB (GASB, 1994, par. 20) identi®es four types of accountability: (1) ®nancial resources (stewardship, operations accountability and viability), (2)
compliance (meeting legal and regulatory requirements), (3) eciency (use of
resources and economy), and (4) eectiveness (attainment of program goals
and objectives).
Survey research (Jones et al., 1985, pp. 87±92; Wilson, 1990, pp. 44, 50;
Daniels and Daniels, 1991, p. 30) indicates that those groups involved in the
resource allocation process (legislators and management) are interested in using ®nancial information for assessing ®nancial accountability and compliance
accountability. Survey research (Jones et al., 1985, p. 94; Daniels and Daniels,
1991, p. 30) also supports an interest in receiving non®nancial performance
measures. Poister and McGowan (1984, p. 390), Grizzle (1987, p. 34; 1993,
p. 974) and Chamberlain (1990, pp. 78±87) have found that eciency and
eectiveness accountability measures are perceived as particularly useful in
allocating resources and assessing performance. Although non®nancial per-
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
49
formance measures 1 are perceived as being useful, little non®nancial performance information is actually available (Chamberlain, 1990, p. 91; Hyndman
and Anderson, 1995, p. 3), and consequently little empirical research exists on
actual use of non®nancial performance measures.
Two studies (Reed, 1986, p. 111; Schrader, 1995, p. 443) that have looked at
the use of non®nancial performance measures have found a relationship between perception and use. Reed (1986, p. 128) found that the budget allocation
decisions of budget preparers and examiners were aected by outcome and
impact measures. While Reed's (1986, p. 117) study did not directly address the
accountability issue, subjects were told to allocate funds to projects exhibiting
``prior success'', which was de®ned in terms of eciency and eectiveness
variables (two types of accountability de®ned by GASB). The premise of
Schrader's (1995, p. 445) exploratory study on service eorts and accomplishments (SEA) was that inclusion of accountability measures would improve
the decision process. Schrader (1995, p. 455) found that when governmental
auditors were asked to rate a program on the de®ned terms economy, eciency
and eectiveness there were signi®cant dierences in ratings when subjects were
provided with just ®nancial statements versus SEA measures. The studies by
Reed (1986) and Schrader (1995) are somewhat supported by interviews with
the State of Georgia budget planners and analysts (Lauth, 1985, p. 72), who
indicated that non®nancial measures were used, at least somewhat, in preparing gubernatorial budget recommendations.
The next section provides insight into why non®nancial performance information may be relevant to groups involved in the resource allocation process.
3. Theory and hypotheses
3.1. The principal±agent model and accountability information
The exchange of information necessary in an accountability relationship is
highlighted in the following de®nition, which provides that accountability involves: (1) establishing a set of relationships which identi®es who (agent) is
accountable to whom (principal), (2) utilizing methods and procedures through
which the agent provides an accounting of eort, eciency and eectiveness,
and (3) distributing rewards and sanctions for agent performance (Weissman,
1983, p. 323).
The preceding de®nition of accountability is formalized in agency theory.
Under agency theory the right to information stems from the need to ensure
1
Eciency and eectiveness tend to be assessed with non®nancial performance measures such as
input, outcome and impact (GASB, 1994, par. 55).
50
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
that the agent has actually performed the services or objectives desired by the
principal (Gjesdal, 1981, p. 208, 211). The complexity of the tasks required of
the agent and the unobservability of the agent's eort (information asymmetries) provide the agent with incentives to shirk (Alchian and Demsetz, 1972,
pp. 780±781; Baiman, 1982, p. 166). To limit shirking the principal must
monitor the agent's eort or require the agent to incur costs of providing
monitoring information (Jensen and Meckling, 1976, p. 308).
Monitoring of agent eort can be accomplished using observable measures
(Gjesdal, 1981, p. 212). External ®nancial reports are one source of observable
measures that can be used for monitoring agent eort (Gjesdal, 1981, pp. 208±
209; Holmstrom, 1979, p. 89; also see Reck, 2000, p. 339). In the basic principal±agent model a principal contracts with an agent for the agent to select
and undertake certain actions or levels of eort (Jensen and Meckling, 1976, p.
308). The principal pays for, and enjoys the net outcome 2 of the agent's eort
(Demski, 1980, p. 89; Baiman, 1982, p. 171). The principal±agent model is
de®ned in monetary terms with net outcome representing a payo determined
by the agent's eort and random events or states of nature 3 (Holmstrom, 1979,
p. 75; Baiman, 1982, p. 173; Feltham and Xie, 1994, p. 431). Under the basic
model the principal's objective is to maximize economic eciency or the net
monetary outcome (Baiman, 1982, p. 165). The principal's problem is to
choose a contract which will ensure the maximum amount of net monetary
outcome (Baiman, 1982, p. 165).
In a government setting the basic principal±agent model needs to be adjusted for the fact that there is no clearly de®ned objective, such as maximizing
net monetary outcome, on which a contract can be constructed. To the contrary, principals may have multiple objectives for government, the least of
which may be economic eciency (Moe, 1984, p. 761, 765). When monetary
outcome cannot be used to evaluate the agent's eort, Baker (1992, p. 612) has
shown that a performance measure can be used to indirectly measure the
principal's objective if both the principal's objective and the performance
measure are related to the agent's eort. To the extent the performance measure captures the agent's eort it can be used to measure attainment of the
principal's objective (Baker, 1992, p. 612). To capture agent eort, principal±
agent models have focused on the creation of a single measure that is as
congruent as possible with the principal's objective (Feltham and Xie, 1994, p.
434). Feltham and Xie (1994, p. 430) point out that using a single measure may
not be ecient if more than one objective is involved, or if there is not one
2
Net outcome is the total outcome of the agent's eort less the reward paid to the agent.
States of nature are assumed to be random, uncontrollable events (Feltham and Xie, 1994, p.
431) and as such are not the subject of this paper; though it is recognized states of nature will
impact behaviors and outcomes.
3
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
51
good measure of the objective (both of which may be true in government). As
Baker (1992, p. 599) indicates, performance measures are indirect measures of
the principal's objective and as such it is highly likely that one performance
measure will imperfectly measure the objective (i.e., there will be noncongruity
between the agent eort and the objective as a result of using an indirect
measure). The use of more than one performance measure by the principal can
increase congruity if the added measures induce the agent to increase eort
toward attaining the principal's objective (Feltham and Xie, 1994, p. 430).
Baker's (1992, p. 599) and Feltham and Xie's (1994, p. 447) models suggest
that accountability measures can be used to assess the agent's performance as
long as the ®nancial and non®nancial information and the principal's objective(s) are related to the agent's eort. While government budget ocials
(principals) do not have the objective of maximizing pro®t they may have other
objectives which can be captured to a degree by ®nancial and non®nancial information (Moe, 1984, pp. 759±761). Budget ocials have career objectives, or
reputation (Moe, 1984, p. 767). To enhance or maintain their reputation, budget
ocials (principals) will want to ensure, at a minimum, that agents (department
heads/managers) are complying with budgetary (legal) requirements (Moe,
1984, p. 762). Concern about meeting ®scal targets and future ®nancial viability
may also aect the budget ocer's reputation. Using compliance accountability
measures and ®nancial accountability measures to assess an agent's eorts
concerning attainment of ®scal targets and continued viability would be useful
to budget ocials (Jones et al., 1985, p. 39, 43). Reputation will also be aected
by the principal's ability to carry out the policies of elected ocials (Moe, 1984,
p. 771). If budget ocials are concerned that program objectives re¯ect policy
then use of eciency and eectiveness measures will increase agent eort toward
the implementation of policy. Since currently available ®nancial measures
cannot accurately re¯ect the eort being expended by an agent to implement
policy, ®nancial measures create an incongruity between the principal's objective and agent eort (GASB, 1994, par. 4±5; Feltham and Xie, 1994, p. 434). The
theoretical need for eciency and eectiveness measures is supported in the
survey literature discussed in Section 2 of my paper and in the work done by
Reed (1986, p. 131) and Schrader (1995, p. 453) that show principals want and
will use eciency and eectiveness information.
Based on the preceding discussion, ®nancial and compliance accountability
measures should be relevant to the principal in assessing the agent's eort. The
provision of ®nancial information will allow for the principal's assessment of
agent eort in the areas of compliance and ®nancial accountability. Reporting
currently provides information on ®nancial and compliance accountability.
Once eort has been assessed the principal will act to reward or sanction eort
(Jensen and Meckling, 1976, p. 323; Weissman, 1983, p. 323). Assuming (as do
all subsequent hypotheses) that all agents provide budget request information,
it is hypothesized that:
52
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
H1: Financial information has an eect on the principal's evaluation such that the reward will be higher when ®nancial information
is favorable than when ®nancial information is unfavorable. 4
If the theoretical models and the institutional literature (Reed, 1986, p. 131;
Chamberlain, 1990, pp. 78±87; Schrader, 1995, p. 453) are correct, non®nancial
performance information should also increase the principal's ability to assess
the agent's eort. Non®nancial information is especially important in determining whether overall policy objectives have been met. The posited value of
non®nancial performance information suggests that it will have an impact on
the principal's evaluation. Therefore, it is hypothesized that:
H2: Non®nancial performance information 5 has an eect on the
principal's evaluation such that the reward will be higher when favorable non®nancial performance information is present, and lower
when unfavorable non®nancial performance information is present.
Feltham and Xie (1994, pp. 439±440) have posited that increasing the
number of performance measures will enhance the principal's ability to assess
agent performance if the measures contain relevant and unique information.
Information provided by ®nancial measures and non®nancial performance
measures should be relevant (Feltham and Xie, 1994, p. 439) in assessing agent
performance since each of the measures has been identi®ed in Section 2 of this
paper as addressing a dierent type of accountability perceived as important by
government principals. Information provided by the measures should also be
unique (Feltham and Xie, 1994, p. 439) since the focus of ®nancial measures is
on the inputs provided to agents; whereas, the focus of non®nancial performance measures is on the outputs and outcomes achieved by agents. If ®nancial and non®nancial performance measures are relevant and unique, they
will measure important but dierent factors (Feltham and Xie, 1994, pp. 439±
440); therefore, no interaction is expected.
3.2. The impact of resource scarcity
6
A factor which has become increasingly important in any assessment of
government is resource scarcity. Case studies (Wolman, 1980, p. 238; Levine
4
Reward is measured by the three dependent variables de®ned in Section 4. For a de®nition of
favorable and unfavorable ®nancial information the reader is referred to the independent variables
section of the paper.
5
In this paper non®nancial performance information is represented by measures of eciency and
outcome. For a de®nition of favorable and unfavorable non®nancial information the reader is
referred to the independent variables section of the paper.
6
As used in this paper, resource scarcity and ®scal stress refer to declining fund sources.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
53
et al., 1981, p. 621, 623; Higgins, 1984, p. 351) indicate that under conditions of
resource scarcity attention increasingly focuses on management performance.
For governments with fewer resources available for allocation, attention to
improving performance is considered preferable to decreasing service levels. In
a study of ®ve state universities, Rubin (1980, p. 169) found that during
scarcity more criteria for evaluation were established.
DeMarco and Holley (1984, p. 179) found that when principals were provided with accountability measures, allocation of scarce resources became
more rational with greater attention given to agent eort. Therefore, it is hypothesized that an interaction will occur between accountability information
and resource scarcity such that:
H3: Accountability information will have a greater eect on the rewards given under resource scarcity than on rewards given under no
resource scarcity.
DeMarco and Holley (1984, p. 179) indicate that resource scarcity will have
an eect on resource allocation rewards. However, the hypothesis does not limit
the analysis to resource allocations since there is some indication that governments with fewer resources would prefer to increase eciency and eectiveness
before decreasing service levels. Therefore, it is possible that allocations will not
be aected by resource scarcity as will other types of evaluations.
4. Design and statistical analysis
4.1. Sample
The sample was drawn from cities that had populations that ranged from
25,000 to 1,000,000. 7 Carroll's Municipal/County Directory (1995) was employed to determine city size, see which individuals were in budget positions,
and to select the sample (see Reck, 2000, p. 340). Nine hundred individuals
were included in the study. To ensure that the correct individuals were identi®ed, individuals surveyed were asked to verify that they were involved in the
budget process for their city. All respondents included in this study indicated
that they were involved with the budget process.
Individuals surveyed were asked to provide demographic information which
was used to determine whether there were any signi®cant dierences among
respondents that could impact the results of the study (see Reck, 2000, p. 240).
Demographic variables collected were political party of the individual, political
party in power, type of government, gender, age, ethnicity, education, expe7
See Reck (2000, p. 348) for the reasons for this choice.
54
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
rience with non®nancial performance measures, size of city, how many years
subjects had held their current position, and whether they or their families had
used the services of a government department similar to the department used in
the experiment.
4.2. Variables of interest
In a government setting, a principal's assessment can result in a number of
dierent rewards or sanctions. The agent can be terminated if the principal
believes the behavior deviates excessively from the principal's goals (Baiman,
1982, p. 166). This happens when incumbents are not reelected, when bureau
directors are asked to resign, and when employees are terminated (Moe, 1984,
p. 764; Mueller, 1989, p. 248). Because it can sometimes be dicult to terminate agents 8 another option available to the principal, and the option examined in this article, is changing resource allocations (Ijiri, 1983, p. 78;
Weissman, 1983, p. 323; Weingast, 1984, pp. 154±156). This article used resource allocation (ALLOC) as an indicator of the principal's satisfaction or
dissatisfaction with the agent's performance. The measure of resource allocation was dollars awarded the department of health of a ®ctitious city.
The de®nition of accountability implies that agents with the most exemplary
performance will receive the greatest reward. However, this may not always be
true in governmental settings. While a government principal may judge an
agent's performance to be exemplary, allocations (rewards) may not be
maintained or increased because of the belief that the eciently performing
agent is not as needy as other agents. 9 Additionally, in a government setting
there may be a separation between the performance of the agency and the
individual managing the agency. While the agency may not be performing as
desired, the principal's objective (such as implementing social policy) may
preclude sanctioning the agency by reducing resource allocations (Moe, 1984,
p. 766). Since the possibility exists that allocation actions will not re¯ect
judgment about performance, a second set of variables was used to ascertain
the principal's judgment about performance. Respondents were asked to rate
performance at both the unit (or agency) level, and the individual (or manager)
level. At the unit level, performance (SCORE) was evaluated using a 100-point
scale with 50 representing average performance. To tie performance evaluation
to the individual and resources allocated the individual, subjects were also
8
Moe (1984, pp. 764±765) points out that the civil service and union contracts make it dicult to
make changes in the labor force.
9
The statement is based on Berg (1984, p. 78) and the state budget experience of the author,
which indicates agents who do not spend their full allocation will receive reductions in future
funding allocations because it is believed the agency does not need all funds requested.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
55
asked to indicate their willingness to award the agent a merit pay raise
(MERIT) based on information provided. Willingness to provide a merit pay
raise was indicated on a seven-point Likert type scale.
Financial information (FIN), non®nancial performance information
(PEFF), and resource scarcity (SCARCE) were the independent variables
tested. 10 The independent variables were included in a budget request made by
a ®ctitious department of health (see Reck, 2000, p. 326). Financial information
was represented by accounting information presented in a line-item operating
budget format. 11 The budget request provided accounting information for the
prior period and the current period. Individuals surveyed were assigned to receive one of two types of accounting information ± favorable or unfavorable. If
there were no signi®cant variances from the original budget, information was
classi®ed as favorable. Additionally, favorable information was indicated by a
stable spending pattern. A stable spending pattern was used since decreased
spending may have been perceived by subjects as an indication of decreased
support for the program, or a decreased need for the program, neither of which
relates to the agent's performance. Unfavorable accounting information was
represented by unfavorable spending variances and an upwardly revised operating budget. In the unfavorable condition expenditures had increased rather
than remaining stable (see Reck, 2000, p. 340).
Non®nancial performance information was represented by eciency and
eectiveness measures. The measures used were constructed from recommendations provided by Hatry et al. (1990, pp. 223±224) and various government
reports (Missouri Department of Health, 1993, pp. 17, 22, 41; City of Columbia, Missouri, 1995b, pp. 60±61). Individuals surveyed were assigned to
receive favorable, unfavorable, or no eciency and eectiveness measures.
When eciency and eectiveness measures improved, or were projected to
improve, the information was considered favorable; conversely, if the eciency
and eectiveness measures showed decreases the information was considered
unfavorable (see Reck, 2000, pp. 340±341).
Resource scarcity was determined by level of revenues and the level of the
unreserved fund balance as a percentage of expenditures. In the no scarcity situation revenues increased at a slightly greater rate than in¯ation and the unreserved fund balance was near the city's desired target of 15% of a year's
expenditure requirements. When resources were scarce, revenue increases were
insucient to cover in¯ation and service demands, and unreserved fund
10
Due to the study's resource constraints, compliance and ®nancial accountability (®nancial
information) were tested together as were eciency and eectiveness accountability (non®nancial
information).
11
For an example of a line-item budget format, the City of Columbia, Missouri's (1995a, pp. 5,
13, 120±125) budget was reviewed.
56
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
balances, relative to annual expenditures, fell to below 5%. 12 A description of
dependent and independent variables, as well as covariates is provided in Table 1.
While covariates are included for control purposes, based on additional
research (Reck, 2000), it is not expected that the covariates will aect the independent variables. Applying the same methodology, I (Reck, 2000, p. 345)
found that use of ®nancial and non®nancial measures was not aected by
budget ocials' individual characteristics, such as moral judgment and political beliefs.
4.3. Test instrument
13
Individuals surveyed received a scenario in which they were told they were
an ocial in budgeting for a ®ctitious city (Reck, 2000, p. 346). Based on the
information furnished, respondents provided a budget allocation for the city's
department of health. Additionally, respondents rated the overall performance
of the department of health and indicated how likely they would be to award a
merit pay raise to that department's director.
Individuals surveyed received information about both the city and the department of health (Reck, 2000, p. 346). Total revenues for the last two year's,
the current year's revenue projection, and ®nancial condition measures were
provided for the city. The city's budget request and current period budget,
broken down by department, were provided. The mission statement, the department's objectives, and brief justi®cations for requested budget increases
were provided along with the line-item budget for the prior period, current
period and requested period. Expected and actual ®gures for four eciency and
®ve eectiveness measures were included for the prior period and the current
period. 14
The 900 individuals were randomly assigned to one of 12 treatment cells
created by the 2 3 2 between-subjects factorial design. The 12 treatments
were created by two levels of ®nancial information (favorable [FF], or unfavorable [UF]), three levels of non®nancial performance information (favorable
[FP], none [NP], or unfavorable [UP]), and two levels of resource scarcity (no
scarcity [NSC], or scarcity [SC]).
Each individual was mailed a questionnaire and the scenario appropriate to
his/her cell assignment. The original mailing and two follow-up mailings resulted in 234 usable responses, or a 26.0% usable response rate.
12
Unreserved fund balances below 5% of annual operating expenditures are considered a sign of
®scal stress by rating agencies (Hay and Wilson, 1995, p. 409).
13
I conducted pre-testing and made adjustments to the instrument based on the pre-testing (this
is described in Reck (1996, pp. 59±61), and Reck (2000, pp. 348±349)).
14
To view the test instrument see Reck (1996, pp. 122±127) and Reck (2000, pp. 346±348). Those
sources show all information in the instrument.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
57
Table 1
Description of variables
Name of variable
Dependent variables
ALLOC
SCORE
MERIT
Description
The amount of resources respondents allocated to the department of
the health, as measured in dollars.
The overall performance score the respondent awarded the department. The performance score was awarded on a 100-point basis
with 1 indicating the lowest performance and 100 the highest
performance
The likelihood the respondent would award the director of the
department a merit raise based upon the information the subject
received. Likelihood was rated on a 1±7 scale with 1 indicating no
likelihood and 7 indicating certainty
Independent and moderator variables
FIN
A measure of the two accounting information treatments: favorable
budget information (coding 1), or unfavorable budget information
(coding 2)
PERF
A measure of the three performance information treatments: favorable
performance information (coding 1), no performance information
(coding 2), or unfavorable performance information (coding 3)
SCARCE
A measure of the two resource scarcity treatments: weak ®nancial
position with a shortfall of revenue (coding 1), or strong ®nancial
position with no revenue shortfall (coding 2)
Covariates
GOVPARTY
TYPEGOV
USEEE
GENDER
L_C
AGE
EDUC
MAJOR
Relates to the governing party of the city: Democrat (coding 1),
nonpartisan (coding 2), Republican (coding 3), or other
(coding 4)
Relates to the title of the individual governing the day-to-day
operations of government: city administrator (coding 1), city
manager (coding 2 ), mayor (coding 3), or other (coding 4)
Relates to whether the city's government uses eciency and eectiveness measures: yes, the city uses such measures (coding 1) or no, the
city does not use such measures (coding 2)
Female (coding 1) or male (coding 2)
The respondent's own assessment of his or her political beliefs. In the
test instrument the order of presentation was conservative, liberal and
moderate. The statistical analysis indicated: conservative (coding 1),
moderate (coding 2) and liberal (coding 3)
The respondent's age in years
The respondent's level of education: high school (coding 1), associate's (coding 2), bachelor's (coding 3), master's (coding 4),
doctoral (coding 5), or other advanced degree (coding 6)
Indicator of the respondent's educational background. In the test
instrument the order of presentation was accounting, business
administration, ®nance, public administration, and other. The statistical analysis indicated: accounting (coding 1), ®nance (coding 2),
business administration (coding 3), public administration
(coding 4), or other (coding 5)
58
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 1 (Continued)
Name of variable
Description
ETHNIC
The respondent's ethnic category as de®ned by the federal government:
African±American (coding 1), Asian/Paci®c Islander (coding 2),
Hispanic (coding 3), Native American (coding 4), or white
(coding 5)
The number of years the respondent has held his or her current
position
The respondent's political aliation: Democrat (coding 1), independent (coding 2), Republican (coding 3), or other (coding 5)
An indication of whether the respondent or his/her family has ever
used the services of the city's health department: no (or city has no
health department) (coding 1) or yes (coding 2)
The population of the respondent's city. Obtained from Carroll's
Municipal/Country Directory (1995)
EXPER
PARTY
USE
CITYPOP
A review of Table 2 indicates that over half of the respondents were from
nonpartisan governments, and worked with city managers. The majority of the
respondents (58.8%) worked for governments that do not use eciency and
eectiveness measures. Respondents tended to be white (91.8%), male (76.5%),
and in their forties (mean 42.99). Over half (51.5%) of the respondents hold
master's degrees, with almost half (46.6%) identifying accountancy as their
primary ®eld of study. Respondents were relatively equally divided among
Republicans, Democrats and independents; however, respondents overwhelmingly (90.5%) considered themselves to be moderates or conservatives.
Three sources of information were used to test for nonresponse bias. The
three sources were the original sample, The Municipal Year Book 1995 (International City/County Management Association, 1995) 15 and early versus
late responders. 16 In general, respondents did not appear to be substantially
dierent than the population sampled.
15
The Municipal Year Book (1995) compiles data on cities with populations over 2500. It uses a
variety of sources for collecting data, including surveys. The Municipal Year Book (1995) response
rate for cities the size of those used in this study exceeds 1000 for all variables analyzed.
16
Respondents were compared to the original sample of 900 on the variables GENDER and
CITYPOP. Analysis indicated that at an alpha of 0.05 the null hypothesis that the distribution of
respondents was the same as the distribution of the original sample could not be rejected for
GENDER or CITYPOP. Comparison of respondents to The Municipal Year Book (1995) sample
on the variables TYPEGOV, USEEE, and ETHNIC indicated the samples were substantially the
same on the variables TYPEGOV, and USEEE. However, for the variable ETHIC a larger
percentage of African±Americans (3.4%) responded to this study than were present in The
Municipal Year Book (1995) sample (1.5%). The overall small number of African±Americans
(randomly distributed) was not expected to create a signi®cant bias. On the self-reported measure
GOVPARTY, between early and late respondents, individuals from Republican majority governed
municipalities tended to be slightly more often late (Chisq 10.39, 2 df; p < 0:01) in their responses
then those individuals from nonpartisan or Democrat majority governed municipalities.
59
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 2
Demographic characteristics of subjects
Variable
Frequency 1
Frequency 2
Frequency 3
Panel A: frequencies of discrete variables
GOVPARTY
(n 219)
TYPEGOV
(n 234)
USEEE
(n 233)
GENDER
(n 234)
L_C
(n 231)
EDUC
(n 231)
MAJOR
(n 232)
ETHNIC
Nonpartisan
(64.5%)
City manager
(58.8%)
Do not use
(58.8%)
Male
(76.5%)
Moderate
(49.4%)
Master's degree
(51.5%)
Accountancy
(46.6%)
White
(n 232)
PARTY
(n 230)
USE
(n 233)
(91.8%)
Republican
(36.1%)
Have not used
(84.5%)
Republican
(23.7%)
Mayor
(16.7%)
Do use
(41.2%)
Female
(23.5%)
Conservative
(41.1%)
Bachelor's degree
(46.3%)
Public admin
(22.8%)
African±American
(3.4%)
Independent
(33.9%)
Have used
(15.5%)
Democrat
(23.3%)
City administrator
(14.5%)
±
±
Liberal
(9.5%)
Associate's degree
(1.3%)
Business admin
(15.9%)
Asian/Paci®c Islander & Hispanic
(1.7% each)
Democrat
(28.7%)
±
Panel B: descriptive statistics of continuous variables
Variable
n
Mean
Median
S.D.
AGE
EXPER
CITYPOP
42.50
6.00
54.25
8.09
5.96
130.90
230
234
231
42.99
7.51
101.84
4.4. Statistical analysis
Because the dependent variables were highly correlated, factor level planned
comparisons were conducted using MANOVA tests followed by planned
comparisons using ANOVA (Stevens, 1992, pp. 152, 160). The multivariate
tests provided an indication of the overall signi®cance of the variables, thereby
allowing for a univariate analysis of individual variables.
4.4.1. Descriptive statistics
Spearman correlations among the dependent variables and independent
variables are presented in Table 3. As anticipated, the dependent variables
(ALLOC, SCORE and MERIT) were signi®cantly and positively correlated
(p < 0:05, two-tail test). Spearman correlations between the dependent and
independent variables were in the expected direction, with unfavorable
60
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 3
Spearman correlation coecientsa
Panel A: Spearman correlation of dependent and independent/moderator variables with covariates
(n 234)
ALLOC
SCORE
MERIT
FIN
PERF
SCARCE
ALLOC
±
SCORE
0.438
±
MERIT
0.336
0.663
±
FIN
)0.124
)0.064
)0.132
±
PERF
)0.182
)0.610
)0.463
)0.064
±
SCARCE
0.248
0.042
0.028
0.071
)0.069
±
GOVPARTY
)0.065
)0.140
)0.017
0.060
0.032
)0.021
TYPEGOV
0.037
0.022
0.042
)0.036
)0.067
0.076
USEEE
)0.009
0.020
0.064
)0.016
0.069
0.085
GENDER
)0.063
)0.097
0.022
0.129
0.107
0.110
L_C
0.091
0.084
0.072
0.018
)0.042
)0.059
AGE
)0.081
)0.084
)0.055
)0.026
0.096
0.015
EDUC
)0.129
)0.071
)0.039
0.084
0.096
)0.010
MAJOR
0.018
0.090
)0.005
)0.001
)0.032
0.023
ETHNIC
)0.075
)0.130
)0.062
)0.037
)0.009
0.025
EXPER
)0.085
)0.038
)0.047
)0.029
0.050
)0.062
PARTY
)0.018
0.021
0.061
)0.014
)0.073
0.034
USE
0.033
0.137
0.069
)0.040
)0.002
)0.040
CITYPOP
0.049
0.050
0.000
)0.021
0.006
0.037
a
Highlighted correlations are signi®cant at the 0.05 level, for a two-tail test. See Table 1 for variable
descriptions.
information correlated with lower levels of the dependent variables. There were
no signi®cant correlations among independent variables.
Table 3 also presents the correlations of the dependent and independent
variables with the covariates. Two covariates (GOVPARTY and USE) were
correlated with the dependent variable SCORE. A MANOVA 17 was conducted to determine if either of the covariates contributed signi®cantly to explaining the level of the dependent variables. Neither of the covariates
signi®cantly in¯uenced (alpha 0.05, two-tail test) the level of the dependent
variables. 18
Table 4 indicates that when both FIN and PERF were favorable mean levels
of ALLOC, SCORE and MERIT were at their highest levels relative to the
other cells. Unexpectedly, the lowest level for ALLOC tended to occur when
FIN was unfavorable and no PERF information was provided, rather than
when both FIN and PERF were unfavorable. The in¯uence of FIN on the
17
A MANCOVA was also conducted using all 13 covariates. The results indicated none of the
covariates was signi®cant.
18
There were no signi®cant interactions between covariates and independent variables.
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
61
Table 4
Descriptive statistics by treatment for dependent and independent variables (n 234)a
Financial information
(FIN)
Favorable information
ALLOC
SCORE
MERIT
Unfavorable information
ALLOC
SCORE
MERIT
Non®nancial performance information (PERF)
Favorable
information
No information
Unfavorable information
3258.71
(46.76)
n 36
79.53
(15.19)
n 36
4.57
(1.68)
n 36
3234.45
(92.95)
n 44
61.34
(22.28)
n 38
2.57
(1.54)
n 41
3236.18
(42.51)
n 46
42.98
(16.83)
n 45
2.45
(1.39)
n 46
3236.38
(104.42)
n 40
76.92
(15.24)
n 39
4.18
(1.75)
n 40
3187.84
(109.87)
n 31
43.33
(26.24)
n 27
1.67
(1.12)
n 30
3225.38
(88.08)
n 37
42.61
(22.42)
n 35
1.92
(1.23)
n 37
a
Means are followed by (standard deviation) and cell size. The dependent variables are listed for
each cell; ALLOC resource allocation, SCORE unit performance score, and MERIT likelihood of unit manager receiving a merit raise.
dependent variables was as expected, with favorable FIN generally resulting in
larger ALLOC, SCORE and MERIT than unfavorable FIN. Of interest was
the fact that variability of ALLOC was considerably greater when FIN was
unfavorable than when FIN was favorable. The in¯uence of PERF on SCORE
and MERIT was re¯ected in the means. When PERF was favorable, SCORE
and MERIT had higher mean levels than when PERF was unfavorable.
4.4.2. Tests of hypotheses
Table 5 provides the results of the MANOVA analysis. MANOVA indicated FIN (F 3:69; p 0:006, two-tail test) and PERF (F 23:92;
p < 0:001, two-tail test) had an overall eect on the dependent variables. As
expected, MANOVA showed there was no signi®cant interaction
(F 1:13; p 0:34, two-tail test) between FIN and PERF.
To test hypotheses one and two directional comparisons were made. Since
direction was hypothesized, the following discussion of the results for H1 and
H2 is based on one-tail tests. The dierences between factor level or treatment
62
J.L. Reck / Journal of Accounting and Public Policy 20 (2001) 45±71
Table 5
General factor level eects using MANOVA (n 234)
Independent variablea
F-valueb
p-valuec
FIN
PERF
SCARCE
FIN*PERFd
FIN*SCARCE
PERF*SCARCE
3.69
23.92
0.73
1.13
1.33
1.31
0.006