Ross, Laing & Parle – Volume 6, Issue 2 (2015)

e-Journal of Social & Behavioural Research in Business

Vol. 6, Iss. 2, 2015, pp: 34 – 41.
”http://www.ejsbrb.org”

Attitudes towards Budgets in SME’s: Exploring the

Theory of Planned Behaviour

Stuart Ross
School of Business
Faculty of Arts & Business
University of the Sunshine Coast
Email: sross@usc.edu.au

Gregory Laing
School of Business
Faculty of Arts & Business
University of the Sunshine Coast

Gabrielle Parle
School of Business
Faculty of Arts & Business
University of the Sunshine Coast

Abstract
Purpose: The purpose of this study was to determine the attitudes towards budgets by owner/managers of
SME’s and investigate whether the issues raised in the literature continued to be relevant.
Methodology: The database used in the study consisted of 68 responses from SME owner/managers in
Australia. The theory of planned behaviour was used as a model for establishing the variables and their
respective relationship to derive the attitude towards budgets. Two groups were identified, group 1 were
non users of budgets and group 2 were users of budgets. The attitude towards budgets was examined using
the t-test for variance between the groups.
Findings: Group1 was found to have a negative attitude towards budgets (-0.06) and group 2 was found to
have a positive attitude towards budgets (0.25). The results support the relationship between the variables
in the theory of planned behaviour model. The difference between the groups was found to be statistically
significant at α 0.001.
Implications: This study contributes to the theoretical development of the application of the theory of
planned behaviour for evaluating decisions by owner/managers in SME’s.

Keywords: budget attitudes; SME’s; theory of planned behaviour.

JEL Classification: M40 ; M41

PsycINFO Classification: 3650
FoR Code : 1503
ERA Journal ID#: 123340

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Introduction
Small medium sized enterprises (SME’s) play an important role in the economic performance and
development of countries and represent between 96% to 99% of the total number of businesses in most of
the OECD countries (OECD, 2002). In Australia, SME’s contribute approximately one third to the GDP and
around 70% of total employment (OECD, 2000). For the purpose of this paper the definition of the term
SME is derived from the Australian Bureau of Statistics’ which is any business that employs less than 200
staff (www.abs.gov.au).

The global financial crisis impacted all countries causing varying degrees of financial distress on all
businesses regardless of their size (Laing, 2011). In the context of Australia, the failure rate of SME’s is
reportedly as high 23% (Watson, 2003). This is a cause for concern given the importance of SME’s on GDP
and employment rates. A significant contributing factor for financial failure is the lack of financial
planning and control by management or as the case may be the owner/manager (Kiggundu, 2002;
Wasilczuk, 2000). The experience of financial failure can also cause psychological as well as physical harm
to individuals (Shepherd, 2003).

Ennis (1998) argued that for any business to compete effectively and maintain financial viability
they need to actively plan for the future. Budgets have long been held to represent the financial
blueprints of the future for a business. They serve in providing direction in respect to the planning,
evaluation, co-ordination, communication and ultimate decision making of a business (Kung, Huang &
Cheng, 2013; Anthony & Govindarajan, 2007; Joshi, Al-Mudhaki, Bremser, 2003). In order to achieve the
objectives of any business, including small medium enterprises (SME’s), it is essential that managers have
both the desire and relevant skill sets to implement appropriate budgetary planning and control systems.
However, prior research has identified that the lack of knowledge regarding managerial and financial
resources as a key reason that SME’s did not commit to the use of formal budgets (Hutchinson & Ray,
1986; Sexton & Van Auken, 1985). This lack of planning was found to be a factor in the failure of many
SME’s (O’Neil & Duker, 1986). This study examines the attitude of manager/owners to budgetary planning
as a determinant in uptake of requisite budgeting procedures in Australian SME’s.

Literature Review
Budgets have been referred to as the mechanism by which management can plan, direct and
control the operational functions of a business to achieve financial profitability (Horngren et al, 2000).
Research has shown that there exists a relationship between the use of budgets and profitability in SME’s
(Gorton, 1999). This notion is further supported by Hansen, Otley and Van der Stede (2003) who argue that
budgets are a primary means for enhancing financial performance.

Budgetary planning and control has been linked with strategy and as early research indicated
(Robinson & Pearce, 1984) small business needed to place greater emphasis on the planning process to
improve strategic options. The problem identified by Chaganti, Chaganti and Mahajan (1989) was that
SME’s tended to focus on attempting to outperform rivals in a competitive market without attention to
innovation in other approaches to improve performance. Prior research (Kudla, 1980; Pearce, Freeman &
Robinson, 1987) classified firms as those with formal planning and those without formal planning systems
to examine the effect of the formal planning process on financial performance. However, findings are
mixed (Kudla, 1980) and Robinson and Pearce (1983) finding no significant difference between formal and
non-formal while Bracker, Keats and Pearson (1988) reported that those SME’s with formal budgetary
planning processes outperformed those where no formal processes were present.

Davila (2005) argued that the efficiency of managing an organisation relied on the nature of
formal controls and the ability to invest in formal budgeting practices was linked to the size of the firm.
Chenhall (2003) found that size had been considered as a contextual variable in a limited number of
studies. Studies of SME’s (Davila & Foster, 2005, 2007) found that size was a significant influence in the
decision to adopt operating budgets. SME’s are characterised by decision making that is restricted to the
business owners and under the circumstances relatively fewer administrative controls and even less
sophisticated budgets are required (Merchant, 1981).

Overall studies of formal budgeting practices have paid little attention to the behavioural attitude
of business managers. Research concerning budgetary behaviour has generally focused on two aspects of

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the budgeting process. Firstly, the role of participative budgeting and its influence on job performance
(Chong & Leung, 2003; Chong & Chong, 2002; Wentzel, 2002; Nouri & Parker, 1998). Secondly, the games
played by those involved in the budget setting process (Laing, 2008; Yuen, 2004; Dunk & Nouri, 1998;
Collins, Munter & Finn, 1987; Young, 1985). These studies have focused on the outcome of the budgeting
process and have not considered the issues relating to the management of small to medium size
enterprises (SME’s). The extent to which management participate in the budgeting process may be
interpreted as a reflection of the management style as well as skills and competencies, but does not
address the situation where the manager is the owner of the business. The attitude towards budgeting
practices by the owner managers in SME’s is an area which has received very little attention in the
literature.

Based on the findings in the literature the following model is derived from the budget purpose;
which is concerned with the various performance focus areas; and in turn impacted on by the performance
constraints all of which influence the attitude towards budgeting. The model is presented in Figure 1.

Figure 1:
Attitude towards Budgeting from the Literature

Management attitude towards budgeting is the primary focus of this study. An attitude has been
defined (Statt, 1981) as a form of predisposition to respond to certain things in a certain way. In this
regard an attitude can be considered as being a hypothetical construct which may be measured regardless
of any physical reality (Laing & Perrin, 2011). The theory of planned behaviour (Ajzen, 1991) addresses
the notion that behaviour may be predicted by intentions to perform the particular behaviour and that
applies to perceived behavioural control when the behaviour is not under complete volitional control
(Conner et al., 2001). In this situation intentions are considered to be plans to act in a particular way and
these represent the motivation toward the behaviour; they are influenced by the attitude towards the
behaviour, subjective norms, and perceived control over the behaviour (Ajzen, 1991; Conner et al., 2001).
In the theory of planned behaviour, attitudes are therefore explained or linked to the overall evaluations
of the behaviour in terms of favourable or unfavourable and the subjective norms which evaluate the
perceived social pressures to perform or not perform a particular behaviour. Finally, perceived
behavioural control is explained as the individual’s perception of the extent to which performance of the
behaviour is considered to be easy or difficult (Ajzen, 1991; Conner et al., 2001).

The theory of planned behaviour provides an ideal theoretical model for examining the attitude
towards budgeting by owner/managers in the SME setting. Southey (2011) argued that the model was
eminently suited to evaluating decisions in small business because the decisions are often made by a
single individual. Southey (2011) provided examples of the use of the theory of reasoned action and the
theory of planned behaviour in examining: financial decision making; strategic decision making; and
professional decision making, and called for further research to explore the use of these models in the
small business sector.

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For the purpose of this study the theory of planned behaviour is used as it provides an ideal
framework to examine the attitude towards budgets given the available data. The model is modified to
therefore consider the relationship given the known behaviour towards budgeting. The modified model is
presented in Figure 2.

Figure 2:
Theory of Planned Behaviour Model of Attitude towards Budgeting

Methodology
This study examines survey responses on budget practices by manager/owners of SME’s. The data
for this study was obtained from the O’Rourke Consulting Economics database of 200 SME’s in New South
Wales, Australia. The database consists of survey questions over various aspects of SME operations and
only responses that were relevant to exploring budgeting practices are used for this study. Only 68
responses were found to provide sufficient information to be useful for this study, effectively 34%.

Because the questions in the database do not provide for variables that fit with the subjective
norm nor the perceived behavioural control, this study will limit its attention to the constructs, budgeting
intention and budgeting behaviour. To measure attitude towards budgeting the method adopted in this
study is based on the approach devised by Porter (1962) to measure perceived deficiencies in need
fulfilment of employees. The technique involves subtracting the response to question (a) from question (b)
to measure the attitude towards budgets (Copeland, Francia & Strawser, 1973; Laing & Perrin, 2011). In
this study the question asked respondents to provide a response on a Likert scale of 1 to 5. Likert scales
have been widely adopted and validated for use in determining the beliefs and attitudes of subjects
(Cooper, 1976). The justification for the use of a Likert scale ranging from 1 to 5 is based on the research
by Miller (1956) which identified that the human capacity for processing information was limited to the
“magic number seven plus or minus two”.

The budgeting intention is derived from the question that asked: whether they prepared financial
projections, (a) how regularly and (b) how desirable this was. For these attributes, several measurement
scales were used, from; very seldom to very regular, scale of 1-5; as well as a very undesirable to very
desirable, scale of 1-5. Hence, the response to (a) is subtracted from (b) to provide (c) the attitude
towards budgets. As the data set contained no questions that could be used to operationalise the
variables, subjective norm or perceived behavioural control, this study is concerned with the budgeting
behaviour and budgeting intention, in determining the attitude towards budgeting.

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Results
The survey data revealed that a high percentage (76.5%) did not use budgets in the operation of
their respective small business, refer to Table 1. This result is consistent with prior studies which reported
that budgeting practices were not readily adopted by SME’s. Hence the behavior and the behavioural
intention are clearly identified for the application of the model. For the purpose of further examination
this establishes two very distinct groups; those that do not use budgets (group 1) and those that do (group
2).

Table 1:
Use versus Non-use of Budgets in Small Business
Not using Budgets 76.5 %

Using Budgets 23.5 %

N = 68

The reasons for not performing budgets, Table 2, are also consistent with the prior research with
the most common reason being that the "business is too small to justify performing budgets" (28.85%). The
second highest reason also supported by the prior research was “lack of time” (21.15%).

Table 2:
Reasons for not performing budgets
REASON (1st preferences only) Response %

1. Business is too small to justify them 15 28.85

2. Lack of time 11 21.15

3. Management resistance to them 9 17.31

4. Budgets too expensive to use 7 13.46

5. Employee resistance to budgets 4 7.69

6. Other (don't know how to implement or design one 6 11.54

properly)

The descriptive statistics for the three variables for the two groups is presented in Table 3. The
attitude towards budgeting, variable (c), is a negative (-0.06) for group 1 which is the non-users of
budgets and a positive (0.25) for group 2, the users of budgets.

Table 3:
Descriptive Statistics of Mean of Responses from Group 1 and Group 2
Group and Question N Mean Std. Deviation
1 – (a)
52 1.46 .641
1 – (b)
52 1.40 .534
1 – (c)
52 -0.06 .416
2 – (a)
16 3.81 .834
2 – (b)
16 4.06 .680
2 – (c)
16 0.25 .683

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The test of variances between groups was conducted using the t-test, and the results are
presented in Table 4. Effectively, the difference between the groups in regards to the derived attitude
towards budgets was significantly different α 0.001 from each other.

Table 4:
Test of Variances between Groups
Levene's Test for
Equality of Variances t-test for Equality of Means

F Sig. t df Sig. (2-tailed)

Groups Equal variances assumed 11.576 .001 -2.198 66 .031

Equal variances not

-1.707 18.548 .105
assumed

Discussion
With 76.5% of small business manager/owners indicating that they did not use budgets (Table 1)
this basically defined the comparative nature of the study. Not only was the attitude towards budgeting
investigated, it was also possible to examine the difference between two groups, one which did not use
budgets (group 1) and the other which did (group 2). The answers to a general question provided
confirmation regarding the issues raised in the literature in particular problems cited by owner/managers
of SME’s pertaining to the adoption and use of budgets (Table 2).

Returning to the overview in Figure 1, the results highlight the existence of a negative attitude
towards budgets by group 1 (-0.06) and a positive attitude towards budgets by group 2 (0.25). Now this is
not unexpected since group 1 consisted of owner/managers that identified as not using budgets whilst
group 2 was the owner/managers that identified as using budgets. What this result does provide is support
for the argument that there is indeed a link between the variables in the theory of planned behaviour
model. The clarification from the test of difference between the groups supports the principle that
negative attitude and positive attitude are inherently useful in explaining and predicting the intention and
eventual adoption of budget behavior. The extent to which the model is able to provide a greater insight
is of course dependent upon the acquisition of the additional variables of objective norm and perceived
behavioural control.

Limitations
As with all research, there are limitations that influence the generalisability of the empirical
findings. It is acknowledged that the study was not a full investigation of the theory of planned behaviour
because of the restricted data that was available, both in terms of the sample size and the coverage of
the survey questions.

Future Research
This study presents a model which may be useful for further refinement and testing in regards to
the attitudes and adoption of budgeting practices by SME’s. Future research may benefit from
investigating the role and impact of other variables that moderate or constrain behaviour within SME’s of
different sizes and differing industries. This study did not consider the other two key variables in the
theory of planned behaviour of subjective norm and perceived behavioural control and future research
would be able to better examine the full model using structural equation modelling.

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