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«Thu Thi Nguyen*, Lokman Mia, Allen Huang Department of Accounting, Finance and Economics, Griffith Business School Griffith University, Australia ...»

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2.2 The use of MAS information and managerial performance The extent to which broad scope MAS information is used to improve performance depends on the context (Chenhall, 2003). In particular, under high levels of uncertainty, managers use more broad scope MAS information in making decisions in order to improve their performance (Chong and Eggleton, 2003, Chong, 2004, Mia, 1993). For example, when managers’ perceived environmental uncertainty (PEU) increased, managers used more MAS information to improve their performance (Mia, 1993). However, under low task uncertainty, the relationship between the use of MAS information and managerial performance was negative (Chong and Eggleton, 2003, Chong, 2004). Therefore, conducting research on the relationship between the use of MAS information and managerial performance in different business environments is crucial for providing more useful evidence to the understanding of the use of MAS information in specific contexts. This also helps enterprises have a better understanding of the extent to which managers use broad scope MAS information in making decisions to enhance performance and account for the possible influence of related factors. To have a better understanding of the issue, this study examines the impact of ownership type on this relationship.

MAS information, one of the most important components in the organisational planning and control system (Chenhall, 2003, Simons, 1995), helps managers understand and perform their job better (Mia, 1987). Researchers state the decision-facilitating role of MAS information (Sprinkle, 2003). A major function of MAS is to support the needs of top management in controlling decisions and the needs of lower level managers in managing decisions. In a dynamic business environment, managers need broad scope information to deal with many non-routine decisions (Chenhall, 2003, Abernethy and Bouwens, 2005, Tiessen and Waterhouse, 1983, Chenhall and Morris, 1986). For example, information such as performance targets and criteria for evaluating the achievements of these targets supports managers in planning, controlling, and making more appropriate decisions (Chenhall and Morris, 1986, Mia, 1993, Horngren et al., 2006). To deal with complex and uncertain events in a transitional economy, managers need broad scope MAS information, such as non-financial and future oriented information. Managers who use more broad scope MAS information are able to make more effective managerial decisions for setting suitable targets and evaluating achievements, which in turn improve managerial performance (Mia and Clarke, 1999). It is thus argued that the use of MAS information may help managers improve their performance, leading to the

following hypothesis:

H2: There is a positive relationship between the use of MAS information and managerial performance.

2.3 Reward systems and managerial performance An appropriate reward system may encourage managers, while a system based on subjective and uncertain criteria to reward employees may negatively affect managerial performance (Ittner et al., 2003). One of the most important tools to motivate employees is an appropriate reward system (Schulz et al., 2010). Managers are motivated through their perceptions of performance measures, type of rewards, evaluation/reward systems and the links between these perceptions (Kominis et al., 2007).

6 A close linkage between rewards and performance targets may improve managerial performance. A significant association between reward systems and performance has been found in many studies (Byun et al., 2009, Gomez-Mejia et al., 2010, O'Connor et al., 2006).

However, it may be problematic if the performance measurement is not appropriate. For instance, Ittner et al. (2003) found that managers complained more when their organisation used a high level of subjectivity to assess their performance and reward them (e.g. bias in bonus awards and uncertain criteria used to determine rewards). The literature review shows that appropriate reward systems may have a positive effect on managerial performance. However, the extent to which reward systems affect performance is different depending on a particular context. Therefore, more studies examining the relationship between reward systems and managerial performance in different circumstances will provide a better understanding of the issue.

Regarding the link between rewards and performance targets, once employees perceive a close link between their efforts and achieving performance targets, they may extend their efforts to enhance performance (Langfield-Smith et al., 2006). For example, when sales managers perceive that they will receive valuable rewards for achieving performance targets such as customer satisfaction, they may investigate information relating to customer needs and expectations (Bangchokdee, 2008). Such information is then used in negotiating and contracting for goods or services delivered to the customer as expected. As a result, these sales managers may achieve high performance. In other words, linking rewards to performance targets may lead to the improvement of managers’ performance (Sprinkle, 2003). Based on the

literature, the present research thus proposes the following hypothesis:

H3: There is a positive, direct relationship between department managers’ perceptions of reward systems and managerial performance, in addition to the indirect effect via the use of MAS information stated in H1.

2.4 Impact of ownership The literature suggests that ownership is one of the most important factors affecting companies in managing and controlling operations in transitional economies (Tan, 2002, Wang and Judge, 2011). Different types of ownership might have different effects on organisational characteristics, such as reward systems, decision-making authority and use of information (Ding et al., 2011, Macias, 2002). Therefore, understanding the relationships between these characteristics and managerial performance is very important for enterprises operating in a transitional economy. However, the literature suggests that studies on the influence of ownership type on these relationships have not been carried out. To fill the gaps in the literature, this study examines the impact of ownership type on reward systems, the use of MAS imformation, managerial performance, and on relationships between these factors in Vietnamese enterprises.

The innovation in enterprises after the 1997 Asian financial crisis has brought many contemporary management practices into the workplace. However, the traditional core practices have still been hard to replace in Vietnamese SOEs (Zhu et al., 2007). In general, reward systems in SOEs have been egalitarian and indirectly related to organisational efficiency and individual efforts. Nevertheless, individuals might be rewarded depending on seniority and lifetime of employment in some compensation schemes (Zhu et al., 2008). The link between rewards and performance targets in such systems is weak; therefore, managers have little motivation for using MAS information relating to these targets in their decisions.

Accordingly, reward systems in SOEs may have less impact on the use of MAS information.

By contrast, enterprises in the private sector, especially the ones with foreign partner involvement, have a tendency to adopt more contemporary management practices. These 7 companies motivate individuals by rewarding good outcomes based on both financial and non-financial performance measures such as profit, productivity, and skills (Zhu et al., 2007).

When managers are aware that good outcomes will be rewarded based on non-financial performance measures such as productivity, they may require information relating to these measures in order to support their decision-making to solve agency problems (Gupta and Govindarajan, 2000).

Reward systems influence performance differently depending on the context (Gomez-Mejia et al., 2010, O'Connor et al., 2006). Company ownership is one of the key determining factors in rewarding employees, in terms of how to pay and at what level such decisions are made (Gunnigle et al., 1994). The monitoring role of reward systems differs according to the type of ownership. For example, the level of monitoring of managers through performance-based compensation in widely-held companies is higher than in family-controlled firms (Gomez-Mejia et al., 2003, Jiang, 2011, Khan et al., 2005).

In the rapidly changing business environment of a transitional economy, the impacts of reward systems are uncertain depending on the contexts (Ji et al., 2007). Ownership type has played an important role in determining the incentive pay scheme and performance-based pay for managers.

In transitional economies, reward systems adopted from a centrally planned economy still dominate in SOEs. Such a system has a weak connection between rewards and individual efforts and performance (O’Connor et al., 2004). This egalitarian system rewards managers in much the same way even though there are differences in their efforts. Subjective and uncertain criteria in reward systems lead to the dissatisfaction of managers, which in turn may negatively affect managerial performance (Ittner et al., 2003). Consequently, managers are not motivated to improve their performance through reward systems. In other words, reward systems in SOEs may have less effect on managerial performance.

By contrast, POEs often strengthen the link between executive pay and performance more effectively than SOEs. Private and foreign companies tend to use performance-based rewards more than SOEs to motivate managers (Kato and Long, 2004, Batjargal, 2010). In these enterprises, reward systems link tightly to organisational and individual performance in terms of “profit, productivity, responsibility and skills” (Zhu, 2005, p.1265). When managers believe that their efforts are recognised and rewarded through a set of objective and clear criteria, they may try their best to improve managerial performance (Gomez-Mejia et al., 2010, O'Connor et al., 2006). Therefore, it can be argued that in Vietnamese POEs, reward systems, which are based more on performance targets, may have a significant positive effect on managerial performance.

Extrapolating from the literature, the present study proposes the following hypotheses:

H4a The assessment by managers in SOEs of the link between rewards and performance targets, their use of the MAS information and performance was lower than the assessment by their counterparts in POEs and FOEs.

H4b Ownership type affects the relationships between reward systems, the use of MAS information and managerial performance.


3.1 Questionnaire survey method A quantitative approach was used to test the hypotheses of the study.

Sample selection The target population of this study is department managers in Vietnamese enterprises from a variety of ownership types: state-owned, privately owned, and foreign owned firms operating 8 under The Law of Enterprise 2005 in Vietnam. The participants are managers from sales, production, accounting, marketing, and operation departments, who can provide information about their use of MAS information in managerial decision making (Chenhall and Morris, 1986, Chong and Eggleton, 2003, Mia, 1993), and about their perspective of the link between reward systems and performance (Chenhall and Langfield-Smith, 2003, van Veen-Dirks, 2010, Schulz et al., 2010).

A convenience sampling instead of random sampling approach was used to collect as many responses as possible because there is little tradition of independent and confidential inquiry for research in Vietnam, managers often hesitate to decide to participate in a survey. The convenience sampling is prone to bias, for example, under/over-representation (Kumar, 2006).

To reduce sampling bias, a number of necessary steps, such as careful review of previous studies, continuous reminders, and in-depth interviews with managers, were conducted. A list of 2787 email addresses of department managers collected from websites of enterprises, Department of Planning and Investment, and Businessperson Association, was used to send the questionnaire of the survey.

Questionnaire preparation A cross-sectional survey was conducted since it is not as costly and difficult as a longitudinal survey. According to Van der Stede, Young, and Chen (2005), results of a cross-sectional survey method may lead to a lowering of confidence. Therefore, three stages of questionnaire preparation were carried out to improve confidence.

First, a strong theoretical basis was developed through an extensive literature review.

Well-established instruments from previous studies were used to measure variables of the research to improve reliability and validity. Second, key considerations (e.g., reasonable order, familiar terms, clear response format) were taken into account when we designed the questionnaire package to reduce response errors. This package was translated from English into Vietnamese. The Vietnamese version was back-translated to English by an independent translator. Two translators (from English to Vietnamese and from Vietnamese to English) resolved any translation difference in order to preserve the original meaning. Finally, the appropriateness of the questions, instruments, and procedures were tested through a pilot study.

The questionnaire was then modified, according to the comments and suggestions of academics and department managers from the pilot study. The final version was prepared and used for data collection.

Data collection We collected data through a web-based survey called LimeSurvey. This online survey was chosen for several reasons. First, this method has been widely used in management accounting research (Sands, 2006, Burkert et al., 2011, Elbashir et al., 2011). Second, in the pilot study, department managers indicated that they preferred to answer the questionnaire online since it could be accessed and submitted at any time. Third, previous studies suggested that an online survey could reach across great geographic distances and save time and cost of conducting research (Smyth et al., 2010, Wright, 2006). Fourth, mandatory questions could be prepared in the web-based survey to deal with the problem of missing answers.

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