BEYOND BUDGET RATIONALITIES: THE SOCIAL STRUCTURE OF PERFORMANCE BUDGETING AND ITS INDIRECT EFFECTS ON ORGANIZATIONAL PERFORMANCE WITHIN PUBLIC ORGANIZATIONS

Abstract

Performance based budgeting reform in its latest stage continues to evolve after resurgence in popularity resulting from the Clinton Administration's National Performance Review and the international new public management (NPM) movement. Performance based budgeting is sometimes viewed with skepticism for various reasons including the capacity to determine and collect performance information, the veracity of performance information, and efficacy in terms of performance budgeting's ability to improve performance. The majority of performance based budgeting studies focus on the prevalence of performance budgeting in government jurisdictions, and whether or not performance based budgeting influences resource decision making. Few, if any studies focus on whether performance based budgeting actually influences organizational effectiveness or performance, for which performance based budgeting was intended. This study intends to observe whether certain organizational characteristics associated with performance budgeting indirectly affect organizational performance. While organizational performance can also be observed through performance measures and bench marks, individual and organizational perceptions are equally important for gauging organizational performance. In doing so, this study applies an alternative approach to observe the indirect effects associated with performance based budgeting. The paradigm for public budgeting theory is the budget rationalities theory that describes budgeting's bargaining, negotiating, and control processes. However, a large portion of budgeting behavior linked to organizational performance may occur outside of the budget rationalities construct. This study proposes there is a second layer of budgeting; a management layer of budgeting focused on different priorities than those within the budget rationalities construct, and applies economic sociology theory to explain budgeting behavior in this management layer of budgeting. Data Collected from the NASP - IV, National Administrative Studies Project is used to test one research question and three hypotheses. Results confirm the existence of performance budgeting's indirect effects on organizational performance, where information sharing and certain characteristics of trust moderate performance budgeting's influence on organizational performance. The results suggest that average and high performing organizations benefit the most from implementing performance budgeting. The study concludes with recommendations for potential approaches for further research.