Mediating effect analysis

A variable may be considered a mediator to the extent to which it carries the influence of a given independent variable (IV) to a given dependent variable (DV). Generally speaking, mediation can be said to occur when (1) the IV significantly affects the

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mediator, (2) the IV significantly affects the DV in the absence of the mediator, (3) the mediator has significant unique effect on the DV and (4) the effect of the IV on the DV shrinks upon the addition of the mediator. As elaborated in Chapter Fiver, in determining the mediating effects of budget adequacy, organisational commitment and role ambiguity of budget preparers and budget users towards the relationship of budget participation and departmental performance, the techniques suggested by Barron and Kenny (1986) and Judd and Kenny (1981) were followed. The following paragraphs discuss the results of the analyses with respect to the steps suggested by these authors. Table 6.8 summarises the results of the analyses in determining the mediation effect of budget adequacy, ambiguity organisational commitment and role ambiguity.

As suggested by Baron and Kenny (1986), the first step requires that the independent variables (X) must be a significant predictor of the dependent variable (Y). Therefore, in step 1, departmental performance was used as the criterion variable in a regression equation and the initial variable budget participation was used as the predictor. This step is to show that budget participation is a significant predictor of departmental performance. As depicted in Table 6.8, the result showed that the relationship of departmental performance with budget participation is quite strongly correlated with Departmental performance, = .360. Budget participation explains 12.10% of the variance in departmental performance.

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**The path coefficient of Budget participation and departmental performance when budget adequacy, organisational commitment and role ambiguity was controlled.

Step 2 involved treating the ‘Mediator’ as if it was an outcome variable against the initial variables (Budget participation). Therefore, budget adequacy, organisational commitment and role ambiguity were used as the criterion variables and budget participation was used as predictor in the regression equation. The result of the model showed that budget participation was significant predictor of budget adequacy,

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organisational commitment and role ambiguity at p 0.05. The regression equation explains 13% of the variance in budget adequacy, 18.5% of the variance in organisational commitment and 11.3% of the variance in role ambiguity.

In step 3, it requires that the mediator affects the outcome variable after controlling the initial variable (Budget participation). Therefore, departmental performance was used as the criterion variable and budget adequacy, organisational commitment and role ambiguity were used as predictors. The tests were done separately one by one for each predictor variable (budget adequacy, organisational commitment, role ambiguity) controlling the initial variable (budget participation). As the budget participation was required to be controlled in establishing the effect of the mediator on the outcome, the budget participation was entered first in block 1 using the technique similar to hierarchical regression analysis. The mediator (budget adequacy, organisational commitment and role ambiguity} was then entered in block 2. The result of the model provided evidence that budget adequacy, organisational commitment, and role ambiguity significantly affects departmental performance at p 0.05. The regression equation explains 30.90%, 36.80% and 23.30% respectively of the variance in departmental performance. As the condition for step 3 was met, the results provided further evidence that budget adequacy; organisational commitment and role ambiguity mediates the budget participation and departmental performance relationship. The result of the model as depicted in Table 6.8 provides evidence that budget adequacy; organisational commitment and role ambiguity significantly affects departmental performance at p 0.05.

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Finally, step 4 was to establish whether budget adequacy, organisational commitment and role ambiguity completely mediates the budget participation and departmental performance relationship. For a full mediation relationship to be established, the effect of budget participation (X) on departmental performance (Y) controlling for budget adequacy, organisational commitment and role ambiguity (M) should be non significant with the strongest demonstration of mediation occurring when the direct budget participation (IV) to departmental performance (DV) path is zero. The effects were estimated in the same regression equation as in step 3. The result depicted in Table 5.8 showed that the relationship of the budget participation (X) on departmental performance (Y) was significant. Therefore, step 4 conditions were not met.

As explained by Baron and Kenny (1986), if all the four steps are met, then the variable is consistent with the hypothesis that budget adequacy, organisational commitment and role ambiguity completely mediates the budget participation and departmental performance relationship. However, if the first three steps are met but step 4 is not, then partial mediation is indicated. The result of the above analyses indicated that budget adequacy, organisational commitment and role ambiguity act as a partial mediator in the budget participation and departmental performance relationship. This indicated that budget adequacy, organisational, and role ambiguity might significantly has reduced or decreased the path coefficient of budget participation and departmental performance rather than eliminating the relationship between the budget participation and departmental performance. Among the three variables, organisational commitment has the most mediating effect on the relationship between budget participation and departmental performance as compared to budget adequacy and role ambiguity. From Table 6.8, it showed that organisational

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commitment significantly reduced the path coefficient of budget participation and departmental performance from ß = .360 to ß = .115 while budget adequacy and role ambiguity have less partially mediated the relationship by reducing the path coefficient marginally small for budget adequacy from ß = .360 to ß = .184 and role ambiguity from ß = .360 to ß = .233.

Further tests were conducted to confirm the significance of the indirect effect of budget participation on departmental performance via the mediator using Sobel Test (1962) by calculating the critical ratio as a test of whether the indirect effect of Budget participation (IV) on the departmental performance (DP) via the mediator (Budget adequacy, organisational commitment, role ambiguity) is significantly different from zero. This was done by inserting the value of a, b, and standard error of each variable into the cells of the Sobel Test (1982). As indicated in Table 6.9, the results of the Sobel Tests (1982) showed that the indirect effect of the Budget participation (IV) on the Departmental performance (DV) via the mediator (budget adequacy, organisational commitment, role ambiguity) is significantly different from zero. Budget adequacy (Z = 3.624), organisational Commitment (Z = 4.173) and role ambiguity (Z = 3.021) is significantly larger than zero and therefore confirmed that budget adequacy, organisational commitment and role ambiguity partially mediated the relationship of budget participation and departmental performance of budget preparers and budget users of Malaysian local authorities.

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In determining the direct and indirect effect of budget participation on departmental performance, path analysis was used. Path analysis is an extension of the regression model used to test the fit of the correlation matrix against two or more causal models, which are being compared by the researcher. As elaborated in Chapter Five, in determining the direct and indirect effect of budget adequacy, organisational commitment and role ambiguity on departmental performance of budget preparers and budget users of Malaysian local authorities, the steps suggested by Gregory Carey, 1998 were used. The following paragraphs discuss the results of the analyses with respect to the steps suggested by the author. Table 6.10 and 6.11 summarised the result of the analyses in determining the direct and indirect effect of budget participation, budget adequacy, organisational commitment and role ambiguity on