The joint effect of participative budgeting and managerial interest in innovation on departmental performance

Innovation is frequently argued to be critical to organizational performance in an increasingly competitive international marketplace. The literature suggests that one factor influencing a firm's competitive position is the degree to which subordinates are innovative. Subordinate managers typically have the skills that enable them to bring into their firms new ideas arising from their interest in, and their knowledge of, developments in their areas of expertise. If managers have an interest in innovation, then participation in the budget setting process may enable them to be party to budgets which not only reflect resource commitments and other budgetary provisions associated with their innovation proposals, but also the expectation of benefits arising from innovations in terms of enhanced departmental performance. The results of the study suggest that participation and performance are positively related when subordinate interest in innovation is high, but they are not associated when interest in innovation is low.