JBR-09232; No of Pages 12

Journal of Business Research xxx (2016) xxx–xxx

Contents lists available at ScienceDirect

Journal of Business Research

Effect of transformational-leadership style and management control system on

managerial performance
Thi Thu Nguyen a, Lokman Mia b, Lanita Winata c, Vincent K. Chong d,⁎
a
University of Economics Ho Chi Minh City, 279 Nguyen Tri Phuong, District 10, Ho Chi Minh City, Viet Nam
b
Griffith University, Nathan Campus, Nathan, QLD 4011, Australia
c
Griffith University, PMB 50 GCMC, QLD 9726, Australia
d
The University of Western Australia, 35 Stirling Hwy, Crawley, WA 6009, Australia

a r t i c l e i n f o a b s t r a c t

Article history: Our study adds perspective on research into choices in the design of management control systems by examining:
Received 20 January 2016 (1) how transformational-leadership style influences the choice of the design of a comprehensive performance-
Received in revised form 25 July 2016 measurement system (PMS) and reward system; (2) how subordinate managers' reliance on broad-scope ac-
Accepted 8 August 2016
counting (BSA) information facilitates their managerial decision-making processes and managerial performance.
Available online xxxx
Our results suggest that transformational-leadership style has a significant positive and direct effect on manage-
Keywords:
rial performance. We find that it has a significant positive and direct effect on the use of BSA information and
Transformational-leadership style comprehensive PMS, but has no significant effect on reward systems. We also find that transformational-
Performance measurement system leadership style has a partial indirect effect on managerial performance via three mediators, namely, comprehen-
Reward system sive PMS, reward systems, and BSA information. Our findings shed light on how such mediators intervene in the
Broad-scope information relationship between transformational-leadership style and managerial performance.
© 2016 Elsevier Inc. All rights reserved.

1. Introduction role, information is used for performance evaluation and motiva-

tional purposes. In contrast, in its decision-facilitating role, informa-
Research acknowledges that leadership style can influence a tion is used for enhancing managerial decision making.1
firm's strategic priorities and implementation of formal control sys- Our study is motivated as follows. First, we find that few studies have
tems (e.g. Abernethy, Bouwens, & van Lent, 2010; Menguc, Auh, & investigated in a single study the effect of transformational-leadership
Shih, 2007); firm innovation and creativity (e.g. García-Morales, style on the three MCS design choices, namely, comprehensive
Jiménez-Barrionuevo, & Gutiérrez-Gutiérrez, 2012; Gumusluoglu & performance-measurement system (PMS), reward system, and reliance
Ilsev, 2009; Jung, 2001; Jung, Chow, & Wu, 2003; Jung, Wu, & on broad-scope accounting (BSA) information and managerial perfor-
Chow, 2008); and organizational and team performance (e.g. mance. For example, Abernethy et al. (2010) examine the influence of
Braun, Peus, Weisweiler, & Frey, 2013; Birasnav, 2014; Waldman & leadership style on choice of PMS design without considering the poten-
Yammarino, 1999). Our study continues this line of research by ex- tial effect of reward systems and BSA information on managerial perfor-
amining the influence of leadership style on the choices in the de- mance. That is, they did not explore the influence of leadership style on
sign of management control systems (MCS), and the effect of this the decision-influencing role of the reward system and the decision-
design on managerial performance. An MCS provides a means of facilitating role of the accounting-information system on managerial
gathering and processing information to assist managers in plan- performance. This is despite the recognition in prior literature of the in-
ning, control, and performance evaluation throughout the organiza- fluence of leadership styles on the use of decision-facilitating informa-
tion. The information generated by an MCS serves two main tion for managerial attitudes and performance See Hopwood, 1974;
purposes: decision-influencing and decision-facilitating (Baiman, Otley, 1978), and the importance of the interdependency of PMS and re-
1982; Narayanan & Davila, 1998). In an MCS's decision-influencing ward systems (see Widener, Shackell, & Demers, 2008). While Widener
et al. (2008) find a complementarily between PMS and reward system,
they do not consider the potential effect of the reliance on BSA

⁎ Corresponding author. 1
In the context of our study, managerial decision-making activities include planning,
E-mail addresses: [email protected] (T.T. Nguyen), l.mia@griffith.edu.au (L. Mia), investigating, coordinating, evaluating, supervising, staffing, negotiating, and representing
l.winata@griffith.edu.au (L. Winata), [email protected] (V.K. Chong). (see Mahoney et al., 1963; Mahoney, Jerdee, & Carroll, 1965).

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2 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx

H4

Leadership Style Performance Measures Decision-Influencing Role Decision-Facilitating Role

TLS H2 PMS H5 RS H8 BSA

H3 H6 H9

H7

H1 Outcome:
MP

Control Variables
Age
Education
Experience
Gender
Size

Abbreviation of variables
TLS = Transformational leadership style; PMS = Comprehensive performance measurement system; RS = Reward system, BSA = BSA
information; MP = Managerial performance

Fig. 1. Conceptual model.

information and managerial performance. Therefore, our study extends coaching and mentoring. It provides for continuous follow-up and feed-
the research of Abernethy et al. (2010) and Widener et al. (2008) by ex- back. More importantly, it links an individual's current needs to the
amining the effects of transformational-leadership style on the choices organization's mission and elevates those needs when it is appropriate
of comprehensive PMS, reward systems and BSA information, as well to do so (Bass, 1985, 1990; Bass & Avolio, 1989). Transformational
as transformational-leadership style's effect on managerial perfor- leaders pay attention to individual differences in subordinates' needs
mance. Fig. 1 depicts the conceptual model used in our study. It indi- for growth and development. They set examples and assign tasks on
cates that transformational-leadership style is positively related to an individual basis, not only to satisfy the immediate needs of subordi-
managerial performance (H1), comprehensive PMS (H2), reward sys- nates, but also to elevate subordinates' needs and abilities to higher
tems (H3), and BSA information (H4). These predictions suggest that levels. Such characteristics of transformational leaders suggest that
transformational leaders motivate and inspire followers (i.e. subordi- they can develop and maintain a control system such as a BSA-
nate managers) to achieve higher managerial performance and in the information system that recognizes the information needs of managers.
choices they make for MCS design. In addition, Fig. 1 reveals that com- The decision-facilitating role of a BSA-information system will facilitate
prehensive PMS is related to reward systems (H5) and BSA information the effectiveness of managers' managerial decisions. Third, transforma-
(H6). This prediction suggests that a PMS can affect the decision- tional leaders use intellectual stimulation and challenge employees to ac-
influencing role of the reward system and the decision-facilitating role cept innovative solutions to problems and to challenge the status quo
of the BSA-information system. Finally, Fig. 1 posits that the decision- (Bass, 1985; Berson & Avolio, 2004). Intellectual stimulation is seen in
influencing role of a reward system is related to managerial perfor- subordinates' conceptualization, comprehension, and analysis of the
mance (H7) and the use of BSA information (H8). The reliance on a problems they face and the solutions they generate. Through the intel-
BSA-information system is in turn related to managerial performance lectual stimulation of subordinates, new methods of accomplishing
(H9). the organization's mission are explored. Indeed, prior literature has
Second, our study is motivated to address a concern proposed by found that transformational leadership style can develop and maintain
Franco-Santos, Lucianetti, and Bourne (2012, p. 96; emphasis added) a control system that values and rewards creativity and innovation
that “the impact of comprehensive PMS on reported performance is un- through appropriate performance measures and reward systems
clear, as the results of this body of literature are inconclusive.” We ex- (Jung, 2001; Mumford & Gustafson, 1988). Taken together, transforma-
plore the role of leadership style as an antecedent of MCS design tional leaders will rely on the decision-influencing and decision-
choice because Abernethy et al. (2010, p. 3; emphasis added) acknowl- facilitating roles of MCS information for employees' performance evalu-
edge that leadership style is “clearly to be an important correlated (but ation, motivation, and managerial decision making. We believe an in-
often omitted) variable given that management control system choices vestigation of the role of transformational-leadership style as an
are the means by which top management communicate, empower antecedent of MCS design may provide important insights into the mo-
and execute their vision.” We justify our choice of transformational- tivations behind an organization's choice of MCS design.2
leadership style as follows. First, transformational leaders are more char- Our study contributes to the existing literature in the following
ismatic and inspiring in the eyes of their subordinates. Transformational ways. First, the results of our study provide insight into the process by
leaders have great referent power and influence, inspire loyalty to the which transformational-leadership style affects individuals' managerial
organization, command respect, and have the ability for important vi- performance through the use of comprehensive PMS, reward systems,
sion (House, 1977). Such attributes of transformational leaders suggest and BSA information for managerial decision-making processes. Second,
that they can develop and maintain a control system such as a reward the results of our study advance the findings of prior studies (Abernethy
system that recognizes and compensates managers (i.e. followers) for et al., 2010; Widener et al., 2008) in relation to the following: (1) how
their efforts (Jung, 2001). Second, transformational leaders use individ- transformational-leadership style can motivate managers' reliance on
ualized consideration significantly, which in turn contributes to subordi-
nates achieving their fullest potential. Individualized consideration is a
method of communicating timely information to subordinates via 2
An MCS comprises PMS, reward system and reliance of BSA information.

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accounting information for performance evaluation and reward pur- satisfying their needs for attention and personal development within
poses; and (2) how BSA information is used to facilitate the decision- the collective vision of the organization. We conceptualize
making processes, and the effect of these processes on individuals' man- transformational-leadership style in terms of departmental managers'
agerial performance. Specifically, our results demonstrate that the con- perceptions of their superiors' charisma and ability to inspire. Prior liter-
nection between transformational leaders style and managerial ature suggests that transformational-leadership behaviors can influence
performance is direct and positive. Our supplementary analyses reveal employees' reactions in different ways (Bass, 1985; Berson & Avolio,
that the positive relationship between transformational leadership 2004). First, transformational leaders stimulate and inspire followers
and managerial performance is attributed to the mediating effects of by offering a compelling vision of the future (Bass, 1985). Second, they
the decision-influencing and decision-facilitating roles of MCS. Finally, use intellectual stimulation and challenge employees to accept innova-
the findings of our study add to the list of studies that have examined tive solutions to problems and to challenge the status quo (Bass, 1985;
the effectiveness of adopting a “Western” MCS to enhance decision- Berson & Avolio, 2004).
making processes (e.g. Anderson & Lanen, 1999; Doan, Nguyen, & Mia, Therefore, transformational leaders are expected create a positive ef-
2011; O'Connor, Chow, & Wu, 2004). The results of our study suggest fect on their followers' reactions (Bass & Riggio, 2006; Groves, 2005).
that the adoption of an effective Western MCS design can enhance man- Prior studies have found that transformational leadership style can cul-
agers' performance across national boundaries (i.e. enterprises operat- tivate the organizational culture toward creativity and innovation (Jung
ing in a transitional economy such as that of Vietnam). Given the et al., 2003, 2008; García-Morales et al., 2012; Gumusluoglu & Ilsev,
number of foreign-investment firms operating in transitional econo- 2009). Such leadership can develop and maintain a control system
mies in the Asian block (e.g. Vietnam), our results have important impli- that values and rewards creativity and innovation through appropriate
cations for companies in the Anglo-American block (e.g. Australia, performance measures and reward systems (Jung, 2001; Mumford &
United Kingdom, United States) that wish to establish a business in a Gustafson, 1988). It is also noted that the transformational-leadership
transitional economy in the Asian block.3 style is more appropriate in a changing environment (Bass, 1990).
The remainder of our paper is structured as follows. The theoretical Firms usually prefer senior managers with a transformational-
framework underlying this study is developed in the following section, leadership style because they have greater capacity to cope with rapid
and leads to the statements of hypotheses. The subsequent sections ad- changes and an uncertain environment. Employees (i.e. subordinates)
dress the research method, results, contributions to the literature and in firms that have transformational leaders will consider their perfor-
limitations of the study. mance evaluation (which is based on a comprehensive PMS, a
performance-evaluation system that includes financial and non-
2. Theoretical development and statements of hypotheses financial performance measures) to be fair for the following reasons.
First, the use of traditional (i.e. financially based performance measures
2.1. Transformational-leadership style and managerial performance only) to evaluate managers' performance has been criticized for being
too aggregated and backward-looking (Johnson & Kaplan, 1987;
Prior literature (e.g. Burns, 1978; Ensley, Pearce, & Hmieleski, 2006) Kaplan & Norton, 1996a). The “incompleteness” of financially based per-
suggests that transformational leaders appeal to the ideals and morals formance measures has led to the call for the reliance on multiple perfor-
of their followers to inspire the followers to reach their highest levels mance measures for performance evaluation. Proponents of the use of
of achievement and take ownership of the goals of the group. Under a comprehensive PMSs argue that the use of a diverse set of financial
transformational leader, the followers are primarily motivated toward and non-financial measures can prevent managers from sub-
the achievement of the goal in and of itself, with or without the rewards optimizing by ignoring relevant performance dimensions or improving
that might be associated with the outcome (Pearce et al., 2003). Trans- one measure at the expense of others (Ittner, Larcker, & Meyer, 2003;
formational leadership style can help promote long-term vision, and in- Ittner, Larcker, & Randall, 2003). Second, firms led by transformational
spiration, which may also promote incremental contributions of leaders are more likely to employ a differentiate (or prospector-type)
followers through exerting effort beyond the call of duty. Thus, transfor- strategy in which the exploitation of products and market opportunities
mational leaders can motivate their followers to exert effort to improve are important. In such an environment, external, non-financial, and
performance. Choi (2006, p. 33) argues that “followers led by charis- future-oriented information is crucial for managers. Hence, the
matic leaders often show high task performance.” This enhanced task performance-evaluation system implemented should reflect these in-
performance can be attributed to followers' great need for achievement, formation needs of local managers. Customer-focused measures are an
which has been stimulated by the envisioning behavior of the charis- example of non-financial performance measures. These include mea-
matic (transformational) leader. As the vision greatly differs from the sures of product quality and performance, delivery lead-time, and cus-
status quo, followers mobilize all their abilities to realize the vision tomer responsiveness. Such measures are associated with
with which they identify (Bass, 1985). Thus, the following hypothesis differentiation strategies and attributes of the product-process output
is tested: that are valued by customers and can be used to provide feedback at
the operation level (Chenhall & Langfield-Smith, 1998; Kaplan, 1990;
H1. There is a positive relationship between transformational- Lillis & van Veen-Dirks, 2008). Thus, it follows that the
leadership style and managerial performance. transformational-leadership style is likely to be positively related to
comprehensive PMS. Thus, we predict the following hypothesis:
2.2. Transformational-leadership style and comprehensive PMS H2. There is a positive relationship between transformational-
leadership style and use of comprehensive PMS.
In this study, we adapt the transformational-leadership style of Bass
(1990). Transformational-leadership style is similar to the consider-
ation scale as outlined in Stogdill, Goode, and Day (1963). Our study ex-
amines transformational-leadership style as a style of superiors that 2.3. Transformational-leadership style and reward system
supports subordinates by raising awareness of the subordinates' impor-
tance and the value of expected outcomes, and motivates them by Senior managers that have a transformational-leadership style can
stimulate and inspire followers (i.e. managers) by offering a compelling
3
According to the Statistics Handbook 2014 of Hanoi Vietnam, foreign-investment enter-
vision of the future (Bass, 1985). They convince managers to accept or
prises have increased from 6545 firms in 2009 to 10,220 firms in 2013 (General Statistics create innovative solutions to problems rather than simply accepting
Office. Statistical Handbook 2014. Hanoi, Vietnam: General Statistics Office of Vietnam). the status quo (Bass, 1985; Berson & Avolio, 2004). Therefore, we expect

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4 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx

transformational leaders will rely on the decision-influencing role of 2.5. Comprehensive PMS and reward system
MCS information to evaluate employees' performance and motivate
employees. Indeed, prior studies note that transformational leaders Numerous prior studies provide evidence to suggest that compre-
establish and maintain a reward system that values and compen- hensive PMS precedes reward systems (Ferreira & Otley, 2009; Scott &
sates managers for their efforts (Jung, 2001; Mumford & Gustafson, Tiessen, 1999; van Veen-Dirks, 2010). For example, Ferreira and Otley
1988). The term “reward system” refers to the levels of pay and ben- (2009, p. 272) note that “reward systems are the outcome of perfor-
efits provided to employees based on their performance, which can mance evaluations.” In contrast, Scott and Tiessen (1999) find that
also be termed “performance-based reward”. A reward system, team performance is positively associated with the comprehensiveness
which consists of intrinsic and extrinsic rewards, can motivate em- of performance measures used. Van Veen-Dirks (2010) notes that per-
ployees to exert effort to enhance their performance. Intrinsic re- formance measures may influence employees' behaviors because his
wards motivate managers intrinsically to work at higher levels of or her personal trade-offs between labor and leisure will be based on
productivity and strive to develop professionally. Such rewards the PMS. He or she will allocate effort to activities based on how this af-
have been found to be a great deal stronger than financial rewards fects the performance measures that are important in the determination
in increasing employee motivation. This is not to say that employees of his or her rewards. Similarly, Moers (2006) investigates the effect on
will not seek financial rewards in addition to intrinsic rewards; rath- delegation of the relative use of financial performance measures for
er, it simply means that money is often not sufficient to maximize incentive-compensation purposes. He finds that the properties of per-
motivation. People want to feel like their contribution is important. formance measures play an important role in explaining their use for
For example, an employee might want to reach a sales quota set by incentive-compensation purposes. Thus, the existing evidence suggests
the superior to earn the bonus that is attached to the quota, but un- that comprehensive PMS is positively related to reward system, which
less the employee feels a sense of accomplishment as part of achiev- leads to the following hypothesis:
ing the sales quota, the motivation to achieve the quota is less
powerful. Conversely, extrinsic rewards can be as simple as being H5. There is a positive relationship between comprehensive PMS and
assigned a better office, or receiving verbal praise, public recogni- reward system.
tion, awards, promotions or additional responsibility. These material
rewards can be motivational because pay, advancement and recogni-
2.6. Comprehensive PMS and BSA information
tion are important to most employees. Thus, it follows that some
forms of recognition (e.g. intrinsic and extrinsic rewards) must be
Research states that managers can use information generated from a
present to motivate subordinates to enhance their attitude toward
comprehensive PMS to assist them in managing their organization's op-
their job (McKenna, 1994). For example, Okokie (1996) recognizes
erations (Chenhall & Morris, 1993; Kaplan & Norton, 1996b). It is argued
that leaders who provide rewards to their subordinates can influence
that as a PMS becomes more comprehensive, it provides a wealth of ob-
subordinates' practice of the continuous improvement program of
servations about the organization's operations, and such observations
total quality management. Hence, it is expected that transformation-
provide the impetus for managers to make sound decisions. Research
al leaders can rely on a reward system to stimulate and inspire their
also indicates that managers can use more comprehensive performance
subordinates to achieve organizational goals. We postulate that the
information to verify, confirm, and validate their beliefs about cause-
transformational-leadership style is positively related to reward sys-
and-effect relationships embedded in a firm's strategy and action plan
tem, as stated in the following hypothesis:
(Luft & Shields, 2001). In addition, these cause–effect connections can
H3. There is a positive relationship between transformational- help managers to clarify and confirm the business model of the organi-
leadership style and reward system. zation. The fact that a comprehensive PMS broadens the scope of ac-
counting information reported to managers in the organization helps
managers to make appropriate decisions. As noted, we argue that
2.4. Transformational-leadership style and BSA information firms led by transformational leaders are more likely to be adopting a
differentiate (or prospector-type) strategy in which the exploitation of
As noted, a transformational leader can influence managers' reac- products and market opportunities is important. Consequently, we ex-
tion, and play an important role in creating a congenial organizational pect external, non-financial, and future-oriented information (i.e. BSA
culture and motivating managers (Bass & Avolio, 1994). It also affects information) to be crucial for managers. As a PMS becomes more com-
the managers' use of accounting information in making decisions prehensive, more BSA information will be needed, which in turn helps
(Avolio, 2011). The accounting literature acknowledges that the way ac- managers in their decision-making processes. From this information,
counting information is used by managers depends on the leadership we propose the following hypothesis:
style of their superior. For example, a superior with a transformational-
leadership style uses accounting information for the planning and control H6. There is a positive relationship between a comprehensive PMS and
system in their communication with subordinates (Abernethy et al., BSA information.
2010). Such leaders often encourage and delegate decision-making re-
sponsibilities to their subordinates (Bass & Avolio, 1997). To fulfill these
responsibilities, managers require more BSA information for making 2.7. Reward system and managerial performance
decisions involving complex and uncertain matters (Mia, 1993; Patiar,
2005). The term “BSA information” is defined in our study as decision- One of the most important tools used to motivate employees is an
facilitating information that comprises internal and external, non- appropriate reward system (Schulz, Wu, & Chow, 2010). Managers are
financial and future-oriented information. Accordingly, senior man- motivated through their perceptions of performance measures, types
agers with a transformational-leadership style are likely to be suc- of rewards, and evaluation/reward system, as well as the connections
cessful in encouraging their managers to use BSA information between these perceptions (Kominis, Emmanuel, & Slapnicar, 2007).
to cope with a rapidly changing context (Abernethy et al., 2010; We argue that a close connection between rewards and performance
Naranjo-Gil & Rinsum, 2006; Patiar, 2005). Therefore, we propose targets may improve managerial performance. Many studies have
the following hypothesis: found a significant association between the reward system and perfor-
mance (e.g. Byun, Kim, & Shin, 2009; Gomez-Mejia, Berrone, &
H4. There is a positive relationship between transformational- Franco-Santos, 2010; O'Connor, Deng, & Luo, 2006). However, it may
leadership style and managers' use of BSA information. be problematic if the performance measurement is not appropriate.

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 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx 5

For example, Ittner, Larcker, & Meyer (2003), Ittner, Larcker, & Randall accounting information in making decisions (Chow, Deng, & Yuen,
(2003) found that managers complained more when their organization 2006; van Veen-Dirks, 2010). Once managers have the information re-
used a high level of subjectivity to assess their performance and reward lated to achieving targets, they are more likely to use appropriate infor-
them (e.g. bias in bonus awards and uncertain criteria used to deter- mation, such as BSA information, for making better decisions to enhance
mine rewards). Once employees perceive a close link between their ef- performance (Eldenburg & Krishnan, 2008; Sprinkle, 2000, 2003).
forts and performance targets, they may extend their efforts to enhance Hence, we posit that the decision-influencing role of a reward system
performance (Langfield-Smith, Thorne, & Hilton, 2006). For example, will motivate managers, which in turn triggers an information need in
when sales managers perceive that they will receive valuable rewards highly motivated managers, who will exert greater effort to gather
for achieving performance targets, such as customer satisfaction, they BSA information to facilitate their managerial decisions. Thus, we postu-
may investigate information relating to customer needs and expecta- late that reward system is positively related with BSA information,
tions (Bangchokdee, 2008), which is then used in negotiating and which leads to the following hypothesis:
contracting for goods or services delivered to the customer as expected.
As a result, these managers may achieve high performance. That is, H8. There is a positive relationship between reward system and the use
linking rewards to performance targets may lead to improvements in of BSA information.
managerial performance (Sprinkle, 2003).
Prior studies on reward systems (compensation schemes) (e.g.
Chong & Eggleton, 2007; Guymon, Balakrishnan, & Tubbs, 2008; 2.9. BSA information and managerial performance
Sprinkle, 2000, 2003; Webb, Williamson, & Zhang, 2013) have relied
on agency theory and goal-setting theory. Proponents of agency theory Accounting information is one of the most important components in
argue that the effort-inducing effect of a reward system induces a first- the organizational planning and control system and it plays a decision-
best effort on the part of subordinates to improve their performance. For facilitating role in enhancing managerial performance (Sprinkle, 2003).
example, prior studies (e.g. Banker, Lee, & Potter, 1996; Banker, Lee, This study focuses on managers' use of BSA information to facilitate
Potter, & Srinivasan, 2001; Chow, 1983; Church, Libby, & Zhang, 2008; their decision-making processes. BSA information can be internal to
Farrell, Kadous, & Towry, 2008; Sprinkle, 2000) have found that a re- the organization (e.g. operations, finance, marketing, and human re-
ward system can affect individuals' performance by inducing a higher sources) or external to the organization (e.g. economic conditions, cus-
level of effort (i.e. effort-inducing effect). Farrell et al. (2008) suggest tomer taste, and competitors); financial or non-financial (e.g. output
that performance is a function of effort. They argue that greater effort rate and machine efficiency); historical (e.g. last year's profit); or future
leads to greater performance. Chong and Eggleton (2007) argue that a oriented (e.g. expected price and expected sales volume). Prior studies
reward system motivates employees to exert greater effort to improve find that a major function of the decision-facilitating role of accounting
their performance. information is to support the needs of management in planning and
In contrast, proponents of goal-setting theory argue that reward sys- controlling decisions (Abernethy & Bouwens, 2005; Chenhall & Morris,
tems are motivational because they encourage individuals to commit 1986; Tiessen & Waterhouse, 1983). Further, empirical evidence finds
themselves to higher performance goals, which in turn enhance their that managers' use of BSA can enhance managerial performance, subject
task performance (Chen, Jermias, & Lee, 2013; Fatseas & Hirst, 1992; to an appropriate “fit” existing between contextual variables such as en-
Wright, 1992, 1994). A study by Chen et al. (2013) reveals that when vironmental and task uncertainty and the design of the management ac-
employees are contracted based on more challenging but attainable counting system (Chong, 1996; Mia, 1993; Mia & Chenhall, 1994). Thus,
goals (i.e. goal achievability), feedback increases their level of effort, we expect the appropriate use of BSA information will enhance individ-
which has a significant positive effect on their task performance. uals' managerial performance. Therefore, we test the following
Taken together, the existing theories and empirical evidence suggest hypothesis:
that the use of a reward system is more likely to enhance subordinates'
managerial performance. Thus, the following hypothesis is tested: H9. There is a positive relationship between BSA information and man-
agerial performance.
H7. There is a positive relationship between a reward system and man-
agerial performance.
3. Research method

2.8. Reward system and BSA information 3.1. Data collection and participants

As noted, the information generated by an MCS plays two main The participants in our study were department managers in charge
roles: a decision-influencing role and decision-facilitating role of sales, production, accounting, marketing, and operations in their or-
(Baiman, 1982; Narayanan & Davila, 1998). In the decision-influencing ganization operating in Vietnam. To select the participants, we first ob-
role, information is used for performance evaluation and motivational tained from the Department of Planning and Investment and the
purposes. In the decision-facilitating role, information is used to en- Businessperson Association in Vietnam a list of 2787 working depart-
hance managerial decision making. One of the objectives of a reward ment managers' email addresses. Second, we selected 710 managers
system is to motivate individuals to exert effort to improve their mana- at random from the list to participate in the study. We invited each of
gerial performance. Sprinkle (2000) finds that the use of a reward sys- these managers individually to participate by sending a letter emailed
tem improves individuals' performance by motivating them to to them, along with a link to the web-based questionnaire. The letter ex-
increase the duration and intensity of their effort. He finds that the plained the purpose of the study, contained assurance of confidentiality
decision-influencing role of a reward system not only motivates indi- of the managers' identity and the information they would provide, as
viduals to work longer on a managerial task, but also serves to enhance well as an offer to provide them a summary of the results if they com-
the quality of the attention they devote to the task. Indeed, incentive- pleted the option for this attached to the letter. The above procedure
contracting studies find that the use of a reward system can encourage for our data collection was used following Smith (2003). Of the 710
and motivate truthful managerial reporting by managers (Chow, 1983; managers we invited to participate in the study, 152 (i.e. 21.4%) com-
Chow, Cooper, & Waller, 1988). Thus, a reward system can motivate pleted the questionnaire. Following relevant prior studies in manage-
managers to focus on key aspects of the organization (Kaplan & ment and accounting (Grafton, Lillis, & Widener, 2010; Hall, 2008;
Norton, 1992) and may influence the extent to which managers use Smith, 2003), this response rate is considered acceptable.

Please cite this article as: Nguyen, T.T., et al., Effect of transformational-leadership style and management control system on managerial
performance, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.018
6 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx

Table 1 point Likert scale, ranging from 1 “not used at all” to 7 “used to a great
Sample demographics. extent” on three dimensions: (1) financial performance measures (e.g.
Frequency (n = 152) % meeting revenue budget, cost, and profit targets); (2) non-financial per-
Department managers Production 38 25.0
formance measures (e.g. meeting desired goals such as retaining
Marketing 44 28.9 existing customers, attracting new customers, improving product/ser-
Operationsa 39 25.7 vice quality, on time delivery of products/services, and maintaining em-
Others 31 20.4 ployee turnover/satisfaction); (3) other performance measures for
Experience b3 years 46 30.3
product, service, and process innovation. Reward system was measured
3 to b6 years 56 36.8
6 to b9 years 14 9.2 by four items adapted from Schulz et al. (2010), Chow, Shields, and Wu
≥9 years 36 23.7 (1999), and Shields and Young (1993). Respondents were asked to indi-
Gender Female 50 32.9 cate on a seven-point Likert scale (1 “strongly disagree” to 7 “strongly
Male 102 67.1 agree”) the following statements that applied to their company: (1) re-
Number of employees 10 to 50 employees 42 27.6
51 to 100 employees 29 19.1
wards are directly tied to individual performance; (2) rewards are di-
101 to 200 employees 21 13.8 rectly tied to performance measures; (3) people's rewards increase as
201 to 300 employees 12 7.9 their performance increase; and (4) individuals whose performance
N300 employees 48 31.6 ranks in the top 25% receive higher rewards than those in the bottom
Education College 11 7.2
25%. BSA information was measured by a six-item, seven-point Likert-
Bachelor 106 69.7
Master 34 22.4 type scale originally developed by Chenhall and Morris (1986). The re-
PhD 1 0.7 spondents rated the extent to which they use each item in their decision
Age 21–30 26 17.1 making (from 1 “not used at all” to 7 “used to a great extent”). Manage-
31–40 95 62.5 rial performance was measured by an instrument developed by
41–50 19 12.5
Mahoney, Jerdee, and Carroll (1963), which has been used in many
N50 12 7.9
a
prior studies (e.g. Burkert, Fischer, & Schäffer, 2011; Cheng, 2012;
Operations managers are often responsible for multiple functions, such as financial,
Hammad, Jusoh, & Ghozali, 2013; Lau & Martin-Sardesai, 2012). Re-
human resource, production, sale and marketing.
spondents rated their performance on a 7-point Likert-type self-
evaluation scale (from 1 “very poor” to 7 “excellent”) for eight function-
We investigated the possibility of non-response bias as follows. First, al dimensions: planning, investigating, coordinating, evaluating, super-
we conducted a Mann–Whitney U test to compare differences in the vising, staffing, negotiating, and representing.
medians of key variables between early and late groups of responses,4 We included four control variables: age, education, gender, work ex-
and found no significant differences in medians for any variables be- perience of managers in the departments, and size of company. Man-
tween these groups (p N 0.05). Second, we ran a Pearson's Chi-square agers' work experience was measured by the number of years the
(χ2) test to explore differences between the two groups of responses managers have worked with the organization. The size of company
in sample demographics (e.g. industry, age, gender, education, firm was based on the number of employees.
size, ownership, department). The results (not presented) demonstrat-
ed that there were no significant differences between the two groups of 4. Results
responses (p N 0.05). We also tested common method bias by
conducting a multiple-factor-method test, following the procedures 4.1. Measurement model
outlined by Chin, Thatcher, and Wright (2012) and Liang, Saraf, Hu,
and Xue (2007). The results indicated that common method bias was The partial least squares (PLS) approach was employed to assess the
not a concern. psychometric properties of the theoretical model and proposed hypoth-
The descriptive statistics for sample demographics are presented in eses. PLS is suitable for this study because it requires a relatively small
Table 1. The majority of respondent firms were from Ho Chi Minh, the sample size and makes minimal data assumptions (Wold, 1985). Data
most dynamic city in Vietnam. Of 152 respondents, 102 (67.1%) were analysis was conducted using WarpPLS version 5.0. The measurement
male and 50 (32.9%) were female. properties of the various scales were examined using the statistics
The respondents held managerial positions in different depart- from the PLS measurement model. The factor loadings for each variable
ments: production (25%), marketing (28.9%), operations (25.7%), and were examined. As presented in Table 2, all items loaded were above
others (20.4%). They answered the questions relating to the variables the recommended minimum cut-off of 0.50 (Hulland, 1999).
of the study, such as transformational-leadership style, comprehensive Scale internal reliability was investigated using Fornell and Larcker's
PMS, reward system, managers' use of BSA information, and managerial (1981) measure of composite reliability and Cronbach's (1951) alpha.
performance. Table 2 demonstrates that the composite reliabilities are 0.899 (trans-
formational-leadership style), 0.919 (BSA information), 0.947 (reward
3.2. Variable measurement system), 0.839 (comprehensive PMS), and 0.901 (managerial perfor-
mance). The Cronbach's alpha scores for each variable were higher
To enhance the validity and reliability of our study, all variables of in- than the recommended benchmark of 0.70 (Hair, Black, Babin,
terest were measured by instruments that had been previously devel- Anderson, & Tatham, 2006). These results suggest a satisfactory scale in-
oped and used in the literature. Transformational-leadership style was ternal reliability.
measured by using an eight-item scale developed by Avolio, Bass, and In their test for construct validity, Xu, Ryan, Prybutok, and Wen
Jung (1999). This instrument requires survey participants to rate their (2012, p. 4) state that “the items within one construct should demon-
superiors' leadership style on a seven-point Likert scale. Comprehensive strate relatively high correlation (convergent validity), whereas the
PMS was measured by using three statements developed for this study items from different constructs should be characterized by low correla-
through an extensive literature review (see Epstein, 2008; Hall, 2008; tion (discriminant validity).” Convergent validity of the variables was
Kaplan & Norton, 1992; Kunz & Pfaff, 2002). Respondents indicated assessed by examining the statistics for average variance extracted
the extent to which their firm used comprehensive PMS on a seven- (AVE). The AVE is 0.500 or greater for each scale. Table 3 demonstrates
that the AVE are 0.726 (transformational-leadership style), 0.809 (BSA
4
Late responses are those received after the final-round reminder emails had been sent information), 0.904 (reward system), 0.797 (comprehensive PMS),
to the participants. and 0.734 (managerial performance), which demonstrates adequate

Please cite this article as: Nguyen, T.T., et al., Effect of transformational-leadership style and management control system on managerial
performance, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.018
 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx 7

Table 2 Table 4
Combined loadings, composite reliability, Cronbach's alpha, and average variance extract- PLS results for the structure model: path coefficients, p-values, and r-squared.
ed from the PLS model.
Variable TLS BSA RS PMS R2
Items TLS BSA RS PMS MP
TLS
TLS1 0.713 −0.022 −0.099 0.056 0.006 BSA 0.283 0.184 0.113 0.218
TLS2 0.706 −0.016 0.044 −0.074 0.223 (p b 0.001) (p = 0.010) (p = 0.077)
TLS3 0.716 −0.217 0.125 −0.114 0.030 RS 0.172 0.444 0.300
TLS4 0.632 0.064 −0.011 −0.300 0.005 (p = 0.015) (p b 0.001)
TLS5 0.787 0.104 −0.210 0.191 −0.155 PMS 0.541 0.292
TLS6 0.805 0.002 −0.185 0.665 −0.101 (p b 0.001)
TLS7 0.764 0.038 0.081 −0.037 0.094 MP 0.342 0.355 0.170 0.085 0.563
TLS8 0.670 0.044 0.311 −0.199 −0.081 (p b 0.001) (p b 0.001) (p = 0.010) (p = 0.145)
BSA1 −0.058 0.771 0.089 0.010 −0.061
TLS = Transformational-leadership style; PMS = Comprehensive performance measure-
BSA2 −0.055 0.851 0.002 −0.001 −0.113
ment system; RS = Reward system, BSA = BSA information; MP = Managerial
BSA3 0.074 0.769 −0.041 0.031 −0.104
performance.
BSA4 0.051 0.853 −0.015 −0.079 0.090
BSA5 0.085 0.824 −0.015 −0.002 −0.095
BSA6 −0.102 0.777 −0.018 0.048 0.289
RS1 0.058 0.097 0.894 −0.021 −0.017
RS2 0.093 0.022 0.927 −0.073 −0.073
4.2. Structural model
RS3 −0.050 −0.019 0.925 −0.032 0.091
RS4 −0.106 −0.103 0.869 0.134 −0.001
PMS1 0.179 0.061 0.066 0.724 −0.244 The structural model was assessed based on WarpPLS.
PMS2 −0.036 −0.015 0.063 0.860 0.063 Bootstrapping (with 100 samples), and was conducted to evaluate the
PMS3 −0.124 −0.039 −0.127 0.802 0.152
statistical significance of each path coefficient because PLS makes no
MP1 0.130 −0.233 −0.099 −0.166 0.766
MP2 −0.106 0.104 −0.009 0.038 0.790 distributional assumptions (Chin, 1998). The results of the structural
MP3 −0.099 −0.031 −0.008 0.051 0.827 model, which are presented in Table 4 and Fig. 2, were used to test
MP4 −0.258 0.125 0.034 −0.003 0.804 our hypotheses. Note that the results of the hypotheses tests were ob-
MP5 0.001 −0.076 0.022 −0.113 0.801 tained after controlling for age, education, gender, work experience
MP6 0.072 −0.253 0.014 −0.068 0.748
and size of company. It is worth noting that, with the exception of edu-
MP7 0.262 0.120 −0.009 0.104 0.518
MP8 0.153 0.384 0.055 0.268 0.543 cation, all other control variables were not statistically significant. Thus,
CR 0.899 0.919 0.947 0.839 0.901 it can be concluded that age, work experience, and gender do not have
CA 0.871 0.893 0.925 0.711 0.873 an influence on managerial performance. Our results demonstrate that
AVE 0.528 0.654 0.818 0.636 0.538
only education positively influences managerial performance.
TLS = Transformational-leadership style; PMS = Comprehensive performance measure- The results presented in Table 4 and Fig. 2 indicate that there are
ment system; RS = Reward system, BSA = BSA information; MP = Managerial positive and statistically significant relationships between the following
performance.
variables: (1) transformational-leadership style and managerial perfor-
mance (β = 0.342, p b 0.001), (2) transformational-leadership style and
convergent validity (Chin, 1998; Hair, Anderson, Tatham, & Black, comprehensive PMS (β = 0.541, p b 0.001), (3) transformational-
1998). Discriminant validity was assessed by comparing the square leadership style and reward system (β = 0.172, p b 0.015), and
root of the AVE statistics with the correlations among the latent vari- (4) transformational-leadership style and use of BSA information
ables (Fornell & Larcker, 1981; Chin, 1998). Table 3 demonstrates that (β = 0.283, p b 0.001). These results support H1, H2, H3 and H4.
the square root of AVE for each variable is greater than those of the The results presented in Table 4 and Fig. 2 reveal the relationship be-
off-diagonal elements. The results generally provide strong support for tween comprehensive PMS and reward system is positive and statisti-
the construct reliability, as well as for the convergent and discriminant cally significant (β = 0.444, p b 0.001), thus supporting H5. However,
validity of the scales. the results reveal that the relationship between comprehensive PMS

Table 3
Correlation matrix and square root of average variances extracted.

Variable TLS BSA RS PMS MP Age Education Gender Experience Size

TLS 0.726
BSA 0.338 0.809
(p b 0.001)
RS 0.351 0.339 0.904
(p b 0.001) (p b 0.001)
PMS 0.530 0.287 0.519 0.797
(p b 0.001) (p b 0.001) (p b 0.001)
MP 0.579 0.521 0.414 0.423 0.734
(p b 0.001) (p b 0.001) (p b 0.001) (p b 0.001)
Age −0.049 0.167 0.111 −0.075 0.111 1.000
(p b 0.547) (p = 0.040) (p = 0.174) (p = 0.356) (p = 0.172)
Education −0.030 −0.003 0.010 −0.019 0.106 0.128 1.000
(p = 0.715) (p = 0.996) (p = 0.903) (p = 0.812) (p = 0.195) (p = 0.115)
Gender 0.082 0.181 −0.046 0.027 0.075 0.155 0.135 1.000
(p = 0.314) (p b 0.025) (p = 0.574) (p = 0.741) (p = 0.358) (p = 0.056) (p = 0.098)
Experience 0.001 0.124 −0.005 −0.062 0.144 0.516 0.090 0.027 1.000
(p = 0.986) (p = 0.128) (p = 0.956) (p = 0.450) (p = 0.077) (p b 0.001) (p = 0.268) (p = 0.743)
Size 0.018 −0.030 0.027 −0.113 0.076 −0.018 −0.009 0.081 −0.049 1.000
(p = 0.829) (p = 718) (p = 0.737) (p = 0.167) (p = 0.354) (p = 0.826) (p = 0.915) (p = 0.323) (p = 0.548)

Note: Square roots of average variance extracted (AVEs) shown in diagonal indicated with bold text.
TLS = Transformational-leadership style; PMS = Comprehensive performance measurement system; RS = Reward system, BSA = BSA information; MP = Managerial performance.

Please cite this article as: Nguyen, T.T., et al., Effect of transformational-leadership style and management control system on managerial
performance, Journal of Business Research (2016), http://dx.doi.org/10.1016/j.jbusres.2016.08.018
8 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx

0.283***

TLS 0.541*** PMS 0.444* RS 0.184** BSA

0.172* 0.355***

0.170*

0.342***
Model fit and quality indices MP

Average path coefficient (APC) = 0.203, p< 0.002 0.155*

Average R-squared (ARS) = 0.343, P < 0.001
Average adjusted R-squared (AARS) = 0.329, P < 0.001 Age
Average block VIF (AVIF) = 1.328, acceptable if < = 5, ideally < = 3.3 Experience Education
Average full collinearity VIF (AFVIF) = 1.487, acceptable if < = 5, ideally < = 3.3 Gender
Tenenhaus GoF (GoF) = 0.530, small > = 0.1, medium > = 0.25, large > = 0.36 Size
Sympson's paradox ratio (SPR) = 0.933, acceptable if > = 0.7, ideally = 1
R-squared contribution ratio (RSCR) = 0.999, acceptable if > = 0.9, ideally = 1 *p<0.05; **p<0.01; ***p<0.001
Statistical suppression ratio (SSR) = 1.000, acceptable if > = 0.7
Nonlinear bivariate causality direction ratio (NLBCDR) = 0.967, acceptable if > = 0.7 Non-significant paths

Abbreviation of variables
TLS = Transformational leadership style; PMS = Comprehensive performance measurement system; RS = Reward system, BSA = BSA information; MP =
Managerial performance

Fig. 2. Path coefficients of the structural model.

and BSA information is not statistically significant (β = 0.113, indirect effects under most conditions.” The significance of the indirect
p b 0.077). Thus, H6 is not supported. effects was assessed by using PROCESS for Statistical Package for the So-
The results presented in Table 4 and Fig. 2 indicate that the relation- cial Sciences (SPSS) version 2.15 originally developed by Hayes (2013).
ship between reward system and managerial performance is positive The results are presented in Table 5.
and statistically significant (β = 0.170, p = 0.016), thus H7 is support- As shown in Table 5, it is worth noting that three paths: Path (2),
ed. In addition, the results reveal that there is a positive and significant Path (4), and Path (7) have confidence intervals that do not contain
relationship between reward system and the use of BSA information zero value. Thus, we can be confident that genuine mediation effects
(β = 0.184, p b 0.010), providing support for H8. Finally, the relation- exist (Field, 2013; Preacher & Kelley, 2011) for these paths. The indirect
ship between the use of BSA information and managerial performance effects are significant at the 95% level of significance, as indicated when
is also positive and significant (β = 0.355, p b 0.001), thus supporting the lower and upper levels of the confidence intervals do not include
H9. zero values. Path (2): TLS–PMS–RS–MP has a coefficient of 0.029,
which is significantly positive because the bootstrap confidence interval
4.3. Supplementary analyses is above zero (0.007 to 0.067). Path (4): TLS–PMS–RS–BSA–MP has a co-
efficient of 0.016, which is significant because the bootstrap confidence
To provide evidence on the mediating roles of MCS use in the rela- interval is above zero (0.002 to 0.045); thus suggesting that compre-
tionship between transformational-leadership style and managerial hensive PMS, reward system and BSA information significantly mediate
performance, we conducted further analyses to ascertain the magnitude the relationship between transformational-leadership style and mana-
and the statistical significance of the indirect effects. For statistical infer- gerial performance. Path (7): TLS–BSA–MP has a coefficient of 0.067
ences, we used the bootstrap confidence interval method in lieu of the and bootstrap confidence interval entirely above zero (0.013 to 0.140).
more traditional Baron and Kenny (1986) mediation tests because the For all other paths (Paths 1, 3, 5, and 6), mediation effects do not exist
bootstrapping method is considered superior (see Cole, Walter, & because the bootstrap confidence interval straddles zero.
Bruch, 2008; Preacher & Kelley, 2008, 2011). Preacher and Kelley
(2008, p. 886) propose that “bootstrapping provides the most powerful 5. Discussion and conclusion
and reasonable method of obtaining confidence limits for specific
Our study aimed to investigate in a single study the effect of
transformational-leadership style on the three MCS design choices,
Table 5 namely comprehensive PMS, reward system, and reliance on BSA infor-
Results of indirect effects based on PROCESS for SPSS version 2.15 (see Hayes, 2013).
mation and managerial performance. We note that to date, there are no
b (SE) LL 95% CI UL 95% CI studies that examine the influence of leadership style on the choices of
Path (1): TLS–PMS–MP =0.028 (0.033) −0.032 0.101 the three MCS design. Abernethy et al. (2010) examine the influence of
Path (2): TLS–PMS–RS–MP =0.029 (0.015) 0.007 0.067a leadership style on the choice of PMS design without considering its po-
Path (3): TLS–PMS–BSA–MP =0.006 (0.018) −0.031 0.040 tential effect on reward system, BSA information and managerial perfor-
Path (4): TLS–PMS–RS–BSA–MP =0.016 (0.011) 0.002 0.045a mance. This is despite the recognition of the influence of leadership
Path (5): TLS–RS–MP =0.012 (0.012) −0.004 0.048
Path (6): TLS–RS–BSA–MP =0.007 (0.007) −0.002 0.028
styles on the use BSA information for managerial attitudes and perfor-
Path (7): TLS–BSA–MP =0.067 (0.032) 0.013 0.140a mance (see Hopwood, 1974; Otley, 1978), and the importance of the in-
Sum of indirect effects =0.166 (0.045) 0.084 0.262 terdependency of PMS and reward system (see Widener et al., 2008).
Note. LL = lower limit; CI = confidence interval; UL = upper limit; bootstrap sample size Further, while Widener et al. (2008) find a complementarity relations
= 5000. among choice between PMS and reward system, they do not consider
a
The indirect effects are significant at the 95% level of significance. the potential effect of the reliance on BSA information and managerial

Please cite this article as: Nguyen, T.T., et al., Effect of transformational-leadership style and management control system on managerial
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 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx 9

performance. Our study also aimed to address a call by Franco-Santos (1999, p. 135) note that a “small sample estimate often results in non-
et al. (2012, p. 96) to conduct more research on the effect of comprehen- convergence, improper solutions, and estimate parameter instability.”
sive PMS on reported performance because “the results of this body of We overcame the issue of the small sample size (Wold, 1985) by
literature are inconclusive.” using PLS because it is a regression-based technique. PLS is a technique
Our results demonstrate that a transformational-leadership style has of latent variable modeling that requires a relatively small sample size
a direct and positive effect on managerial performance. For a MCS, and requires ten cases for the most complex regression (Chin, 1998;
transformational-leadership style positively affects the use of BSA infor- Vandenbosch, 1999). In our study, the most complex regression was
mation and comprehensive PMS, but does not affect the reward system. that of managerial performance as the dependent variable with five in-
The results suggest that the use of comprehensive PMS for the purpose dependent variables, suggesting a minimum sample size of 50 cases.
of the reward system is less important when the transformational- Third, prior studies (e.g. Prien & Liske, 1962; Thornton, 1968) argue
leadership style is employed (Abernethy et al., 2010). Our findings im- that the use of self-rated scales (e.g. managerial performance) is likely
prove understanding of how mediators intervene in the relationship be- to generate higher mean values (higher leniency error) and a restricted
tween transformational-leadership style and managerial performance range (lower variability error) in the observed scale. Future research
(see Franco-Santos et al., 2012; Hopwood, 1974). Specifically, our sup- may improve the validity of the construct by using 360° feedback
plementary analyses reveal that transformational-leadership style has (from the superior, self, co-workers, subordinates, and customers) to as-
a partial indirect effect on managerial performance via three mediators: sess managerial performance (Fletcher & Baldry, 2000). Fourth, our path
comprehensive PMS, reward system, and BSA information. (structural) model implies causality. However, the survey method
Our study makes the following contributions to the existing litera- employed in our study allows for the examination of statistical associa-
ture. First, we provide insight into how transformational-leadership tions at one point in time. The various statements about the direction of
styles can rely on the decision-influencing and decision-facilitating relationships proposed in this study can only be made in terms of the
roles of MCS information for the purpose of improving employees' per- consistency of the results with the effects proposed in the theoretical
formance evaluation, motivation, and managerial decision-making. discussions. The use of a different research method, such as a longitudi-
Specifically, our findings demonstrate that transformational leaders nal field study, would be appropriate to investigate systematically the
motivate and inspire followers (i.e. managers) by relying on informa- theoretical causal relationships proposed in our study. Fifth, given that
tion from the MCS for performance-evaluation and reward purposes, all the responses of this study came from the same manager to a set of
and the use of BSA information to facilitate their managerial decision- survey items, the potential problem of common method biases may
making processes. In turn, the use of BSA information has an effect on exist.5 We conducted the Harman's one-factor test to verify the extent
managerial performance. Second, the findings of our study extend to which common method variance was a concern. A factor analysis
those of Abernethy et al. (2010) and Widener et al. (2008) by examining was conducted on all items measuring the eight variables. We obtained
in a single study the influence of leadership style on choice of compre- a five-factor solution using the criterion of eigenvalue greater than one.
hensive PMS, reward-system design, and managers' use of BSA informa- The result of our factor analysis explained 64.61% of the variance. The
tion in making decisions. Specifically, our findings demonstrate that the first factor accounted for only 34.40% of the variance. Given that no sin-
connection between transformational leaders and managerial perfor- gle factor emerged explaining the majority of the variance, we conclude
mance is positive and directly related. Our supplementary analyses re- that common method variance does not seem to be a significant threat
veal that this positive relationship between transformational to our results obtained. Finally, future studies should consider further
leadership style and managerial performance is attributed to the medi- factors that might affect the relationships examined in this study (e.g.
ating effects of the decision-influencing role and decision-facilitating culture and ownership types) in the research model to enrich the liter-
role of MCS. The decision-influencing role includes the following ature on leadership styles, comprehensive PMS, reward system, use of
paths: TLS–PMS–RS–MP and TLS–RS–MP. In contrast, the decision- BSA information, and managerial performance.
facilitating role consists of the following path: TLS–BSA–MP. In addition,
the combination of both the decision-influencing role and decision- Appendix A. Survey questionnaire
facilitating role of MCS includes the following path: TLS–PMS–RS–
BSA–MP. Finally, our study explores the adoption of a “Western” MCS A.1. Transformational leadership style
in a transitional economy such as Vietnam. The findings of our study
add to the list of studies that have examined the effectiveness of Please indicate, by placing an appropriate number from 1 to 7 in the
adopting a “Western” MCS to enhance organizational decision-making right column, the extent to which the following leadership behaviors
processes (Anderson & Lanen, 1999; Doan et al., 2011; O'Connor et al., represent your superior.
2004). The results of our study suggest that the adoption of effective
“Western” MCS design choices can enhance managers' performance Not at all Sometimes Frequently, if not always
across national boundaries (i.e. enterprises operating in a transitional
1 2 3 4 5 6 7
economy such as that of Vietnam). This result has important implica-
tions for companies in the Anglo-American block (e.g. Australia, 1. Displays power, confidence and ethics
2. Centers on value, beliefs and a sense of mission
United Kingdom, United States) that wish to establish a business in a 3. Arouses subordinates' awareness about what is
transitional economy in the Asian block (e.g. Vietnam). really important
The findings of our study should be interpreted in light of several 4. Talks positively about the future
limitations. First, the measurements of all variables of the study were 5. Has subordinates' respect
6. Makes subordinates feel proud of the group
based on a single questionnaire; therefore, associations between vari-
7. Emphasizes the collective mission
ables may be somewhat overestimated. Second, the use of convenience 8. Talks enthusiastically about what needs to be
sampling to collect data is prone to sampling bias through under- or accomplished
over-representing subgroups of enterprises (Kumar, 2006). Necessary
steps of the survey should be conducted to reduce sampling bias. A re-
5
lated issue to the sample is the use of the small sample size in this Common method biases are problematic because they are one of the principal sources
study. Numerous researchers (see Bentler & Bonnet, 1980; Guadagnoli of measurement error (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). It has been argued
that measurement error threatens the validity of the conclusions about the relationships
& Velicer, 1988; Zimmerman, Eason, & Gowan, 1999) have commented between measures and has both a random and a systematic component (Nunnally,
on and criticized the problems associated with the use of a small sample 1978). For a critical review of the literature and recommended remedies for common
size for structural equation modeling. For example, Zimmerman et al. method biases, see Podsakoff et al. (2003).

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10 T.T. Nguyen et al. / Journal of Business Research xxx (2016) xxx–xxx

A.5. Managerial performance

A.2. Comprehensive performance measurement system
Managerial performance is defined as the extent to which managers
Please indicate, by placing an appropriate number from 1 to 7 in the have accomplished their functions effectively.
far right column, the extent to which your company uses these perfor- Please indicate your own performance by placing an appropriate
mance measures to assess your performance as the manager of your number from 1 to 7 in the far right column for each of the following
department. functional dimensions.

Not used at all Average use Used to a great extent Very poor Poor Below Average Above Very Excellent
1 2 3 4 5 6 7 average average good

1. Financial performance (e.g. measures for financial 1 2 3 4 5 6 7

aspects of managerial performance such as meeting 1. Planning Determining goals, policies and courses of action
targets including revenue budget(s), cost targets, and (e.g. scheduling work, budgeting, setting up
where applicable profit targets). procedures).
2. Non-financial performance (e.g., meeting the desired 2. Investigating Collecting and preparing information for records,
goal of (1) retaining existing customers, (2) attracting reports and accounts (e.g. measuring output,
new customers, (3) improving quality of product/- inventorying, analyzing job/contract/process).
service quality, (4) on time delivery of products/- 3. Coordinating Exchanging information with people in your
services, and (5) maintaining employee organization in order to relate and adjust
turnover/satisfaction). procedures, policies and plans; advising and liaising
3. Other performance measures for product, service and with other personnel in the organization.
process innovation. 4. Evaluating Assessing and appraising of actual performance and
proposals for future performance (e.g. appraising
employees, judging output records, judging
A.3. Reward system financial reports, inspecting).
5. Supervising Directing, leading and developing your personnel
This part relates to the reward system of your company. A reward (e.g. counseling, training and explaining work rules
to subordinates; assigning work and handling
system consists of processes, practices and systems that are used to pro-
complaints).
vide levels of pay and benefits to employees. 6. Staffing Maintaining the work force of your responsibility
Please indicate the extent to which you disagree or agree with each area (e.g. recruiting, interviewing and selecting new
of the following statements applied to your company by placing an ap- employees; placing, promoting and transferring
propriate number from 1 to 7 in the far right column. employees).
7. Negotiating Purchasing, selling or contracting for products or
services (e.g. contacting suppliers, dealing with
Strongly disagree Neutral Strongly agree sales representatives, selling to dealers or
customers, collective bargaining).
1 2 3 4 5 6 7
8. Representing Attending conventions, consultation with other
1. Rewards are directly tied to individual performance firms, business club meetings, public speeches,
2. Are directly tied to performance measures community drives; advancing the general interests
3. People's rewards increase as their performance increase of your organization.
4. Individuals whose performance ranks in the top 25% receive
higher rewards than those in the bottom 25%
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