The Influence of Culture on Budget Control Practices in the USA and Japan: An Empirical Study
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JOURNAL OF INTERNATIONALBUSINESS STUDIES, FOURTH QUARTER 1992
Examining the influence of culture on budget control practices would help managers, especially in multinational corporations, to comprehend how budget processes and practices are bound to differ from country to country as a function of differences in shared norms among individuals within each group (which is what culture is all about). Since cultural norms precondition human predispositions, behaviors, and practices, expecting uniform policies and practices to work effectively across the globe is unrealistic. With the increasing number of joint collaborations between the U.S. and Japan, it will be useful for managers in both countries to understand why or how budget control practices can be expected to differ between the two countries as a function of the cultural differences that exist among the managers across the two national boundaries. Such understandingwill minimize misconceptions, misinterpretations,andfrustrationson bothsides, while increasing tolerance for deviations in budgetary practices and offering better ways to effectively handle the differences. A theme for investigation in budget control systems comparing the U.S. and Japan has been the budget formulation and implementation processes, both of which impact on the design of effective budget controlsystems. Comparing the accounting practicesbetween the two countries,Hawkins [1983] reported that U.S. companies encouraged greaterparticipationfrom a larger percentage of division heads while preparingoperationalbudgets, thantheirJapanese counterparts. Hawkins also found that the Japanese companies resorted to long-range planning more than the U.S. companies, and that the U.S. companies attached more importance to the use of accounting data for evaluating the individual performance of managers than the Japanese companies. It has also been established that, compared to U.S. managers, Japanese managers are more supportive of developing long-range budgets, and building slack into budgets (see, for instance, Daley, Jiambalvo,Sundem and Kondo [1985]). However, no attempt has thus far been made to investigate the role of culture as an explanatory variable in accounting for the differences that exist in the budgetary practices followed by the two countries. As stated earlier, so long as the influence of culture on the differences in practices is not properly understood, it is inevitable that U.S. companies operating in Japan, and Japanese companies operating in the U.S. will have difficulty in interacting with each other in an effective manner. The current study aims at examining the role of culture in the differential preferences for budget control practices in the U.S. and Japan. Six aspects of the budget controlprocesses integralto budget effectiveness that have been frequentlyresearched(see, for instance, McNally [1980]; Homgren [1982]
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