The Mediating Effect of Psychological Capital on the Budget Participation – Job Performance Relationship

Abstract

This study draws from the literature in positive psychology and organizational behavior, and is the first to examine the mediating effect of an individual’s positive Psychological Capital (PsyCap) on the budget participation- job performance relationship. Positive PsyCap is an emerging construct in the organizational behavior literature that represents an individual’s positive state of psychological development, and is characterized by the individual’s hope, efficacy, optimism, and resiliency. PsyCap focuses on developing and building on individuals’ strengths instead of concentrating on reducing or eliminating individuals’ weaknesses. Responses to a survey of 113 employees working in organizations across the United States and who are actively involved in the budget setting process or have budgetary responsibilities were used to test the hypotheses of this study. The results show that budget participation is significantly and positively associated with employees’ levels of PsyCap, which is in turn significantly and positively associated with higher levels of job performance. More importantly, the results provide strong support for the full mediation effect of PsyCap on the budget participation – job performance relationship. The results of this study contribute to the literature in budgeting by addressing the scholarly calls for research to examine the positive effects of budgeting practices such as, budget participation. Further, in the current challenging work environment, the results of this study allows us to inform organizations about the potential extent to which budget participation can be used as a tool to develop employees’ strengths to perform successfully at challenging tasks, instead of focusing on the dysfunctional behaviors caused by budget participation.