The moderating effect of the Revised Levers of Control on the relationship between gaming problem and financial performance in Jordanian Industrial Listed Companies

Abstract

The financial crisis in 2008 and particularly the Arab Spring Revolution in 2011 resulted in high inflation and increased volatility in the Jordanian markets. Moreover, inflow of refugees created job scarcity, and income levels dropped below the poverty line. These pressures could promote dysfunctional behaviours in the budgetary process, known as gaming. In order to address gaming, improved planning and control systems are warranted. The current study investigates to what extent gaming problems exist in Jordanian Industrial Listed Companies (JILCs) and if these problems affect the companies’ financial performance. The study also examines the extent to which the Revised Levers of Control framework (RLOC), one of the recent controls developed by Tessier and Otley (2012), is implemented by the sample JILCs. Furthermore, this study analyses whether the RLOC framework moderates the negative consequences of gaming on financial performance of the JILCs. The theories referred to in this research are agency theory and contingency theory. Primary data on gaming and RLOC were collected from 50 sales managers using questionnaire survey, and 17 Chief Financial Officers (CFO) were interviewed. Secondary data from annual reports of 2012 to 2014 were also collected for financial performance, as measured by the return on assets (ROA) and return on equity (ROE). The current study found that there are moderately high levels of gaming in JILCs. In addition, the results showed that the majority of JILCs have at least one form of gaming problem. More importantly, gaming problem has significant negative effect on the ROA and ROE of these companies. With regard to the adoption of the RLOC framework, the results showed that the RLOC components are not fully adopted by the JILCs, particularly social controls. Nevertheless, the findings indicated that the RLOC has significant moderating effect on the relationship between the gaming problem and the financial performance of the JILCs. The findings of this study could be useful to JILCs in addressing gaming, developing better controls in line with the RLOC framework and improving their financial performance.