Introduction

This study focusses on budget emphasis in SMEs. Based on a survey conducted among Danish production companies with between 20 and 500 employees, we use structural equation modelling (AMOS) to analyse the firms’ emphasis on budgets for performance evaluation. We study the relationship between budget emphasis and performance as well as the relationship between budget emphasis and four contingency variables: size, perceived environmental uncertainty, structure (in the form of decentralization) and technology (in the form of interdependence). Mitchell and Reid (2000, p. 386) highlight that “…researching management accounting in the small firm setting has never been fashionable”, and, in general, research on performance measurement in SMEs is sparse (Garengo et al., 2005). The budgeting system is among the most widespread management control systems (MCSs) in SMEs (Collis and Jarvis, 2002) but to our knowledge, budget emphasis in SMEs has not previously been studied, and the overall question we ask is: Do budgets have relevance in regard to performance evaluation in SMEs? This is not a trivial question as the focus on large corporations in management accounting research means that the extant research is not “fully applicable to smaller firms” (Lohr, 2012, p. 35). Generally, SMEs use less management accounting than larger companies, and they use it differently (Lavia López and Hiebl, 2015). Smaller companies may rely on informal management practices (such as personal supervision) to a greater extent than larger companies, at least until they reach a size that requires more formal control systems (King et al., 2010). Accordingly, there is a need to test the findings from studies of large organizations in the setting of smaller firms. Hence, from a theoretical and practical point of view, this is a relevant research question: Does the emphasis on budgets for performance evaluation influence overall performance in SMEs? The paper begins with a literature review and the development of the hypotheses in the next section, which is followed by a description of our methods. The results are then reported, after which we discuss our results and draw some conclusions.