Budget Participation and Managerial Performance in Local Government: Leader–Member Exchange as Relational Governance Mediator
Keywords:
Budget Participation, Information Asymmetry, Leader–Member Exchange, Managerial Performance, Local Government
Abstract
Background: Managerial performance in local government organizations remains a persistent governance challenge, as formal administrative reforms and participatory budgeting mechanisms have demonstrated limited and inconsistent capacity to produce effective organizational outcomes. Existing literature has predominantly conceptualized budget participation and information asymmetry as isolated technical variables, leaving the relational governance mechanisms connecting these constructs to managerial effectiveness substantially underexplored.
Method: This study employs a quantitative explanatory design using cross-sectional survey data collected from 178 officials within Local Government Organizations (Organisasi Perangkat Daerah/OPD) in Bantul Regency, Indonesia. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS 4, with Leader–Member Exchange (LMX) positioned as a relational governance mediator.
Results: Budget participation positively affects managerial performance (β = 0.210) and LMX quality (β = 0.675), while information asymmetry exerts significant negative effects on both managerial performance (β = −0.179) and LMX (β = −0.536). LMX strongly influences managerial performance (β = 0.650) and significantly mediates both relationships, confirming its role as a primary relational governance mechanism.
Conclusion: Governance effectiveness in local government is fundamentally relational rather than procedural. The findings resonate with Islamic governance principles of shura, amanah, and adalah, suggesting that participatory, transparent, and trust-based governance practices are essential for sustained managerial effectiveness in public sector institutions.
References
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Yang, K., & Holzer, M. (2006). The performance--trust link: Implications for performance measurement. Public Administration Review, 66(1), 114–126.
Zada, M., Khan, J., Saeed, I., Zada, S., & Jun, Z. Y. (2023). Linking public leadership with project management effectiveness: Mediating role of goal clarity and moderating role of top management support. Heliyon, 9(5).
Alhasnawi, M. Y., Mohd Said, R., Raad Muhsen, Y., Alnoor, A., Mowafaq Alshdaifat, S., & Mohamed El Shlmani, Z. (2024). A systematic literature review of budget participation: foundations, trends, and ways forward. International Review of Public Administration, 29(3), 175–202. https://doi.org/10.1080/12294659.2024.2377874
Ali, A. J., & Weir, D. (2005). Islamic perspectives on management and organization. Taylor \& Francis.
Alo, O., & Arslan, A. (2022). The antecedents of leader-member-exchange (LMX) relationships in African context: the influence of the supervisor’s feedback delivery-tactic. International Journal of Organizational Analysis, 30(7), 67–94. https://doi.org/10.1108/IJOA-07-2021-2878
Anggara, S. (2025). Public policy reform in Indonesia: Navigating bureaucratic culture in the age of disruption. Tec Empresarial, 20(2), 716–728.
Azila-Gbettor, E. M., Novieto, D. T., Tulasi, E. E., Ahiabu, M. K., & Adzivor, E. K. (2024). Citizenship fatigue and employee commitment: moderating role of psychological ownership among artisans of family-owned construction firms. International Journal of Construction Management, 24(9), 975–985. https://doi.org/10.1080/15623599.2023.2239505
Beekun, R. I., & Badawi, J. A. (1999). Leadership: an Islamic perspective. Amana Beltsville, MD.
Cepiku, D., Mussari, R., & Giordano, F. (2016). Local governments managing austerity: Approaches, determinants and impact. Public Administration, 94(1), 223–243. https://doi.org/https://doi.org/10.1111/padm.12222
Chenhall, R. H. (2003). Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Accounting, Organizations and Society, 28(2–3), 127–168.
Cirella, S., & Murphy, S. (2022). Exploring intermediary practices of collaboration in university–industry innovation: A practice theory approach. Creativity and Innovation Management, 31(2), 358–375. https://doi.org/https://doi.org/10.1111/caim.12491
Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of Management, 31(6), 874–900.
Dienesch, R. M., & Liden, R. C. (1986). Leader-member exchange model of leadership: A critique and further development. Academy of Management Review, 11(3), 618–634.
Eisenhardt, K. M. (1989). Agency Theory: An Assessment and Review. Academy of Management Review, 14(1). https://doi.org/10.5465/amr.1989.4279003
Gerstner, C. R., & Day, D. V. (1997). Meta-Analytic review of leader-member exchange theory: Correlates and construct issues. Journal of Applied Psychology, 82(6), 827.
Graen, G. B., & Uhl-Bien, M. (1995). Relationship-based approach to leadership: Development of leader-member exchange (LMX) theory of leadership over 25 years: Applying a multi-level multi-domain perspective. The Leadership Quarterly, 6(2), 219–247.
Grossi, G., Kallio, K.-M., Sargiacomo, M., & Skoog, M. (2019). Accounting, performance management systems and accountability changes in knowledge-intensive public organizations: A literature review and research agenda. Accounting, Auditing & Accountability Journal, 33(1), 256–280. https://doi.org/10.1108/AAAJ-02-2019-3869
Hair, J. F., Hult, G. T. M., Ringle, C. M., & Sarstedt, M. (2017). A primer on partial least squares structural equation modeling (PLS-SEM) (2rd ed). SAGE Publications.
Hirvi, S. K., Laulainen, S., & Taskinen, H. (2020). Trust as a multidimensional phenomenon in LMX relationships. Journal of Health Organization and Management, 35(1), 17–33. https://doi.org/10.1108/JHOM-12-2019-0349
Höglund, L., Holmgren Caicedo, M., Mårtensson, M., & Svärdsten, F. (2018). Strategic management in the public sector: how tools enable and constrain strategy making. International Public Management Journal, 21(5), 822–849.
Jensen, & Meckling. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Corporate Governance, 77–132.
Kren, L. (1992). Budgetary participation and managerial performance: The impact of information and environmental volatility. Accounting Review, 511–526.
Liden, R. C., & Maslyn, J. M. (1998). Multidimensionality of leader-member exchange: An empirical assessment through scale development. Journal of Management, 24(1), 43–72.
Oppong, C., Salifu Atchulo, A., Akwaa-Sekyi, E. K., Grant, D. D., & Kpegba, S. A. (2023). Financial literacy, investment and personal financial management nexus: Empirical evidence on private sector employees. Cogent Business & Management, 10(2), 2229106. https://doi.org/10.1080/23311975.2023.2229106
Podsakoff, P. M., MacKenzie, S. B., Lee, J.-Y., & Podsakoff, N. P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879.
Riyadh, H. A., Nugraheni, F. R., & Ahmed, M. G. (2023). Impact of budget participation and leadership style on managerial performance with organizational commitment as intervening variable. Cogent Business & Management, 10(1), 2175440. https://doi.org/10.1080/23311975.2023.2175440
Saraf, P. K., Saha, S., & Anand, A. (2022). Supportive culture and job involvement in public sector: the mediating role of participation in decision making and organizational learning. International Journal of Public Sector Management, 35(5), 549–567. https://doi.org/10.1108/IJPSM-09-2021-0218
Sedighi, M., Sarcheshmeh, B. S., & Bagheri, R. (2022). Employee commitment to innovation performance: investigating the role of knowledge acquisition and knowledge sharing. International Journal of Systematic Innovation, 7(1), 1–17.
Shields, J. F., & Shields, M. D. (1998). Antecedents of participative budgeting. Accounting, Organizations and Society, 23(1), 49–76.
Shmueli, G., Sarstedt, M., Hair, J. F., Cheah, J.-H., Ting, H., Vaithilingam, S., & Ringle, C. M. (2019). Predictive model assessment in PLS-SEM: guidelines for using PLSpredict. European Journal of Marketing, 53(11), 2322–2347. https://doi.org/10.1108/EJM-02-2019-0189
Suwanda, D., & Suwanda, S. (2026). Self-blocking in defense procurement: a case study of budgetary coordination failure in Indonesia’s satellite acquisition project. Journal of Public Procurement, 26(2), 235–258. https://doi.org/10.1108/JOPP-12-2025-0156
Tasdemir, D. D., Surucu, L., & Bekmezci, M. (2025). The moderating role of leader member exchange in the effect of role clarity on employee accountability. Management, 29(1), 467–491.
Yang, K., & Holzer, M. (2006). The performance--trust link: Implications for performance measurement. Public Administration Review, 66(1), 114–126.
Zada, M., Khan, J., Saeed, I., Zada, S., & Jun, Z. Y. (2023). Linking public leadership with project management effectiveness: Mediating role of goal clarity and moderating role of top management support. Heliyon, 9(5).
Published
2026-06-09
How to Cite
Widodo, S., Handono, W. D., Ardania, V. D., & Nugrahani, T. S. (2026). Budget Participation and Managerial Performance in Local Government: Leader–Member Exchange as Relational Governance Mediator. Sharia Economic and Management Business Journal (SEMBJ), 7(2), 87-106. https://doi.org/10.62159/sembj.v7i2.2299
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Articles
Copyright (c) 2026 Sri Widodo, Wiyasto Dwi Handono, Vidya Devia Ardania, Tri Siwi Nugrahani
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