DO PERCEPTIONS OF FAIRNESS MITIGATE MANAGERS’ USE OF BUDGETARY SLACK DURING ASYMMETRIC INFORMATION CONDITIONS?

Abstract

Prior research demonstrates a positive relationship between information asymmetry and managers’ use of budgetary slack and thereby suggests that minimizing managers’ private information is a potential tactic for reducing slack in budgets. Asymmetric information, however, often cannot be avoided when specialized technical expertise is required to operate a particular responsibility area. This study contributes to the literature by investigating whether favorable perceptions of fairness mitigate managers’ use of budgetary slack during participative environments in which managers hold private information. Overall, the findings demonstrate the benefits of fair budgeting practices. In particular, survey results suggest that the presence of budgetary slack in efficiency targets is lower for managers who hold favorable fairness perceptions. A gender effect is also demonstrated between perceptions of fairness and the presence of budgetary slack in spending targets. Factor analytical evidence toward the development of a more refined measure of budgetary slack is provided.

Citation

Wentzel, K. (2004), "DO PERCEPTIONS OF FAIRNESS MITIGATE MANAGERS’ USE OF BUDGETARY SLACK DURING ASYMMETRIC INFORMATION CONDITIONS?", Advances in Management Accounting (Advances in Management Accounting, Vol. 13), Emerald Group Publishing Limited, Leeds, pp. 223-244. https://doi.org/10.1016/S1474-7871(04)13009-8