A Comparative Study of Alternative Indicators of Budgetary Slack

Abstract

The objective of this study was to empirically test Wolf's [1971] proposed objective indicator against a subjective indicator of budgetary slack. This was accomplished by correlating two indicators of budgetary slack with each other and with each of the slack contributing factors identified in the literature. A moderately positive relationship was found to exist between the subjective and objective indicators of budgetary slack. A strong relationship between the linkage of the budgetary system to the system of rewards and the two indicators of budget slack was indicated. Budget pressure revealed a moderately positive relationship with budgetary slack. The test for the relationship for budgetary participation and the firm's economic environment with the indicators of budgetary slack produced mixed results. The correlation coefficient for the degree of decentralization was weak but positive with the objective indicator and slightly negative with the subjective indicator of slack. Since budget slack is a commonly observed phenomenon in business organizations, it is important to discover practical ways to obtain an indication of the creation of slack in an organization. Such monitoring of slack would lead to better utilization of company resources and the achievement of operational efficiency. The use of an objective indicator holds promise for internal monitoring of slack by companies because an in‐house questionnaire may not be dependable. In spite of its limitations, this study takes an important first step in this development.

Citation

Leavins, J.R., Omer, K. and Vilutis, A. (1995), "A Comparative Study of Alternative Indicators of Budgetary Slack", Managerial Finance, Vol. 21 No. 3, pp. 52-67. https://doi.org/10.1108/eb018506