The purpose of this paper is to evaluate whether trust and distrust in upper-level managers exert different influences on the budgetary proposals of middle managers. Such…
The purpose of this paper is to evaluate whether trust and distrust in upper-level managers exert different influences on the budgetary proposals of middle managers. Such proposals involve different levels of managerial effort that impact overall budgetary slack.
This paper is based on a laboratory experiment with 160 business managers.
The results show that the more (less) middle managers trust (distrust) their upper-level managers, the more (the less) effort they commit to budgetary proposals. The authors also find that middle managers with low trust are prone to invest more effort and thus create less budgetary slack than managers with high distrust. The results also show that the introduction of suspicion does not vary this initial choice of effort and budgetary slack.
This paper shows the importance of trust and distrust as informal control systems in organizations. The findings support the importance of extrinsic motivation for enhancing effort and reducing budgetary slack. There are a wide range of exogenous variables that have an effect on the development of trust and distrust.
Practitioners may improve their management control by facilitating trust and preventing distrust in interpersonal relationships because both are informal controls that can reduce and increase, respectively, dysfunctional behaviors in organizations, such as budgetary slack.
This paper is among the first to show the distinct effects of trust and distrust (high and low) in the efforts of middle managers. This study provides a dynamic viewpoint of trust through the introduction of suspicion in a budget negotiation.