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This chapter examines the effect an informal control namely trust-in-superior and subordinates’ truthfulness in revealing their private information on budgetary slack. A laboratory experiment was conducted. A one-way analysis of variance (ANOVA) and ordinary least squares (OLS) regression were used to test the hypotheses proposed in this chapter. The independent variables were trust-in-superior and subordinates’ truthfulness in revealing their private information. The dependent variable was budgetary slack. The results indicate that trust-in-superior reduces the budgetary slack created by subordinates under private information condition. In addition, the results show that subordinates’ truthfulness in revealing their private information mediates the effect of trust-in-superior on budgetary slack.

This chapter examines the effect of mutual monitoring and the personality trait of need for achievement on subordinates’ budgetary-slack creation in a team-based environment. Experimental results show that the creation of budgetary slack is lower when mutual monitoring is present than when it is absent. The results also show that a two-way interaction between mutual monitoring and the personality trait of need for achievement affects subordinates’ budgetary-slack creation.

This study investigates the effect of honesty reminders on budgetary slack. Based on self-concept maintenance theory, the authors posit that honesty reminders can reduce budgetary slack by making people more aware of their own standards of honesty, resulting in more honest behavior. Using an experimental research design, the authors find evidence that honesty reminders reduce budgetary slack. The authors also find that although penalties can similarly reduce budgetary slack, they tend to cause distrust and resentment from subordinates. Therefore, honesty reminders may be a less costly method than penalties for reducing budgetary slack.

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.

The purpose of this study is to investigate how a combination of Normative Commitment (NC) and Instrumental Commitment (IC) affects the creation of budgetary slack when the decision-making mode is individual versus group.

We use 86 students in a two-by-two experimental design (individuals vs. groups and a combination of NC/IC vs. no NC/IC), fully crossed between participants, to examine the combined effects of NC/IC on budgetary slack creation by individuals and group members.

The results show that groups without NC/IC create the highest budgetary slack and differ from the other three experimental cells (groups with NC/IC and individuals with and without NC/IC). In addition, individuals with NC/IC also differ from individuals without NC/IC.

Research limitations are formation of groups, validity threats common to laboratory experiments, and generalizability of the findings. We do not believe these limitations are affecting the results.

As organizations continue to increase the use of group decision-making for setting their budgets, they may want to monitor groups with low NC/IC due to higher slack creation.

Use of groups can impact prosocial behavior via creating a “label” and/or forming social ties in budgeting.

This study extends budgetary slack creation under individuals versus group decision-making, introduces the combined effects of NC/IC as a psychological contract to the accounting literature, and examines the combined NC/IC effect on groups as compared to individuals.

This study extends prior balanced scorecard (BSC) research by incorporating the effects of uncertainty, payment schemes and the strength of causal relations proposed in the performance measurement model (PMM) on the budgetary dynamics. Our analysis was restricted to two strategic business units (SBU), engineering projects and electricity distribution service, from a Brazilian electric power concessionaire. We postulate a mediated moderation association between uncertainty (treatment), bonus scheme (mediator), dispersion of payment scheme and the strength of causal relations proposed in the PMM (moderators) on budgetary slack (outcome). Additionally, we postulate that the use of accounting-based measures (ABM) also mediates the effect of uncertainty on budgetary slack. We gathered monthly observations from 102 indicators containing the target and achievement values throughout 2002–2006. Managers were later asked to answer questionnaires about the possible cause–effect relations between these indicators, then 215 causal maps of the department and corporate indicators were drawn up. Econometric analysis provided evidence that the budgetary slack observed is directly impacted by uncertainty, and this impact is moderated by the dispersion of payment scheme. However, we did not find any evidence that supported the mediation process proposed between uncertainty, ABM and budgetary slack. Incomplete implementation of BSC and the level of analysis adopted are possible explanations for that.

To study the use of budgeting in the uncertain and unpredictable context of seasonal logistics in the Arctic. Specifically addresses the question of why and how budgeting turns out to be the main management control tool in an extremely unstable environment.

Built on a case study of a Russian oil-producing company operating in The High North, this chapter reports on the rationales for use of budgetary slack by different divisions within the company.

Inflexible budgeting better fits into the (natural/geographical) context than into the business process. In this respect, excessive budget detalization and informational update may be not facilitating the operational process but confusing. Decoupling demonstrated by a budgetary slack is the normal condition for stable organizational performance.

Instead of setting up fences between the divisions, budgeting may be considered a converging and an adjusting factor to assess collective performance. Social embeddedness of budgetary slack in contemporary organizations sets the scene for other types of budgeting games based on trust, norms of reciprocity and collective performance.

The new – cultural – dimension introduces decoupling in a new perspective by demonstrating the integrating or coupling meaning of cultural practices.

Psychological contracts represent unofficial or informal expectations that an individual holds, most commonly applied to an employer–employee relationship. Understanding psychological contracts helps explain the consequences of unmet expectations, including increased budgetary slack and reduced audit quality. This chapter reviews and synthesizes accounting behavioral research that discusses psychological contracts and that was published in academic and practitioner journals in the areas of financial accounting, management accounting, auditing, taxes, non-profit organizations, accounting education, and the accounting profession itself. Despite the prevalence of psychological contracts in the workplace and the applicability to behavioral research, accounting literature remains limited regarding applications of psychological contracts. This chapter aggregates research across all areas of accounting to provide suggestions for use of psychological contracts in future research and thus create a connected research stream.

This study examines how budgetary support (BS), teamwork, and organizational commitment to employees (OCE) affect firm performance across two countries, Malaysia and the United States. By surveying senior managers of 165 small and medium enterprises, this study finds that teamwork and BS each has a direct effect on OCE and firm performance. Further, results indicate that OCE mediates the relationship between BS, teamwork, and firm performance. In Malaysia, but not in the United States, we find that teamwork affects performance directly. In the United States, but not in Malaysia, we find that BS affects performance, and there is an interaction effect between BS and management influence. We attribute the effects to the different national cultures and social-exchange relations and highlight the contributions to the budgeting research, organizational commitment literature, and to practice.

Prior research indicates that incorporating information symmetry into budgeting processes can reduce slack. This study investigates a new budgeting format, Strategic Budgeting, which incorporates information symmetry via mutual monitoring through a “group budget buffer”, or pool, that supports funding non-budgeted expenditures. Department managers must seek approval from other managers to use pooled funds. We compare this budget format to a traditional format, which does not incorporate information symmetry, and investigate differences in spending decisions among managers. The results overwhelmingly show that groups using Strategic Budgeting spent less of a budget excess than those using Traditional Budgeting. The effect of the availability of unspent funds for a subsequent year's budget was also compared, with results indicating that this factor may potentially mitigate benefits gained from information symmetry over time. This study is the first to experimentally examine the effects of this new type of budgeting technique, as compared to Traditional Budgeting, on managerial budgeting behavior.