Description
Experimental research and survey studies have yielded conflicting findings about the conditions under which budget
slack is likely to arise. This study begins to reconcile the contradictory evidence by examining the impact of two features
of the organizational context in which budget decisions are made: reputation concerns and variance investigations.
The results of a laboratory experiment showconcern for maintaining a favourable reputation leads to lower
budget slack as does the existence of a variance investigation policy. The findings extend the agency theory framework
by incorporating both pecuniary and non-pecuniary features that influence behavior when budgets have consequences
beyond the immediate period. The results also suggest reputation concerns and control system features may serve as
cost-effective substitutes for exhaustive incentive contracting in practical settings
doc_957208405.pdf
Experimental research and survey studies have yielded conflicting findings about the conditions under which budget
slack is likely to arise. This study begins to reconcile the contradictory evidence by examining the impact of two features
of the organizational context in which budget decisions are made: reputation concerns and variance investigations.
The results of a laboratory experiment showconcern for maintaining a favourable reputation leads to lower
budget slack as does the existence of a variance investigation policy. The findings extend the agency theory framework
by incorporating both pecuniary and non-pecuniary features that influence behavior when budgets have consequences
beyond the immediate period. The results also suggest reputation concerns and control system features may serve as
cost-effective substitutes for exhaustive incentive contracting in practical settings
doc_957208405.pdf