budgetary_justice_slack

budgetary_justice_slack - Budgetary Fairness 1 Budgetary...

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Unformatted text preview: Budgetary Fairness 1 Budgetary Fairness, Supervisory Trust, and the Propensity to Create Budgetary Slack: Testing a Social Exchange Model A. Blair Staley Associate Professor Department of Accounting Bloomsburg University of Pennsylvania 400 E. Second Street Bloomsburg, PA 17815-1301 [email protected] (570) 389-4392 (570) 389-4912 (fax) Nace R. Magner J.C. Holland Professor Department of Accounting and Finance Western Kentucky University Budgetary Fairness 2 Budgetary Fairness, Supervisory Trust, and the Propensity to Create Budgetary Slack: Testing a Social Exchange Model Abstract The general inclination of responsibility center managers to create budgetary slack has the potential to undermine the effectiveness of organizational budgeting systems. This paper develops and tests a model based on social exchange theory in which both procedural and interactional budgetary fairness reduce managers’ propensity to create budgetary slack by way of enhancing managers’ trust in their immediate supervisor. Latent variable structural equation analysis of questionnaire data from 1,358 U.S. Federal government managers supported the proposed model. The results suggest that both the fairness of an organization’s formal budgetary procedures and the fairness of budgetary decision makers’ implementation of these procedures influence managers’ propensity to create budgetary slack, and that trust in the immediate supervisor plays a role in these processes. \ Budgetary Fairness 3 Budgetary Fairness, Supervisory Trust, and the Propensity to Create Budgetary Slack: Testing a Social Exchange Model INTRODUCTION Budgetary slack has been an important focus of research devoted to the design and implementation of effective organizational budgeting systems (e.g., Dunk 1993; Merchant 1985; Onsi 1973; Stevens 2002; Young 1985). Budgetary slack is a condition where budgeted costs, revenues, or production volumes are easier to attain than if the budgeted amounts had been based on unbiased estimates of future operating conditions and results (Anthony and Govindarajan 2001; Little et al. 2002; Nouri 1994). Budgetary slack has the potential to undermine the effectiveness of budgeting as an organizational planning and control tool (Nouri and Parker 1996). For example, budgetary slack may lead to a suboptimal distribution of resources during budget formulation, with units whose budget contains relatively more slack being allocated a greater share of resources than they merit. Also, because budgets serve a role as performance targets, budgets that are easy to attain may not motivate managers with budget responsibility to perform to the same level as would those based on unbiased estimates. Furthermore, managers with budget responsibility are often rewarded on the basis of budget attainment and those whose budgets contain more slack may receive more rewards than they deserve....
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budgetary_justice_slack - Budgetary Fairness 1 Budgetary...

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