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The influence of information asymmetry and budget emphasis on the relationship between participation and slack

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  • Chong Lau
  • Ian Eggleton

Abstract

Propensity to create slack may be influenced by the subordinates ‘reactions to budgetary participation. Prior research indicates that subordinates react favourably to high budgetary participation when it serves some useful purposes for them. Participation may be useful to them in a low information asymmetry situation, when they do not have more information than their superiors, because it enables them to gain from an exchange of information with their superiors. It may also be useful to them in a high budget emphasis situation, when meeting budgeted targets is important, because it enables them to influence the levels of budget targets. Prospect theory suggests that subordinates who find participation useful may have a low propensity to create slack for fear of jeopardising their participation privileges. Hence, subordinates’ propensity to create slack is likely to be low when high participation is allowed in a low information asymmetry situation. When information asymmetry is high, propensity to create slack is also likely to be low when high participation is allowed in a high budget emphasis situation. The results, based on a sample of 103 manufacturing managers, provide support for these expectations.

Suggested Citation

  • Chong Lau & Ian Eggleton, 2003. "The influence of information asymmetry and budget emphasis on the relationship between participation and slack," Accounting and Business Research, Taylor & Francis Journals, vol. 33(2), pages 91-104.
    • Handle: RePEc:taf:acctbr:v:33:y:2003:i:2:p:91-104
    DOI: 10.1080/00014788.2003.9729637
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    References listed on IDEAS

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    1. Brownell, P, 1985. "Budgetary Systems And The Control Of Functionally Differentiated Organizational Activities," Journal of Accounting Research, Wiley Blackwell, vol. 23(2), pages 502-512.
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    10. Lal, Mohan & Dunk, Alan S. & Smith, Gregory D., 1996. "The propensity of managers to create budgetary slack: A cross-national re-examination using random sampling," The International Journal of Accounting, Elsevier, vol. 31(4), pages 483-496.
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    Cited by:

    1. Emine Yilmaz Karakoc & Gokhan Ozer, 2016. "An investigation of Budget-Related Antecedents of Job Performance," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 5(3), pages 38-53, April.
    2. Mirna Indriani & Nadirsyah, 2015. "Interaction Effect Of Budgetary Participation And Management Accounting System On Managerial Performance: Evidence From Indonesia," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 9(1), pages 1-13.
    3. Christian Daumoser & Bernhard Hirsch & Matthias Sohn, 2018. "Honesty in budgeting: a review of morality and control aspects in the budgetary slack literature," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(2), pages 115-159, August.
    4. Wiersma, Eelke, 2017. "How and when do firms translate slack into better performance?," The British Accounting Review, Elsevier, vol. 49(5), pages 445-459.

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