Reliance on budgetary control, manufacturing process automation and production subunit performance: A research note

The degree to which reliance can be placed on budgetary control in the assessment of production subunit performance, particularly with the advent of manufacturing process automation involving, for example, robots and CAD/CAM, is problematic. While budget-based control systems are extensively employed in organizations, such usage does not provide clear evidence of their utility as performance enhancement vehicles as advances are made in the automation of manufacturing processes. The purpose of this paper is to report the results of a study which examines the effect of automation on the link between reliance on budgetary control and production subunit performance. The findings suggest that manufacturing process automation moderates the relation between reliance on budgetary control and departmental performance. As such, firms may benefit from a reliance on budgetary control in the evaluation of production subunit performance as manufacturing processes become more automated.     

Management accounting systems change and departmental performance: the influence of managerial information and task uncertainty

Despite the proliferation of new management accounting techniques amidst pressures of organizational and global change, the issue of changes in firm-wide management accounting and control systems (MACSs) has largely been ignored in the research literature. This study explores the indirect effect of MACSs change on departmental performance for a cross-sectional sample of 232 medium-sized Singaporean firms. It is hypothesized that MACSs change affects performance but not directly. Instead, this relationship is mediated by managerial-relevant information (MRI) that is impacted by MACSs change, which, in turn, enhances performance. Task uncertainty is expected to moderate the intervening linkages; specifically, the latter are anticipated to strengthen under conditions of more task variability and task difficulty and, thus, augment the indirect effect of MACSs change on performance. The results offer support for the positive indirect effect of improving departmental performance from more MRI, triggered by MACSs change. Although not large, the indirect effect is strengthened when task variability and task difficulty are high. Overall, the findings are consistent with the stated purposes of management accounting that are embedded in normative definitions, and which are relied upon to motivate the framework for analysis.     

How Top‐down and Bottom‐up Budgeting Affect Budget Slack and Performance through Social and Economic Exchange

This paper investigates the effects of a top‐down (TD) versus bottom‐up (BU) orientation in different stages of the budgetary target‐setting process on slack and managerial performance. We use social exchange theory to explain the outcomes of these alternative budgetary arrangements, and complement the traditional focus on budgetary participation in target setting with a process‐oriented perspective. We develop hypotheses predicting that TD and BU orientations in the subsequent stages of the budgeting process have different effects on managers’ exchange relationships with the firm, and their behavioural responses. Using survey evidence from German managers across 127 firms we find that a TD orientation in the issuance of guidelines enhances economic exchange and that a BU orientation in the development of the initial budget proposal enhances social exchange, which in turn are associated with reduced slack and higher performance, respectively.     

The effect of information asymmetry on negotiated budgets: an empirical investigation

This study examines three issues: (1) the effect of information asymmetry on the budget negotiation process, (2) the effect of information asymmetry on budgetary slack when budgets are set through a negotiation process, and (3) whether subordinates consider superiors imposing a budget following a failed negotiation as being low in procedural justice, which in turn causes low subordinate performance. The results suggest that smaller differences in initial negotiation positions do not indicate a higher likelihood of agreement when initial differences are due to differential information symmetry. Further, information asymmetry affects the relationship between negotiation agreement and budgetary slack. Last, inconsistent with a pure economic perspective, having superiors impose a budget after a failed negotiation causes justice or fairness considerations to demotivate subordinates.     

The effects of national culture on the role of participation in different task situations

Prior studies primarily in Anglo-American and Asian cultural settings have found that budgetary participation interacts with reliance on accounting performance measures and task situations to affect managerial attitudes. Researchers have questioned if such findings can also be found in different cultural environments. As France has a high power distance and high individualism culture which is different from those of both the Anglo-American and Asian nations, this study investigates if such cultural differences may affect the findings of prior studies. Based on a sample of 44 French managers, the results indicate a similar significant three-way interaction effect. However, they also indicate that French managers have low levels of budgetary participation. Participation also has an insignificant effect on managers' job satisfaction in high task difficulty situations. These results are contrary to those of prior studies in Anglo-American and Asian cultural settings and may have important implications for the study of cultural effects on management control systems.     

Managing budget emphasis through the explicit design of conditional budgetary slack

Budgetary slack plays an important role in the functioning of budgets in organizations. While theory has found negative as well as positive elements associated with its presence, the empirical literature has interpreted it as being dysfunctional to organizations. In this paper, we present empirical evidence on how a company purposefully budgeted additional financial resources with a motivation intention (Lukka. Budgetary biasing in organizations: Theoretical framework and empirical evidence. Accounting, Organizations and Society 13 (1998) 281–302) to facilitate the managers’ task in achieving the goals of the company. Using quantitative and qualitative data from four logistic sites of a disk drive manufacturer for 24 months, we examine how the company accepted more slack as the demand on business processes increased and goals other than budget targets––in particular, service quality––became harder to achieve. By allowing this practice, headquarters made it clear to local managers that product quality and service were at least as important as meeting budget objectives. We also find that not only was budgetary slack purposefully built during the budgeting process but also in the budgeting system itself through the underlying cost accounting assumptions. The results of this paper provide empirical evidence on the positive aspects of budgetary slack and on the role of cost accounting models used in the budgeting system to facilitate managerial work.     

Shared interest and honesty in budget reporting

This study uses two experiments to investigate the honesty of managers’ budget reports when the financial benefit resulting from budgetary slack is shared by the manager and other non-reporting employees. Drawing on moral disengagement theory, we predict that the shared interest in slack creation makes misreporting more self-justifiable to the manager and, therefore, leads to lower honesty. Consistent with our prediction, the results of our first experiment show that managers report less honestly when the benefit of slack is shared than when it is not shared, regardless of whether others are aware of the misreporting. Our second experiment investigates whether the preferences of the beneficiaries of the slack affect managers’ honesty. We predict that managers’ honesty will be improved when the beneficiaries of the slack have a known, higher-order preference for truthful reporting. Consistent with our prediction, the results show that managers report more honestly when other employees have a known preference for honesty than otherwise. The implications of our findings for management accounting research and practice are discussed.     

Enticing Employees to Lie: Using Role Play to Understand and Mitigate Unintended Consequences of Budgeting*

This role play is a short, in‐class interactive exercise that places students in the role of a factory worker who is asked to commit to a future production amount. The role play demonstrates why employees may be tempted to lie when asked to reveal their future productive capacities. The experiential exercise illustrates the tension between using budget information for both planning and control purposes, and then asks students to propose how senior managers may effectively manage this tension. The role play provides an opportunity to enhance students' moral sensitivities as it concludes with a review of the fundamental ethical principles of International Federation of Accountants (IFAC), noting that although budgetary slack is a widespread phenomenon, it clearly violates IFAC's principles.     

Budgeting and the propensity to create budgetary slack

This paper reports the results of a field study designed to investigate how managers' propensities to create budgetary slack are affected by the budgeting system and the technical context. The results show that propensities to create slack are lower where managers participate actively in budgeting, particularly when technologies are relatively predictable. But such propensities are higher if a tight budget requires frequent tactical responses to avoid overruns.     

The propensity of managers to create budgetary slack: A cross-national re-examination using random sampling

Following a review of the slack literature, Merchant (1985a) proposed that the propensity of subordinate managers to create slack is positively related to the importance placed on meeting budget targets, negatively related to the extent of participation allowed in budgeting processes, negatively related to the degree of predictability in the production processes, and negatively related to their superiors' abilities to detect slack. The results of his empirical tests provided little overall support for these hypotheses. The mixed nature of his results is of some concern since the literature provides considerable support for the theoretical framework underlying his propositions. He concluded that his use of non-random sampling may have influenced the results of his study. The objectives of this paper are first to extend Merchant's (1985a) study using the same measures but employing random sampling in a cross-national setting to enhance result generalizability. Second to assess whether the ability of superiors to detect slack interacts with budgetary participation to affect a subordinate manager's propensity to create slack. The results provide support for the cross-national generalizability of all five hypotheses.     

Environmental uncertainty and managers’ use of discretionary accruals

Although an organization’s environmental uncertainty may induce greater variability in reported earnings, managers have incentives to reduce this variability. The flexibility accorded by generally accepted accounting principles (GAAP) provides managers the means to accomplish this via exercising discretion in recognizing accounting accruals. Thus, we examine the relation between managers’ use of discretionary accruals and environmental uncertainty. Overall, evidence suggests managers use discretionary accruals to reduce the variability in reported earnings more when firms operate in high uncertainty.     

The effects of experience and task difficulty on accuracy and confidence assessments of auditors

This study extends prior research in psychology and auditing by examining the effects of audit experience and task difficulty on control risk evaluation. It also examines whether the effect of framing is mitigated by the simultaneous presentation of information. Ninety‐eight auditors performed a control risk evaluation task and recorded their judgement and their confidence. We find that judgement confidence increases with audit experience and that judgement confidence decreases as perceived task difficulty increases. However, we find no relation between audit experience and judgement accuracy or between perceived task difficulty and judgement accuracy. In addition, we find a significant negative relation between judgement confidence and judgement accuracy, which indicates that the participants' confidence is not appropriate. As expected, there is no framing effect when information is presented simultaneously.     

The effect of performance feedback on prior budgetary participative research using survey methodology: An empirical study

Prior research examining the relation between budgetary participation and job performance explicitly or implicitly posits budgetary participation and intervening variables such as role ambiguity, motivation, job satisfaction, and job-relevant information as independent variables; job performance as the dependent variable. However, these studies are often based on correlated data in which the direction of causation is unknown. This paper uses attribution theory to examine whether job performance affects perceptions of budgetary participation and/or intervening variables (e.g. role ambiguity). Using a laboratory experiment and multivariate analysis of variance (MANOVA), the findings of this study show that knowledge of performance, obtained through performance evaluations and/or external cues, affects individuals’ perceptions regarding budgetary participation, job satisfaction, role ambiguity, motivation, and job-relevant information. The results of the study may undermine correlations between self-reported data on individual characteristics (e.g. motivation) and performance data, as well as correlations between self-reported data on organizational variables (e.g. budgetary participation) and performance data. The study provides suggestions how researchers could overcome problems associated with causal directions in future budget participation studies that link self-reported individual and organizational characteristics to job performance.     

How and when do firms translate slack into better performance?

Many studies have tested the impact of organizational slack on performance, and yet little is known about how managers make use of slack, and in what circumstances it is most beneficial. We show that the managers of firms with higher levels of slack tend to overinvest, which will have a negative impact on performance, but at the same time they may innovate, which will subsequently have a positive impact. Our results also indicates slack is more beneficial when the firm has many profitable investment opportunities. We show that different types of slack influence performance differently, the total effect of available slack on performance being positive, whereas that of recoverable slack on performance being negative.     

交互预算:应对战略不确定性、契合管理控制的新机制——基于天津一汽丰田公司的案例研究

本文基于Simons的管理控制框架,在理论上梳理交互预算的控制特征、重构交互预算与其它管理控制方式间的协同关系,通过对天津一汽丰田公司预算控制的案例描述与理论分析,阐明了有别于传统的诊断预算控制,交互预算既能够克服传统预算方式的制度弊端,又能成为适应不确定性环境下的战略管理工具,还是促进企业上下级对话沟通、组织学习和管理创新的机制;另外,交互预算控制也是契合管理控制系统中信念控制、边界控制等其他控制方式的制度安排。     

Ritual legitimation, de-coupling and the budgetary process: managing organizational hypocrisies in a multinational company

The study of participation in the budgetary cycle has formed a prominent part of the research literature concerned with the budgetary process. More recently there has emerged a body of literature concerned with exploring the political and symbolic nature of the budgetary process. The paper reports upon the outcomes of an empirical study of the introduction of `budgetary participation' in a division of a European subsidiary of a large North American car manufacturer. We detail the long process of consultation and negotiation within the subsidiary, and between it and the European Headquarters. The study provides a revealing instance of the roles of formal budget participation as a ritual of control and legitimation without the substantive involvement of middle managers and suggested to us the introduction of de-coupling and organizational hypocrisy alongside the introduction of budget participation. The study pays close attention to the contingent effects of the wider political context of the division and the relationships between the division, its organizational context and organizational environment, and how this context played upon the budgetary process in the division. The outcomes that we analyse at `Delta' reflect the de-coupling strategies and organizational hypocrisies commonly found in public sector organizations. In this wider setting the corporation persists with the ritual of `tight' budget negotiation and target setting and apparent underachievement in performance. Yet we conclude that the complex technological and political context to the formation and siting of Delta continued and may continue to support its existence.$g0     

The perceived fairness of performance evaluation: The role of uncertainty

This paper investigates the relationship between performance evaluation procedures and managerial perceptions of procedural justice. We examine two metric and two process characteristics. Metric characteristics are the diversity of metrics used by superiors and their reliance on outcome vs. effort metrics. Regarding process characteristics, we analyse the amount of subordinate's voice in the performance evaluation process, and the extent of formalization of the process. Using uncertainty management theory, we argue that justice effects of performance evaluation procedures may not be direct but are instead conditional on the amount of task uncertainty managers face in the their job context as well as on managers’ tolerance for ambiguity. Using a sample of 178 managers from the banking industry, we find that all four performance evaluation characteristics are related to justice perceptions, yet their effect depends on the level of task uncertainty and tolerance for ambiguity. These findings explain some inconsistencies in extant studies on fairness of performance evaluation procedures.     

THE EFFECTS OF MANAGERIAL ROLES ON THE RELATION BETWEEN BUDGETARY PARTICIPATION AND JOB SATISFACTION

This study examines the extent to which managerial roles moderate the relation between budgetary participation and job satisfaction. Managerial roles, defined in terms of line versus staff, may serve as a situational variable that assists in explaining the equivocal results found in studies for the association between budgetary participation and job satisfaction. The findings of this study suggest that the link between budgetary participation and job satisfaction is dependent on the role a manager undertakes in an organization. The relation between budgetary participation and job satisfaction was found to be significantly more effective for line managers than for staff managers.     

The Rationale for Cost Allocation: a Study of UK Divisionalised Companies

This paper reports the results of an empirical study designed to examine how top management in divisionalised companies perceive central costs allocation for the purposes of performance evaluation. Data for the study were collected from senior management using a questionnaire survey. The empirical evidence shows that top management allocate costs to influence the behaviour of managers to take action in the best interests of the company as a whole. Following from this, top management perceive allocations as being likely to encourage the optimal utilisation of resources. However, top management perceive allocations as being unlikely to reduce both divisional managers' expenditure on perquisites and budgetary slack.     

The effects of uncertainty on the roles of controllers and budgets: an exploratory study

This paper explores how contextual uncertainty and the use of the budgetary system explain cross-sectional variation in the organisational role of business unit controllers. We argue that there are complementarities between the role of the budgetary control system (i.e. coercive vs. enabling) and the role of the controller (i.e. corporate policeman vs. business partner). Thus, we explore both the direct effect of uncertainty on the role of the controller and the indirect effect through the role of the budgetary control system. Using survey data from 134 business unit controllers, we find that uncertainty provides a partial explanation of the variation in the role of budgetary control systems and in the role of controllers. In particular, our data suggest alignment between the coercive (enabling) use of the budgetary control system and the role of controllers acting as corporate policemen (business partners). These findings add to our understanding of the functioning of business unit controllers within their organisational context.