The Influence of Horizontal Equity, Self Efficacy, and Ethical Position on the Creation of Budgetary Slack

• In Event: Honesty in Budgeting

Abstract

ABSTRACT
The budgeting process plays an important role in organizations’ planning and controlling functions. Managers often have incentives to misreport their private information and inaccurately set budget targets so that they are easily achievable. Such inaccuracy in budget targets is referred to as budgetary slack. Prior research documents that managers’ decisions to create budgetary slack are influenced by both preferences for wealth and non-pecuniary motivations. The objective of this study is to provide a better understanding of how social preferences such as preferences for horizontal equity, self efficacy perceptions, and ethical position influence managers’ budgetary slack creation. Specifically, we hypothesize that an interaction between horizontal equity (equal and unequal compensation relative to a peer) and self efficacy (poor and good prior performance) on budgetary slack creation behavior. Using a 2 x 2 between subjects experiment design and 109 graduate students as participants, we find results consistent with our prediction, suggesting a significant interaction between horizontal equity and self efficacy on the intention to create budgetary slack. Further, this research provides evidence regarding the impact of ethical position in moderating the relations among perceived fairness, self efficacy, and budgetary slack creation.
Key words: Horizontal equity, Budget slack, Self efficacy, Ethical position

Authors

• Ira Abdullah, Robert Morris University

• Alisa Gabrielle Brink, Virginia Commonwealth University

• Benson Wier, Virginia Commonwealth University