Management Accounting Section Midyear Meeting

The Effects of Frontline Employee Participation in Strategic Planning on Managers’ Budget Slack Creation, Allocation, and Evaluation: A Field Experiment

• In Event: Break/Research Exhibition 1: Budgeting and Target Setting

Abstract

In this study we investigate whether participation of frontline employees (FEs) in a firm’s strategic planning using strengths, weaknesses, opportunities and threats (SWOT) analysis mitigates the incidence of budget slack creation and whether it improves budget allocation and evaluation. We conduct a field experiment in an agro-processing firm in Ghana, West Africa that specializes in the processing and exporting of tropical African foods. Our results suggest that FEs participation in strategic planning enhances managers’ identification of internal and external factors affecting the firm, a result that is relevant for the firm in understanding its operating environment. Our results also show that FEs participation improves managers’ budget allocation–effectively redirecting the firm’s strengths or resources to units where they are most needed, as well as reducing bias in their performance evaluation. While we do not find statistically significant evidence that FEs participation in strategic planning reduces budget slack, the results are economically significant. Overall, our results show that FEs participation in the strategic planning process improved managers’ information environment and this has led to subsequent changes in their choices and actions.

Authors

• James Xede, Xiamen University

• Yasheng Chen, Xiamen University