Management Accounting Section Midyear Meeting

Examining the Benefits of an Open Reporting Environment in Aggregated Budget Settings

• In Event: Subjective Performance Evaluation

Abstract

Many organizations adopt open reporting environments to promote information transparency among employees in pursuit of benefits from information-sharing and coordination. Prior studies in participative budgeting examine the effect of an open reporting environment in disaggregated budget settings, where subordinates submit individual budget reports to a superior. In this study, we investigate the effect of reporting environments in a setting where subordinates’ reports are aggregated together to form a single report to be submitted to the superior. Using an experiment, we find that, in an aggregated budget setting, misreporting is significantly lower under an open reporting environment compared to a closed reporting environment. However, we do not find this effect in a disaggregated budget setting. We further provide evidence that the decrease in misreporting is driven by a change in subordinates’ empirical expectations of honest reporting among the group. Our results suggest that organizations can benefit significantly by instituting or promoting information transparency through the organization when budgets are the product of reports from multiple subordinates.

Authors

• Michael Majerczyk, Georgia State University

• Wioleta C. Olczak, Marquette University

• Joel Owens, Portland State University

• Ke Xu, Siena College