EFFECTS OF UNCERTAINTY, PARTICIPATION, AND CONTROL SYSTEM MONITORING ON THE PROPENSITY TO CREATE BUDGET SLACK AND ACTUAL BUDGET SLACK CREATED

Abstract

This study extends prior research by proposing a more complete model of the process by which budget slack is created in the organization. The research model proposed in this study suggests that there is an ex-ante as well as an ex-post process by which budget slack is created. In the ex-ante process, environmental uncertainty and budget participation are linked to managers’ propensity to create slack through job-relevant information (JRI). In the ex-post process, the control system determines the slack in the final budget by providing information to superiors about a manager’s performance capability. Thus, the propensity to create slack determines actual slack to the extent that the organization’s control system fails to provide an effective assessment of the manager’s performance capability.Contrary to expectations, the ex-ante model indicated that participation has a direct, negative effect on propensity to create slack. The largest effect on propensity to create slack, however, was a direct positive link from environmental uncertainty. In the ex-post process, the link between propensity to create slack and segment slack (actual slack created) was moderated by the organization’s control system capabilities. When propensity to create slack is low (high), control system monitoring has little (a great) effect on segment slack created. This finding is consistent with arguments that publicly available information about a manager’s performance capability motivates a higher budget standard.

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