This article examines factors influencing the creation of budgetary slack under budget-based incentive schemes. Classical agency theory serves as the starting point, with the dual role of budgeting as a planning and a motivational instrument. Under the assumption of fully rational utility maximizers, people should incorporate the maximum amount of budgetary slack possible given budget-related compensation. However, this behavior cannot be observed in reality or in experimental settings. Therefore, two important questions remain partially unanswered with regard to explaining the phenomenon of budgetary slack: First, why do individuals not maximize their own utility through budgetary slack? And, second, why is budgetary slack not eliminated completely due to reasons leading to the first question? Behavioral accounting research in this area has gained significant importance in the last years. In this domain, we focus on studies employing the psychological theories of social preferences, organizational justice, and moral disengagement and present primarily experimental as well as survey-based field research findings. The analysis leads to suggestions for further research in this area.

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Purpose In the aftermath of the financial crisis, the influence of competitive compensation systems on employee risk taking has gained increasing attention. As the renouncement of such incentive schemes might entail severe disadvantages regarding employee motivation, standard setters have proposed adding nonmonetary instruments of control. This paper aims to examine the influence of two of the most common instruments: a risk-sensitizing code of conduct and justification. Design/methodology/approach A laboratory experiment with 136 business students is conducted to test the hypotheses and answer the research question. The presence and absence of a risk-sensitizing code of conduct and a justification system is manipulated between subjects. The experiment consists of ten rounds, with round as the third factor manipulated within subjects. Findings Consistent with the paper’s hypothesis and the underlying theory, both instruments are found to offset higher risk taking. The paper shows that the motivation of individuals triggered by justification depends on a risk-sensitizing code of conduct, and insights into the psychological mechanisms behind the findings are provided. Practical implications As justification is considered more costly than a risk-sensitizing code of conduct, establishing the latter instead of the former seems preferable in most situations. However, if organizational citizenship behavior is unlikely to evolve, justification can substitute it for managing employee risk taking. Originality/value This paper identifies the risk-sensitizing code of conduct as an informal instrument of control for managing risk taking. Prior research mainly focuses on potentially more costly formal instruments of control.

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This study investigates if and how the influence of compensation interdependence on risk-taking depends on mutual monitoring of risky investment decisions. We argue that individuals under compensation interdependence have a behavioral incentive for higher risk-taking if mutual monitoring is present. Impression management is hypothesized to be the driving force behind this effect, with the visibility of actions to the peers through mutual monitoring as an important prerequisite. The results of a laboratory experiment support our predictions. Additional analyses reveal that impression management drives our results because participants incorporate their peers’ preferences in their decision process. This reasoning is further substantiated as individuals increase their risk-taking if they took less risk than their peers in previous experimental rounds and thus adjust to their respective peer group. Our findings inform firms about the effect of compensation interdependence in working environments with differing opportunities for mutual monitoring.