Budgeting: An Experimental Investigation of the Effects of Negotiation

Abstract

Despite the common use of negotiations to set budgets in practice, accounting research has focused primarily on budgets set unilaterally by subordinates, while goal-setting research in management has focused primarily on budgets set unilaterally by superiors. In addition, budgeting research in accounting has focused almost exclusively on the planning aspects of budgets to the exclusion of their motivational aspects. This study complements prior research in two ways. First, the study examines how budgets and the economic consequences of the budget-setting process differ when budgets are set through a negotiation process vs. when set unilaterally. The study also considers factors associated with negotiation agreement and the relation between agreement and the economic consequences of negotiated budgets. Second, the economic consequences examined are budgetary slack and subordinate performance, allowing us to address the trade-offs between the planning and motivational aspects of budgets. Negotiated budgets differ from unilaterally set budgets in a manner consistent with social norms and/or information transfer occurring during negotiations. Both the budgets and the economic consequences of the budgetsetting process differ when budgets are set through a negotiation process where superiors have final authority in the event of a negotiation impasse vs. when set unilaterally by superiors. Further, negotiation agreement significantly affects the economic consequences of negotiated budgets. Budgets set through a negotiation process ending in agreement contain significantly less slack. A failed negotiation followed by superiors imposing a budget has a significant detrimental effect on subordinate performance.

Public and Private Forms of Opportunism within the Organization: A Joint Examination of Budget and Effort Behavior

“…Similar to prior experimental studies (e.g., Young 1985;Waller 1988;Chow et al 1988;Chow et al 1991;Fisher et al 2000, Stevens 2002, Webb 2002 producer's expected performance minus the self-set budget all divided by expected performance.…”

“…Similar to Fisher et al (2000), we manipulate the rejection power of the manager. When the manager cannot reject the budget, the setting resembles a Dictator game where one of two participants proposes the split of a pool of money.…”

Assessing the impact of budgetary participation on budgetary outcomes: the role of information technology for enhanced communication and activity-based costing

“…Research attempting to link budget participation to budget slack also provides inconsistent results (Fisher et al 2000;Hansen et al 2003;Church et al 2012). While these inconsistent findings do imply that budgetary participation independently is not a sufficient condition to impact budgetary outcomes , previous attempts to examine the impact of different contingency variables (e.g., Shields and Young 1993, Gul et al 1995, Chong and Bateman 2000, Hartmann 2000, Lau and Lim 2002, Winata and Mia 2005, Agbejule and Saarikoski 2006Venkatesh and Blaskovich 2012) do not provide a satisfactory understanding of the mechanisms involved.…”

Relationship of Budgetary Slack With Participation and Emphasis on Budget and Information Asymmetry

“…Diversos estudos foram realizados, contemplando distintas variáveis, porém não chegaram a consolidar posições em torno do tema, inclusive diversas pesquisas apresentaram resultados divergentes. A participação no orçamento é uma variável bastante discutida na literatura (MERCHANT, 1985;CHOW;COOPER;WALLER, 1988;PARKER, 1996;PERERA, 1997;PEFFER, 2000), mas ainda não se tem um consenso sobre sua relação com a folga orçamentária. Dunk (1993) comenta que Williamson (1964) observou que os gestores tentam obter folga na definição do orçamento.…”