Organizational Slack in Decentralized Firms: The Role of Business Unit Controllers

Abstract

We study the determinants of organizational slack in large decentralized firms and focus in particular on how management accounting systems (represented by business unit controllers) affect slack. We rely on an adverse selection model to derive several predictions and to motivate our tests. Consistent with this framework, we find that organizational slack (measured by achievability of business unit managers' performance targets) is higher in settings where business unit controllers focus relatively more on providing decision-making information to business unit managers than on providing information for corporate control. We also find that organizational slack is persistent over time and positively associated with business unit growth, our proxy for the extent of information asymmetry between corporate headquarters and local business unit management.

Reconsidering the participative budgeting–performance relation: A meta-analysis regarding the impact of level of analysis, sample selection, measurement, and industry influences

“…Such targets shield managers from negative external influences and compensation risks and help mitigate fairness concerns (Bol, Keune, Matsumura, & Shin, 2010;Indjejikian & Matĕjka, 2006;Merchant & Manzoni, 1989;Murphy, 2001;Sprinkle et al, 2008). To the extent that participative budgeting is mobilised to set these targets, its relation with budgetary and managerial performance is expected to be stronger than its correlations with departmental or organizational performance.…”

The effects of uncertainty on the roles of controllers and budgets: an exploratory study

“…Goff 1995) or alternatively may design the controller function in such a way that one of the roles is clearly prominent. The literature is unclear about whether increased importance of the controllers' business partner role will come at the cost of reduced importance of the corporate policeman role (Sathe 1982, Indjejikian andMatějka 2006) or whether the two roles are complementary (Maas and Matějka 2009).…”

“…The primary function of accounting data in such a situation is to portray the economic reality of the BU so that targets can be established and performance can be evaluated (Abernethy et al 2004, Ahrens andChapman 2004). Accordingly, if the role of the budget system and the role of the controller are complements, the prime responsibility of controllers in units where budgeting is used coercively is to provide higher level managers with unbiased and objective data about the actions of local managers and to develop mechanisms that ensure data integrity and the efficient use of resources (Indjejikian and Matějka 2006). Thus, coercive budget use should increase the importance that controllers attach to tasks that have been assigned to them by higher level managers instead of local managers (Maas and Matějka 2009 policeman tasks include the development of internal controls, critical assessment of unit expenses and monitoring of unit managers (Mouritsen 1996, Jablonsky andKeating 1998).…”

“…While there has been a plea for controllers to strengthen their role of 'business partner' and to engage actively in managers' strategic and operational decision-making (Colton 2001, Siegel et al 2003, it has also been emphasised that controllers have an important 'watchdog' function, which requires them to remain 'objective' and 'independent' (Davis et al 2006, Indjejikian andMatějka 2006). Available evidence suggests that the relative emphasis on the business partner and the watchdog roles varies across firms and business ISSN (Indjejikian and Matějka 2006). Not much is known, however, about the factors that cause this variation.…”

The impact of participation in strategic planning on managers’ creation of budgetary slack: The mediating role of autonomous motivation and affective organisational commitment

“…In line with Dunk (1993), Van der Stede (2000), and Indjejikian and Matejka (2006), the definition of budgetary slack used in this study focuses on the ease with which budgetary targets can be achieved. Budgetary slack occurs when managers 'negotiate highly achievable targets' (Van der Stede, 2000; p. 609), i.e.…”