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Accounting and management control
Edited by Julia Mundy, Yves Levant, Oliver de La Villarmois
Introduction
Budgets can be used for operational planning, performance evaluation, communicating and coordinating, forecasting and strategy formulation ([3] Berry et al. , 2005; [22] Hansen and Van der Stede, 2004). Participation in the budget-setting process varies across different organisations. Despite the potential benefits of participation, e.g. increased motivation and commitment, participation has been perceived as having negative results. One of the possible consequences, "budgetary slack", is defined as "the intentional overestimation of expenses and/or underestimation of revenues in the budgeting process" ([8] Charted Institute of Management Accounting (CIMA), 2000, p. 51).
Budgetary slack, as a so-called "dysfunctional behaviour" has been investigated over the last 30-40 years in this negative paradigm. However, this stream of research reveals contradictory findings. For example, [34] Schiff and Lewin (1968), [41] Brownell (1982), [40] Young (1985) and [26] Lukka (1988) concluded that a high degree of participation can lead to social pressure which provides subordinates with an opportunity and motivation to create budgetary slack. Whereas [10] Collins (1978) found no significant relationship between budget participation and budget slack and [31] Onsi (1973) argued that with participation managers are less likely to create budgetary slack. [6] Cammann (1976) stated that participation has a potential effect in reducing a range of behaviours, including slack. [31] Onsi (1973) also found that slack is created in both good and bad years, to act as "protection" during difficult business conditions.
[20] Govindarajan (1986) suggested that environmental uncertainty might resolve the conflicts between previous studies' findings. He found that higher participation reduces the propensity to create slack in conditions of high (but not low) levels of environmental uncertainty. [11] Cyert and March (1992) suggested that slack has the ability to absorb fluctuations in an uncertain environment.
Another conflict in prior studies is over the role of privately held information. For example, [2] Baiman and Lewis (1989), [7] Chow et al. (1988) and [15] Dunk and Perera (1997) argue that with high levels of information asymmetry and budget emphasis, subordinates attempt to negotiate slack budgets. However, [40] Young (1985) found no significant differences in the amount of budgetary slack between subordinates with private information and those without. [14] Dunk and Nouri (1998)...