The Incidence

Accounting, Auditing & Accountability JournalEmerald Article: The incidence of budgetary slack: a field study explorationAlan S. Dunk, Hector Perera

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To cite this document: Alan S. Dunk, Hector Perera, (1997),"The incidence of budgetary slack: a field study exploration", Accounting, Auditing & Accountability Journal, Vol. 10 Iss: 5 pp. 649 - 664

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The incidenceof budgetary

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The incidence of budgetaryslack: a field study exploration

Alan S. DunkUniversity of Western Sydney, Nepean, Australia and

Hector PereraMassey University, Palmerston North, New Zealand

Budgetary slack has been singled out as one of the primary unsolved problemsin budgetary control (Horngren, 1982). For example, in an early study, Cyert andMarch (1963) argued that slack arose from the bargaining process. Schiff andLewin (1968) subsequently found that the negotiated sales goals of threedivisions of a Fortune 100 company typically could be attained readily. Loweand Shaw (1968) produced evidence that sales forecasting could be used tocreate slack. Following personal interviews with 32 managers drawn from fivemultidivisional organizations in which 80 per cent of them explicitly stated thatthey bargained for slack, Onsi (1973) concluded that operating budgets arelikely to have slack in them for any year. Schiff and Lewin (1968) estimated that20 to 25 per cent of divisional operating expenses could be due to slack. Thedifference between actual and minimum possible costs of an organization. Twopreliminary conclusions relating to slack have been reached in the literature.First, managers intentionally create and bargain for slack (Cyert and March,1963; Lowe and Shaw, 1968; Schiff and Lewin, 1968, 1970; Williamson, 1964).Second, slack exists in many organizations (Merchant, 1985a).

In an attempt to define budgetary slack, Merchant (1985a) proposed that it isthe difference between the amount budgeted for an area and that which isnecessary. Moene (1986) defined slack as the difference between theappropriated budget and true minimum costs. In a slack budget, Lukka (1988,pp. 282-83) argued that the budget figure is intentionally made easier to achievein comparison to the forecast, the latter being the budgeting actor’s “honestbudget estimate”. Young (1985) proposed that slack is the amount by whichsubordinates understate their productive capability when selecting workstandards against which their performance will be evaluated. Waller (1988), onthe other hand, regarded slack as the excess of resources over and above thoserequired to complete a task. These perspectives suggest first, that slack is theintentional underestimation of revenues and productive capabilities and/oroverestimation of costs and resources in the budget and second, that slack is

Accounting, Auditing &Accountability Journal,

Vol. 10 No. 5, 1997, pp. 649-664. © MCB University Press, 0951-3574

Thanks are due to Tom Groot, Amy Lau and to participants at sessions of the Seventh Asian-Pacific Conference on International Accounting Issues, Seoul, the 1996 annual symposium of theEuropean Accounting Association, Bergen, and the 1996 annual meeting of the AmericanAccounting Association, Chicago, for their comments on previous drafts of the paper. Thecontribution of the anonymous reviewers is gratefully acknowledged.

Received June 1996Revised December 1996Accepted February 1997

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dysfunctional (Collins, 1978; Merchant, 1985a, 1985b; Schiff and Lewin, 1968;Williamson, 1964). One such dysfunctional organizational consequence arisesfrom a lack of control or distortion in information used in decision making(Govindarajan, 1986; Nouri, 1994). Onsi (1973) concluded, however, that theextent to which slack is necessarily dysfunctional is dependent on the mannerin which it is used. In this vein, it has been proposed that slack may providedepartmental managers with the capacity to respond effectively to changingoperating conditions (Cyert and March, 1963; Gabriel, 1978; Merchant andManzoni, 1989). Recently, Dunk (1995) found that the availability of slackdiminished the detrimental effect of high task difficulty on performance.Moreover, if the organization commitment of managers is high, participation islikely to result in a reduction in slack. In contrast, if that commitment is low,participation is likely to enhance slack creation.

Nevertheless, a major concern of the literature is that subordinateparticipation in the budget-setting process raises the potential for slackcreation (Antle and Eppen, 1985). Lukka (1988) suggested that participationprovides subordinate managers with an opportunity to take part directly in thecreation of slack, whereas a low degree of participation restricts suchopportunities. Research examining the relation between participation and slackcan be divided into two groups, the conclusions of which are inconsistent witheach other. One camp has argued that managers intentionally use participationas a means of creating slack (e.g. Schiff and Lewin, 1968), while the other hasproposed that managers, through participation, reduce slack in their budgets(e.g. Cammann, 1976; Merchant, 1985a; Onsi, 1973). These conflictingconclusions suggest that the relation between participation and slack may notbe a simple direct one, as it may be dependent on a number of factors (e.g.Macintosh, 1985). To that end, Hopwood (1972, 1973) pointed out thatparticipation is a complex social process which is related closely to otherphenomena including situational needs and superiors’ evaluative styles.

In addition, it has also been suggested that information asymmetry mayinfluence the extent to which slack arises from the participation process (Chowet al., 1988; Young, 1985). Accordingly, if subordinates are aware that privateinformation they communicate is used in standard setting and subsequentperformance evaluation, potentially they have an incentive to bias theircommunication to allow a relatively easy standard to be set (Waller, 1988). Thisproblem, Waller (1988) stressed, is particularly salient when subordinates’ payschemes are budget-based and the budget-setting process is participative. Thepossibility therefore exists for information asymmetry and budget emphasis inperformance evaluation to affect the extent to which participation influencesslack creation.

Prior studies propose that participation results in budgetary slack whenbudget emphasis and information asymmetry are both high whereas whenthese moderators are low, participation provides subordinates with littleopportunity to build in slack. The literature-based model which represents therelation between participation and slack is presented in Figure 1. Dunk (1993)


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put this proposition to test and found results that were in direct contrast to theexpectation of the literature. Due to the cross-sectional nature of his researchdesign, he was unable to provide further explanation for his findings.

The purpose of this study is to explore the relation between participationand slack in a field setting with managers of cost and revenue centres. Such anapproach may provide useful insights into our understanding of the manner inwhich various factors influence the effectiveness of participative budgetarycontrol systems.

The remainder of the paper is organized as follows. The next section provides areview of the literature and the research questions. The subsequent sectiondescribes the method, followed by a report of the interviews which presents theviews of the managers on each of the research questions in turn. The finalsection incorporates both the discussion and a commentary on the potentiallimitations of the study.

Literature reviewSchiff and Lewin (1970) argued that the participation process by definitionleads to the creation of budgetary slack. Rather than enhancing productivity,they proposed that participative budgeting promotes inefficiency because itleads to the introduction of slack. In contrast, Onsi (1973) reported a negativerelation between participation and the propensity of managers to create slack,arguing that participation results in managers having less of a need to create it.Not only did Onsi show that participation played an important role in slackreduction, he concluded participation promotes an attitude that the budget isneither a game nor an accounting tool, thus making managers feel they are notunder pressure to create slack. Merchant (1985a) also found that participationand the propensity of managers to create slack were negatively correlated.

Figure 1.A literature-based

model of the relationbetween the variables in

the study

Budgetaryslack

Budgetemphasis

Informationasymmetry

Budgetaryparticipation

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Cammann (1976) reported that allowing subordinates to participate reducedtheir defensive responses, including the creation of slack, to the use by theirsuperiors of budgetary information in subordinate performance evaluation.These findings suggest, Murray (1990) argued, that individuals who participatefeel less of a need to incorporate slack in their budget estimates and accordinglywill tend to propose more difficult tasks. Merchant (1985a) concluded thatmanagerial propensities to create slack may be enhanced or diminished by theways in which budgetary systems are designed and implemented.

Information asymmetryThe literature proposes that the extent to which subordinate participationresults in slack budgets may be dependent on the level of informationasymmetry. Information asymmetry arises when subordinates (agents) are inpossession of information that affects the decision process between them andtheir superiors (principals) (e.g. Baiman and Evans, 1983; Coughlan andSchmidt, 1985; Penno, 1984). Subordinates typically possess more accurateinformation regarding the factors that influence performance than theirsuperiors (Chow et al., 1988, 1994; Kren and Liao, 1988; Waller, 1988), andcommunication of that information to superiors would improve the co-ordination and evaluation of organizational activities (Waller, 1988). Forexample, Blanchard and Chow (1983) argued that divisional managers are likelyto be better informed of what constitutes good performance, in terms of budgettargets, in their areas of responsibility.

Magee (1980) and Murray (1990) proposed that budgets could be enhanced interms of their accuracy if superiors were aware of their subordinates’ privateinformation prior to them being set. Local information could also result inbetter measures of performance (Murray, 1990). To facilitate this informationflow, participation potentially provides superiors with the opportunity to gainaccess to that information (Baiman, 1982; Baiman and Evans, 1983; Magee,1980; Murray, 1990). The possibility that subordinates might misrepresent orwithhold from their superiors some or all of their private information, leadingto budgets containing slack has also been suggested (Chow et al., 1994;Christensen, 1982; Harrell and Harrison, 1994; Young, 1985).

Young (1985) predicted that when budgets are participatively set,subordinates with private information would build in more slack than thosewithout it. Although he found in his experimental study that the level of slackacross subjects allowed to participate was not zero, there was no difference inthe level of slack built in by subjects with or without private information.Kanodia (1993) demonstrated analytically that participative budgets are anoptimal co-ordination mechanism when subordinates have private informationabout their operating environments. He argued that such budgetssimultaneously assign tasks, co-ordinate activities, and provide benchmarksagainst which subsequent performance is assessed.


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Budget emphasisThe literature suggests that budget emphasis may also influence whetherparticipation induces slack. Schiff and Lewin (1970) argued that if subordinatesview their rewards as being dependent on budget achievement, they may see itas advantageous to have slack in their budgets. They (1968, 1970) suggestedthat budgets typically are the performance assessment criteria used inorganizations, and since subordinates often participate in their formation,managers will strive to influence those criteria to attain what they regard asachievable budgets. As managerial compensation is frequently based onperformance relative to a standard, the likely outcome is a bargained budgetcontaining slack (Chow et al., 1994; Schiff and Lewin, 1968). Merchant andManzoni (1989) viewed highly achievable budget targets as being consistentwith those containing considerable amounts of slack.

Hopwood (1972) found that managers evaluated in a budget constrainedstyle were more likely to be involved in dysfunctional behaviour compared tothe other styles. From a sample of 107 managers drawn from seven largemultinational firms, Onsi’s (1973) results suggest that managers create slack tosatisfy budget-based performance requirements. Cammann’s (1976) findingsfrom a sample of managers from a moderately large utility showed that ifsuperiors placed an emphasis on budgetary information for reward purposes,subordinates responded by creating slack. In contrast, if the subordinatesparticipated in the budget process, there was a reduction in the need to createslack. Brownell and McInnes (1986) concluded that slack may result whensubordinates attempt to negotiate budgets if they have an expectation, gainedfrom participating in budget setting, that formal rewards are linked to budgetachievement.

Merchant’s (1985a) results suggest that budgetary systems which includerequirements for explanations of variances and rewards linked to budgetperformance of themselves do not enhance the propensity of managers to createslack. Onsi (1973) concluded that unless budgets are set at a reasonable level,managers will be inclined to create slack. Prior research suggests that a relianceon achieving budget positively affects the creation of slack (Merchant, 1985a;Onsi, 1973). Murray (1990) argued that a low budget emphasis provides fewerincentives to introduce slack. He proposed that participation coupled with a lowbudget emphasis evaluative style should result in less slack and more difficultgoals than when there is a high budget emphasis. Drury (1985) concluded thatif a budget-constrained style of evaluation is used, substantial bias in thebudget process is likely to occur. Chow et al. (1995) found that thecontemporaneous use of other controls, such as probabilistic audits,ameliorated deficiencies in the use of budget-based compensation schemes toinduce truthful subordinate reporting.

Implicating information asymmetry and budget emphasisPrior studies suggest that information asymmetry and budget emphasis areimplicated in influencing the relation between participation and slack. For

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example, if information asymmetry is present and there is a supervisory budgetemphasis, then subordinate participation gives rise to slack. Dunk (1993),however, found evidence which suggested that when information asymmetryand budget emphasis were high, participation led to a reduction in slack. Hereported that slack was low (high) when information asymmetry, participation,and budget emphasis were all high (low). His results suggest that the nature ofthe relation between these predictors and slack may be more complex thananticipated.

As an indicator of this possible complexity in understanding the nature ofthe influence of participation, information asymmetry and budget emphasis onslack, Pope (1984) argued that there are a number of reasons why managers willnot typically press for excessive slack in their budgets. He suggested that ifprincipals know that a particular budget level nominated by subordinates isexcessively slack, then the credibility of those managers in negotiation wouldbe adversely affected. Similarly, Pope (1984) proposed, drawing on the work ofLowe and Shaw (1968) and Fama (1980), that organizational performancenorms and inter-manager competition could act as constraining influences onmanagers’ preferences and impose costs on managers who agree to relativelyslack budgets. Furthermore, Baiman (1982) sounded a note of caution when heconcluded that the extent to which private information leads to slack inparticipatively set budgets is based on preliminary findings. More recently, forexample, Chow et al. (1995) found that information asymmetry enhancesmanagerial job satisfaction as decentralization is increased.

In summary, the literature suggests that participation and slack areassociated, and that budget emphasis and information asymmetry have animpact on that relation. The literature, however, is unclear on the nature of theinterplay between these factors. The three research questions shown in Table Iwere used to investigate the relation between participation and slack in anattempt to explain the conflicting views put forward in the literature and toexamine closely the effects of budget emphasis and information asymmetry onthat association.

MethodThe research is based on a field study of managers drawn from seven randomlychosen companies from the population of manufacturing organizationsemploying more than 100 people located in the Sydney, Australia, metropolitan

1. How does the participation of subordinate managers in budget setting result in thembuilding slack into their budgets?

2. How do budget emphasis and information asymmetry influence the relation betweenparticipation and slack?

3. If budget emphasis and information asymmetry influence the relation between participationand slack, what is the direction of that effect?

Table I.Research questions


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area. The main reason for using this criterion was to ensure that the firms hadclearly defined areas of responsibility to which managers would be appointed(Brownell and Dunk, 1991; Lau et al., 1995). In view of the nature of the researchquestions being addressed, it was expected that this study would benefit from afield-study based interpretive approach (e.g. Silverman, 1985, 1993). Thismethod provided the opportunity to understand better the relation betweenparticipation and slack because it facilitates insights from exploratoryinvestigations by gaining first-hand information of how accounting controlsystems function in work settings (Gordon and Narayanan, 1984; Merchant,1985c; Otley, 1980). Field research data can provide a depth of evidence on theissues being investigated through on-site interviews and discussions(McKinnon, 1988; Merchant and Simons, 1986).

Each manager was contacted by telephone to enable interviews to bearranged. Since slack can be incorporated into both revenue and cost projections(Schiff and Lewin, 1968), interviews were conducted with four production andthree marketing managers. Manufacturing managers were drawn from paint,food, personal health care and packaging companies. Marketing managersrepresented combustion engine, small goods and biscuit manufacturers. Directlyinterfacing with managers of areas of responsibility, in this case ofmanufacturing and marketing, can help to bring to light answers to researchquestions that may not be well understood (Merchant and Simons, 1986).

Given the consistency in responses to the research questions by the sevenselected managers, the decision was made to limit the interview process to thisnumber. All managers held comparable level positions in their respectiveorganizations. Care was taken at the outset of the interviews to ensure as far aspossible that the purpose and thrust of the study was not evident to them in anattempt to minimize social desirability bias. The interviews provided theopportunity to elicit from practising managers their perspectives on howinformation asymmetry and budget emphasis might influence participation’seffect on slack. Each interview was conducted at each manager’s company. Theduration of each interview was approximately two hours, and contemporaneousrecords of those interviews were kept. No attempt was made to review companyrecords, such as reports and correspondence, as it was likely that those recordswould not make clear where slack may or may not be incorporated.

The average age of the managers was 42 years, their mean experience in theareas they managed was 16 years, they had held their positions on average for4.5 years, and the mean number of employees in their areas of responsibilitywas 104. Their ages ranged from 35 to 58 years, their experience in the areasthey managed varied between five and 38 years, they had been in their presentpositions from one to 12 years and the number of employees in their areas ofresponsibility ranged from 12 to 260. Manufacturing managers reported thatexpense management was the primary financial means of evaluating theirperformance, whereas both revenues and expenses were used in assessingmarketing manager performance. Managerial and organizational detailsrelating to the interviewees are presented in Table II.

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Reliability and validity To enhance the reliability and validity of field research, strategies should beadopted that allow adequate time to be spent in the field setting, the taking ofmultiple observations, the transcription of the interviews and the developmentof rapport with the interviewees (Cunningham, 1992; Keating, 1995; McKinnon,1988; Silverman, 1985, 1993; Yin, 1994). These three strategies formed part ofthe research design of this study as follows. First, two hours was found to besufficient time to address the research questions. Second, multiple observationswere taken across the seven organizations revealing quite consistent outcomesas discussed in the report of the interviews. Rapport was enhanced by theoriginal telephone call to arrange the interviews and the time spent at thesubsequent meetings.

In this study, the one interviewer conducted all the semi-structuredinterviews as a means of enhancing data validity (Silverman, 1985). Themanagers were asked questions that addressed the core issues of the research,e.g. the role of participation in building slack, the circumstances in which theymight build slack and which factors, and in particular how informationasymmetry and budget emphasis influence the building of slack in theirbudgets. The strategy was to allow each research question to be examined inturn.

Report of the interviews Question 1. The relation between participation and slack At each interview, budgetary slack was defined, and each manager wasinformed that there was no intention to pass judgement on slack; instead, the

Years ofexperience Years in Employees in

Organization Area of in area present area of Performancecore business responsibility Age managed position responsibility evaluated by

1 Paint Manufacturing 58 38 12 62 Expenses2 Food Manufacturing 37 1 1 260 Expenses3 Personal Manufacturing 37 5 1 120 Expenses

health care4 Packaging Manufacturing 38 20 3 200 Expenses5 Combustion Marketing 45 15 10 12 Revenues

engines and expenses6 Biscuits Marketing 35 5 3 20 Revenues

and expenses7 Small goods Marketing 44 22 1 52 Revenues

and expensesTable II.Manager profile


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purpose of the research was to focus simply on how the budgetary processworked and the factors and circumstances that might influence the presence orabsence of slack. Managers were asked if the participation process was a meansby which slack could be built into their budgets. They indicated that this wasthe case. Managers were also asked how they could build in slack.Manufacturing managers discounted variable production costs as a viablemeans of slack building. They said slack could be built into both fixed andindirect costs over which they had control. One production manager stated thathis superior “doesn’t look as closely at the support forces as the troops”. Headcounts (e.g. based on proposed increases in personnel requirements), indirectexpenses, safety gear, clothing, waste disposal, indirect materials, overtimeestimates, travel, indirect labour, estimates of wage and salary increases,repairs and maintenance, and the need for additional quality control operatorswere identified by managers as areas into which slack could be built.

The major thrust was that slack could be relatively easily built into thoseareas which were, as one manager said, “not measurable, but judgemental”, orin those that were based on qualitative data. A favourite way of building inslack was through repairs and maintenance, apparently because of the relativeease in justifying expenses in this area. One manager described it as a “greyarea”, “not defined”. Marketing managers said that they could build in slack byunderstating revenues and overstating expenses. This was achieved byreducing expected sales quantities, cutting sales growth, overstatingadvertising and freight expenses, keeping sales prices low, and predicting atarget market share and setting it low. These behaviours are consistent withthose found by both Schiff and Lewin (1968, 1970) and Lowe and Shaw (1968).

Managers reported, however, that the more they participated in the budgetsetting process, the lower was the level of slack in their budgets. Although theyreiterated that, in the words of one manager, “participation is the means bywhich I can build slack into the budget”, they emphasized that this was whatthey could do, but that it was not necessarily what they did. One managersuggested that this might seem surprising, since “as an outsider, you mightthink the more participation, the more slack. But it doesn’t work that way”.

Reasons given for the effect of participation centred on the managers’perceptions of the role participation played in the budget setting process. Onemanufacturing manager reported that with more participation, he had “greaterinvolvement in business issues” which, he said, motivated him. Another statedthat “the more participation, the more accurate the budget”. In explaining whyhe did not attempt to build in slack with increasing participation, anotherproduction manager said “Why try to fudge it? If you do, you shouldn’t be in thebloody job anyway”. He indicated that “the more people involved in setting thebudget, the better the communication and the more chance of getting somethingfactual”. One marketing manager said that if a person were to build in moreslack with more participation, it would suggest that the person “shows a lack ofconfidence” in carrying out managerial functions. He went on to say that “withmore participation, you become more accountable for it (e.g. the budget)”, and

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that with high participation he was “open and honest”. Another productionmanager commented that while “I need a certain amount of money” to operatehis area of responsibility, a tight budget was the means by which “I can prove Ican do it”, which he said also “helps self-discipline”. Another reason given forless slack was that participation enabled the requirements of the task to beclarified. This view is consistent with House (1971), who argued thatparticipation can help clarify path-goal relations.

Managers stated, nevertheless, that some slack was necessary in theirbudgets. One manager indicated that he would be “inhuman if I did not build insome slack”. They reported that it was not possible to operate in anenvironment in which there was no flexibility. One production managerexplained it in the following way. He said that if his budget was very tight: “Iwould be living on a razor’s edge, and if top management were to come down onme like a ton of bricks, there would be an incentive for me to build in slack”. Heclaimed that if “realistic and achievable budgets” are set, there was only a needfor “practical slack”, since “things can go wrong that were not expected”. Sucha need for “practical slack” is supported by, for example, Gabriel (1978) andMerchant and Manzoni (1989), who argued that some slack is necessary tocounter unexpected changes in operational circumstances so thatorganizational activities can be maintained at planned levels. In summary,managers reported that first, participation and slack are related, second, thatgreater participation results in less slack and third, that slack could havefunctional consequences.

Question 2. The effect of information asymmetry and budget emphasisThe influence of information asymmetry and budget emphasis was thenspecifically explored. Given low participation and high information asymmetry,managers argued that their superiors generally were not able to produce asaccurate a budget as would be the case when participation was high. Managersreported that if budget emphasis was high, their superiors, without the benefitof their participation, had to err on the side of safety and therefore add moreslack than what they (the subordinates) would have done to be fairly certain ofsetting an achievable budget. In such circumstances, one production managersaid that a subordinate “has not got a commitment to it (e.g. the budget)”, andthat “it is not my number, it is yours”. This suggests, first, that subordinatemanager motivation is not enhanced when participation is low. Second, itindicates that budgets set with little participation could contain more slack thanwhen participation is high.

Managers were asked why slack might be lower with increasingparticipation when budget emphasis was high compared to when budgetemphasis was low, when information asymmetry was both high and low. Oneproduction manager said that “if you have a serious career aim, you want to bemeasured tough”. Another stated that if the pressure were on to meet thebudget and participation was high, “this definitely motivates me to achieve thebudget”. One marketing manager reported that in these circumstances “the


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budget is important” and that “budgets are accurate and that it is critical thatthey are met”. These views suggest the possibility that budget emphasis andinformation asymmetry do influence the relation between participation andslack. However, they also highlight that the extent of this influence depends onhow managers perceive budget emphasis and information asymmetry and thatpersonal factors, such as the desire to be measured tough, which are notnormally considered in mainstream accounting research, play an important rolein how managers interact with their superiors.

Question 3. The direction of the effectAs a means of exploring the direction of the effect of the moderators, managerswere asked whether high information asymmetry might give them theopportunity to build in slack if participation and budget emphasis were bothhigh. Although they agreed that potentially there was such an opportunity, itwas one that they did not take. One production manager said he “mostdefinitely” would supply accurate information when participation andinformation asymmetry were high. A marketing manager indicated that in suchcircumstances his superior “really needs to know what is going on”. Oneproduction manager stated that if information asymmetry was high, then “if he(superior) is not smart enough to see what is going on I could build in slack”.But, “I wouldn’t cheat: I should be trying to help him – not put him in a hole”.Another production manager said he would provide accurate information to hissuperior, being “open and honest” because “if he fails, I fail”. The consensusbetween the managers was that they would supply their superiors withaccurate information because they saw their success linked to that of theirsuperiors. Interestingly, managers indicated that low budget emphasis wasimplicated in slack building. For example, one production manager stated thatthe reason there could be more slack when budget emphasis is low compared towhen it is high is that nobody cares and it does not matter in the former case. Inmaking similar comments, a marketing manager reported that when budgetemphasis is low, attaining the budget “does not matter”; that it was “no bigdeal” if the budget was not met, indicating that the budget environment was“free and easy”. Such a perspective suggests that it may be crucial to considerthe behavioural consequences of low budget emphasis in the creation of slack,other than focusing primarily on when budget emphasis is high. Most of themanagers, however, believed that the level of each of the moderators (highversus low) was critical in determining whether slack arose from theparticipation process.

DiscussionThis study has attempted to extend the investigation into the associationbetween participation and slack to provide an explanation in terms of howmanagers understand, perceive and interact with their superiors in thepreparation of their budgets. The approach taken in this study recognizes thatthe meaning of individuals’ actions and those around them is something they

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make, not something given to them. The managers were unanimous inexpressing the view that the association between participation and slack is theresult of a complex process of interactions among a heterogeneous set of factorsas depicted in Figure 2. This is in line with Hopwood’s (1972, 1973) view that itis unlikely that a stable bivariate association between participation and slackcan be expected. Although managers were aware that participation providedthem with the opportunity to build slack into their budgets, they did notnecessarily attempt to do so for reasons that include moral, ethical and careeradvancement considerations. Such career-related considerations comprise theability to demonstrate self-confidence as a manager, accountability, self-discipline and task clarification. Thus, even though the managers suggestedthat the association between participation and slack is dependent on the levelsof both budget emphasis and information asymmetry, they indicated thatpersonal factors are implicated in influencing managerial behaviours. This isconsistent with the view expressed by Macintosh (1985) that personal factorshave the potential to moderate the effects of participation on slack.

The majority of the managers believed that when both budget emphasis andinformation asymmetry are high, the interests of subordinates are best servedby providing their superiors with their local information. By supplying thatinformation, more accurate budgets will be set that are likely to be motivationaland also supportive of their career aims by providing a framework for being“measured tough”, as one respondent put it. These views are consistent withChow (1983), in that managers preparing budgets can benefit from theirsubordinates’ specialized knowledge of their areas of responsibility. Further,since subordinates reported that their futures were linked to those of theirsuperiors, consistent with Fama (1980), subordinate co-operation through the

Figure 2.An interactive model ofthe relation betweenparticipation and slackbased on the field study

Budgetaryparticipation

Budgetemphasis

Personalfactors

Informationasymmetry

Budgetaryslack


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provision of their private information supports that link. Factors such as areluctance to cheat, willingness to help the superior, and not put him/her in ahole, underscore the perceived link between superior and subordinate success.The views expressed by managers, however, are also consistent with Baimanand Evan’s (1983) proposition that participation allows subordinates to buildslack into budgets by not communicating all of their private information.Moreover, these perspectives are congruent with Baiman and Evan’s (1983)conclusion that although subordinates may fail to communicate the full extentof their private information, participatively set budgets may be more efficientthan those set without participation.

This research suggests that first, the amount of budgetary slack isdependent on the interaction between a heterogeneous set of contextual andpersonal factors and second, the reality of budget setting is subjective, ill-structured, complex, anomaly-filled and socially constructed (Covaleski andDirsmith, 1990). The study illustrates that what managers can do is notnecessarily what they actually do, because their behaviour is influenced by,inter alia, a number of personal factors. Although increased participation maypresent an opportunity to create slack, it provides managers with the incentiveto work towards a more accurate and tighter budget. In doing so, managerialbehaviour was found to be influenced by ethical and moral issues, thedemonstration of self-confidence as a manager, accountability, self-disciplineand task clarification. The inconsistent conclusions of prior studies may beunderstood in terms of the array of personal factors, such as a reluctance tocheat and a willingness to help the superior, impacting on the extent to whichbudget emphasis and information asymmetry influence the relation betweenparticipation and slack.

Field research attempts to provide insights into how actors in organizationsunderstand, perceive and interact with their firms and their control systems. Italso has certain limitations, and these potentially could have influenced theoutcomes of the study. First, different researchers may interpret differently thesame set of circumstances depending on the conceptual apparatus of theresearcher (Chua, 1988). This may cause fundamental differences between theresearcher and the actors in the manner in which situations are interpreted.Second, interpretive research is not strong in terms of the meanings attributedto the concepts of reliability, validity and researcher detachment (Covaleski andDirsmith, 1990). By definition, interpretive research is heavily researcherdependent, which offers both strengths and weaknesses. One strength is that itprovides investigators with a high degree of freedom to explore an issuewithout the constraints imposed by predetermined assumptions, therebyallowing a rich explanation of the phenomenon under examination. A weaknessis that it leaves room for personal biases to influence the process ofinterpretation.

Although every attempt was made at the commencement of the interviewsthat managers were unaware of the objective of the study, care was taken toemploy a line of questions that averted the obvious risks of inducing demand

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characteristics[1]. The success of this strategy, however, cannot be ascertaineddefinitively. Given the complexity of the relation between participation andslack, further research is required to provide more insights into ourunderstanding of this important accounting phenomenon.

Note1. Nevertheless, it is possible that managers may feel some pressure to underestimate their

use of slack.

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