The relationship between purposes of budget use and budgetary slack

Abstract

This chapter examines the relationship between purposes of budget use and budgetary slack, and the extent to which this relationship is mediated by two (potentially) slack-reducing mechanisms, budget participation and budget emphasis. In a sample of survey responses from 44 Dutch listed firms, intensity of budget use is negatively related to budgetary slack, and this relationship is partially mediated by both budget participation and budget emphasis. Furthermore, three purposes of budget use are identified: budget usage for (a) planning and communication purposes, (b) coordination and allocation purposes, and (c) evaluation and rewarding purposes. The direct effect of purposes of budget use on budgetary slack seems especially due to budget usage for planning and communication purposes, which is also the case for the mediating effect via budget emphasis, whereas the mediating effect via budget participation seems especially due to budget usage for coordination and allocation purposes. Exploratory analyses do not show similar relationships with purposeful slack, that is, with slack that was purposefully allowed in the business units’ budgets by the firms’ top management.

Citation

Schoute, M. and Wiersma, E. (2011), "The relationship between purposes of budget use and budgetary slack", Epstein, M.J. and Lee, J.Y. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 19), Emerald Group Publishing Limited, Leeds, pp. 75-107. https://doi.org/10.1108/S1474-7871(2011)0000019010