Academic journal article Global Journal of Business Research

Budgetary Participation and Procedural Justice: Evidence from Stretch Budget Condition

Academic journal article Global Journal of Business Research

Budgetary Participation and Procedural Justice: Evidence from Stretch Budget Condition

Article excerpt


This study examines the role of group value element of procedural fairness in explaining how individuals take into account fairness conditions in making judgment regarding budgeting process. Furthermore, the study extends prior research in procedural fairness by observing the individual behavior in a stretch budget condition. College students serve as subjects in an experiment. Manipulations of control and group value are randomly assigned to the participants. Two dependent variables, procedural justice judgments and budget commitment, are measured. The results show that supplying subordinates with information regarding group value enhances procedural justice judgments and budget commitment. Using a stretch budget condition, the study shows that procedural justice has a mediating effect in the relations between group value and budget commitment. Moreover, the study finds that in the stretch budget condition, group value has a negative relation with budget commitment, suggesting that budgetary participation creates a behavioral problem. The study provides empirical evidence that group value along with control element of procedural fairness improve procedural justice judgments to the level beyond that produced by each variable alone. The inclusion of group value judgments fills the gap that previous budgetary participation research produces.

JEL: M20

KEYWORDS: Budgetary Participation, Stretch Budget, Group Value, Procedural Justice, Budget Commitment

(ProQuest: ... denotes formulae omitted.)


Budget is probably the most widely used management tool in the functioning of an organization. Researchers have been spending a great deal of attention in the research area of budget and budgeting. As a subset of the area, budgetary participation in the budgeting process has been a fascinating research topic for behavioral accounting researchers in the past half of a century (for examples, Leach-Lopez, Stammerjohan, and McNair 2007; Breaux, Finn, and Jones III, 201 1). Research has found negative as well as positive elements associated with the presence of participative budgeting and the empirical literature has also demonstrated its effects as being either advantageous or dysfunctional to organizations (e.g. Krishnan, Marinich, and Shields, 2012).

Brown, Evans, and Moser (2009) assert that most of experiments in participative budgeting area rely on agency theory for their predictions. They argue that economic models, that assume purely rational, selfinterested behavior of individuals, can serve as benchmarks against which to measure actual behavior in budgeting. Moreover, the general findings of the experimental research are, at least potentially, consistent with agency theory. Nevertheless, they point out that previous studies note instances for which the experimental results are inconsistent with the agency theory predictions.

Body of literature documents that studies in participative budgeting require alternative theories and models to further explain how actual behavior deviate from what agency theory predicts. Research shows that the inconsistencies with the agency theories expectations are the results of aspects other than economic reasons that come into play in participative budgeting settings (Shields and Shields, 1998). Psychological variables, such as motivational factors (Chong and Johnson, 2007; Wong-On-Wing, Guo, and Lui, 2010), attitude (Yuen, 2007), and moral judgments (Hobson, Mellon, and Stevens, 2011) have provided a significant contribution and insight into managerial behavior. Therefore, continuous effort to combine different perspectives to further explore the research area is worthwhile and constitutes a challenging endeavor.

Research has recognized the importance of procedural justice in budgetary participation setting (e.g. Magner et al., 2006; Libby, 1999; Lindquist, 1995). Procedural justice theory suggests that people are concerned with how fair the procedures are, both in terms of formal budgetary procedures fairness as well as budgetary procedures implementation fairness. …

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