Academic journal article Academy of Accounting and Financial Studies Journal

Budgetary Slack: Exploring the Effect of Different Types, Directions, and Repeated Attempts of Influence Tactics on Padding a Budget

Academic journal article Academy of Accounting and Financial Studies Journal

Budgetary Slack: Exploring the Effect of Different Types, Directions, and Repeated Attempts of Influence Tactics on Padding a Budget

Article excerpt


The purpose of this study was to determine if different forms of external influence affected managers' willingness to violate corporate policy by creating budgetary slack. Budgetary slack occurs when managers intentionally misreport upcoming budgetary estimates in a way that makes the business unit appear worse than what the manager actually expects. Specifically, we examined if the type of influence tactic (rational persuasion or obedience pressure) and the direction from which the influence originated (superior or peer) impacted the likelihood and/or extent that managers "padded the budget," by intentionally overestimating costs for the upcoming year. We also explored if padding the budget in response to an initial request increased the likelihood of managers padding the budget again.

This research was motivated by the need to further understand what led managers and accountants to make inefficient and potentially harmful decisions. Budgetary slack can be detrimental to a company, potentially leading to inappropriate resource allocations, decreased profits, and lost opportunities (Schiff and Lewin 1970, Onsi 1973). By exploring which types of influence attempts were more likely to increase such behavior, companies can develop training that heightens its managers' awareness of how others may try to influence their budgetary decisions.

The present study offers two valuable contributions to the accounting literature on budgetary slack. First, prior research showed that a manager's willingness to create budgetary slack may be affected by a number of factors, such as personality (Hartmann and Maas 2010), the underlying pay scheme and financial benefits (Hobson et al. 2011, Church et al. 2012), control and ethical work climate (Özera and Yilmaz 2011), the manager's participation in the budgeting process (Merchant 1985, Venkatesh 2014), overall participation in the organization (De Baerdemaeker and Bruggeman 2015), role conflict (Maas and Matejka 2009), reputational concerns (Webb 2002), or whether or not the budget can be rejected (Rankin et al. 2008, Douthit and Stevens 2015). However, little research has explored the extent to which managers created budgetary slack because someone else influenced them to do so, and the few that have focused only on one type of influence attempt: pressure by a superior to obey (e.g., Davis et al. 2006, Hartmann and Maas 2010).

Research on leadership behavior suggested that obedience pressure from a superior was only one type of influence. Another type, "rational persuasion"-using logical arguments to convince another party to carry out a specific request-was found to be generally more successful than obedience pressure in influencing another party (Yukl 2013). Furthermore, peers can also be a significant source of influence (Yukl 2013). The present study addressed these gaps in the literature and examined two types of influence (rational persuasion and obedience pressure) from two different directions (superiors and peers).

Next, the present study examined if those who padded the budget once were willing to do it again. Prior research focused only on the initial decision, so it was unknown if the decision to add slack was a one-time event or a potentially recurring problem. If the latter was the case, then the danger caused by having managers adding slack in their budgets extends to multiple years. Therefore, multiple parties and stakeholders can benefit from research that identifies factors contributing to a manager's willingness to perform unethical actions, thereby providing organizations an opportunity to address such factors and better prevent unethical actions from occurring and recurring.

Additionally, the present study offers a valuable contribution to the leadership literature. Previous research found that different types and different directions of influence may impact the effectiveness of an influence attempt (e.g., Kipnis et al. 1980, Falbe and Yukl 1992, Yukl and Tracey 1992). …

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