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The effect of budget framing and budget-setting process on managerial reporting

Journal of Management Accounting Research, ISSN: 1558-8033, Vol: 29, Issue: 1, Page: 31-44
2017
  • 10
    Citations
  • 0
    Usage
  • 56
    Captures
  • 0
    Mentions
  • 2
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    10
    • Citation Indexes
      10
      • CrossRef
        8
      • Academic Citation Index (ACI) - airiti
        1
  • Captures
    56
  • Social Media
    2
    • Shares, Likes & Comments
      2
      • Facebook
        2

Article Description

Participative budgeting allows superiors to elicit private information from subordinates, which, in turn, should enable superiors to make better decisions. Self-interested subordinates, however, may bias their budget reports for personal gain, thereby reducing the value of their budget reports to superiors. One potential way to affect subordinates’ budget reports is through the framing of the budget request. Another factor that may affect subordinates’ budget reports is which party sets the budget. In our study, we examine three different budget frames (honest, fair, and preferred) and whether the subordinate or the superior sets the budget. We find that the framing of the budget does not result in differences in overall slack. Moreover, we find that subordinates’ reports have more slack when superiors set the budget than when subordinates set the budget. Furthermore, many budgets are rejected by subordinates when superiors set the budget and, as a result, superiors’ welfare is actually greater when subordinates set the budget than when superiors set the budget.

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