Daumose 1

J Manag Control
https://doi.org/10.1007/s00187-018-0267-z
ORIGINAL PAPER
Honesty in budgeting: a review of morality and control

aspects in the budgetary slack literature
Christian Daumoser1 · Bernhard Hirsch2 ·

Matthias Sohn3
© Springer-Verlag GmbH Germany, part of Springer Nature 2018
Abstract Budgetary slack is a heavily researched topic in the field of management

accounting, but the heterogeneous nature of prior research blurs our understanding of
this important topic. In this paper, we provide a structured overview of research on bud-
getary slack published in top-tier accounting and business ethics journals and reach the
following conclusions: Participative budgeting can create or reduce budgetary slack.
Less slack is created under truth-inducing pay schemes compared to slack-inducing
schemes. Additionally, slack creation is affected by budget users’ risk attitudes and
information asymmetry. Information asymmetry increases budgetary slack, but that
effect is influenced by multiple factors, including budgetary participation and infor-
mation systems. Fairness and reputation concerns decrease budgetary slack, but ethics
concerns do not. Finally, the analysis revealed that social norms decrease slack and
peer influence moderates the effect. We show that research in this field focuses mainly
on psychological perspectives to analyse individuals’ budget-related behaviour. Exper-
imental research was determined to be the most frequently used research method. An
analysis of current experiments shows growing numbers of investigations of budgetary
slack as a proxy of honesty in managerial reporting.
B Christian Daumoser
cdaumoser@escpeurope.eu
Bernhard Hirsch
bernhard.hirsch@unibw.de
Matthias Sohn
matthias.sohn@zu.de
1 ESCP Europe, Berlin, Germany

2 Bundeswehr University Munich, Neubiberg, Germany
3 Zeppelin University, Friedrichshafen, Germany
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Keywords Honesty · Budgeting · Budgetary slack · Managerial reporting
JEL Classification M41
1 Introduction
Budgetary slack is a phenomenon that involves “a process of understating revenues

and overstating costs” (Schiff and Lewin 1970, p. 262). An ever-increasing body of
research has examined under what circumstances budgetary slack occurs and revealed
individual and organizational remedies meant to address this phenomenon, which has
led to a quagmire for scholars aiming to contribute to budgetary slack research. The
substantial research efforts in this field have already been summarized in literature
reviews that mostly focused on important interrelations among myriad variables (par-
ticipation, ethical concerns, etc.) involved in creating budgetary slack (e.g. Briers and
Hirst 1990; Brown et al. 2009; Covaleski et al. 2003; Dunk and Nouri 1998; Kilfoyle
and Richardson 2011). In contrast to previous reviews on budgetary slack which have
mostly focused on specific topics—such as participative budgeting (e.g. Shields and
Shields 1998)—our study aims to depict, systemize, discuss and provide an overview
of the research stream from two perspectives: Accepting that creating a budgetary
slack has a moral and a control dimension (Douglas and Wier 2000; Douglas et al.
2007; Hobson et al. 2011), we systematically analyse research from business ethics
and accounting journals. We do this to reveal joint findings, capture differences in
methods and results, and highlight current developments in experimental research on
budgetary slack. The sample of journals we examined was determined using VHB-
JOURQUAL 3 (VHB 2015). We reviewed a total of 162 papers, structuring them
based on their content, research focus, research method and contribution.
Our analysis demonstrates that budget-related (dysfunctional) behaviour and par-
ticipative budgeting are the topics that are most researched. From a theoretical
perspective, economics, psychology, and the intersection of both are the major the-
oretical perspectives that are addressed in the literature; notably, there has been an
increase in contributions from the psychology, economics/psychology, and psychol-
ogy/sociology perspectives, whereas the input of economics has rather decreased.
However, a strictly ethical perspective was taken only in very few contributions. Most
research focuses on the individual as the object analysed, and small teams as well
as environmental conditions remain nearly neglected. The most frequently applied
permutation of these classifications is budget-related behaviour and psychology at the
level of the individual. With regards to the research methods applied, the analysis
shows that experiments are the most common method for research on budgetary slack
today, whereas survey-based research has continued to drop in importance.
Our analysis summarizes the most important findings in budgetary slack research:
Participative budgeting can amplify as well as restrict budgetary slack. Slack creation
occurs less with truth-inducing schemes than with slack-inducing schemes and is
affected by both risk attitude and information asymmetry. Information asymmetry
increases budgetary slack. Additionally, fairness and reputation concerns decrease
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Honesty in budgeting: a review of morality and control…
budgetary slack, while moral concerns do not. Finally, our analysis showed that social
norms decrease slack creation and transparency and peer influence moderate the effect.
In the remainder of this paper, we begin by illustrating the theoretical background
on budgetary slack. First, we illustrate the mechanics behind budgetary slack before
providing an analytical framework for causal models in budgeting research. In the
main section, we present the main implications that are derived from budgetary slack
research. In so doing, we focus on the research methods applied and highlight current
experimental research on budgetary slack. We conclude by providing a résumé of this
review and the prospects for future research.
2 Theoretical background: definitions and concepts of budgetary slack
Budgetary slack is common in daily business, as managers’ behaviour and goals have
both organizational and personal purposes (Thompson 1961). Argyris (1952) exam-
ines the behavioural effects of budgets that lead to the dysfunctional behaviour of
budget users/addressees. However, in certain cases slack creation does not automati-
cally refer to dysfunctional behaviour and organizational disadvantages, as it can also
be motivating and thus value creating (e.g. Davila and Wouters 2005; Schatzberg and
Stevens 2008).
From a behavioural perspective, budgeting is understood as a bargaining process
among coalition members trying to achieve goal congruence (Cyert and March 1963;
Lukka 1988). Budgetary slack arises first as the minimum amount of slack that must be
left to the individuals in the bargaining process to pursue their own goals (Williamson
1970). The notion of slack is based on the concept of organizational slack, which is
central to the behavioural theory of the firm (Lukka 1988). Organizational slack is
defined as “[the] disparity between the resources available to the organization and the
payments required to maintain the coalition” (Cyert and March 1963, p. 36).
For our analysis, we set a sufficiently broad definition of budgetary slack to be able
to embrace as much elements of budgetary slack as possible. Therefore, we follow
Onsi (1973) who describes that budgetary slack can result from two sources: Forecast
inaccuracy, which occurs as a result of estimation errors and changes in efficiency,
and manipulation, which occurs when the efficient accomplishment of a budgeting
process depends on obtaining information from subordinates who are in close prox-
imity to resource usage. If there is no goal congruence between subordinates and the
firm, subordinates ipso facto withhold or misrepresent private information to serve
own interests. Accordingly, budgetary slack has a moral component as employees use
their superior knowledge to an unfair advantage (Douglas and Wier 2000). Managers
can use budgetary slack to improve their performance evaluations and compensa-
tion, enjoy perquisites, and/or hedge against uncertainty (Baiman and Demski 1980;
Cyert and March 1963; Merchant 1998; Williamson 1970), by overestimating project
costs to overachieve on their cost-goals. The firm is damaged by this opportunistic
behaviour by lessening the value of the budgeting process and accordingly reducing
firm value as a result of inefficient resource allocation and the use of compensation
schemes and budgets with skewed incentives or motivations (Baiman and Evans 1983;
Rankin et al. 2008; Sprinkle and Williamson 2007). A consideration of unintentional
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Budgetary
Theoretical slack
slack
Slack of the
superior
Maximum per- Minimum perfor- Budget of the

formance of the mance that the su- subordinate
subordinate perior accepts
Fig. 1 Slack according to Lukka (1982)
estimation biases is for example shown by Chen et al. (2015), who analyse the effect
of disaggregated or aggregated forecasts on forecast accuracy and optimism. Figure 1
depicts the creation of three distinct types of slack: theoretical slack, slack of the
superior, and budgetary slack.
Lukka (1982) describes theoretical slack as the difference between a subordinate’s
maximum performance and the minimum performance that a superior can demand.
Theoretical slack can be classified as slack of the superior or budgetary slack. Slack
of the superior represents the performance surplus that the superior has negotiated
or imposed above the minimum performance level demanded. Budgetary slack is
the difference between the subordinate’s budgeted performance and the value of his
maximum performance capability.
Briers and Hirst (1990) and Shields and Shields (1998) outline a well-established
analytical framework for budgetary slack that has been applied to causal models
in several previous studies. Figure 2 shows the classification of variables either as
antecedent, independent, moderator, intervening, or dependent, according to Briers
and Hirst (1990). Figure 2 also shows some examples of each type of variable; these
examples are a result of our literature research.
Honest reporting, the opposite of intentional slack creation in budgeting allows to
examine budgetary slack from another point of view. Luft and Shields (2009) approach
honesty by means of valuations of non-monetary payoffs. They begin by illustrat-
ing that management control systems depend on individuals reporting their private
information. Honest reporting can be at least partially promoted using truth-inducing
pay-schemes (e.g. Groves and Loeb 1979; Weitzman 1976), but inducing total honesty
is often not achievable due to imperfect information and divergent motivations. For
example, the truth-inducing Groves mechanism can also lead to collusion strategies
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DEPENDENT INTERVENING INDEPENDENT ANTECEDENT
MODERATOR
Budgetary Ethical concerns Justice Participative Past
slack considerations budgeting performance
Honest Budgetary Budget authority Budget emphasis Competitive
reporting incentives strategy
Job Role Control systems Information Alternative goals
performance ambiguity asymmetry
Fig. 2 Analytical framework, developed by Briers and Hirst (1990)
of participants in a corporate budgeting context resulting in increased compensation

costs (Arnold et al. 2008). If an individual does not have a preference for honesty,
inducing honest communication is extremely costly for the organization. However,
if an individual dedicates himself or herself to honesty, he or she will report private
information honestly. Evans et al. (2001) show that individuals are willing to give up
monetary payoffs in order to report honestly and achieve a fair and morally correct dis-
tribution of surpluses. The positive effects of applying social norms to induce honest
reporting are outlined by Blay et al. (2016).
3 What we know about budgetary slack
3.1 Our research approach and sample
Researchers have accumulated vast knowledge regarding the creation of budgetary

slack. We structure the literature based upon the topics addressed, the theoretical
perspectives and the object of analysis. Further categorizations involve content-specific
emphases, variables and methodological aspects (e.g. Hesford et al. 2007; Shields and
Shields 1998). The sample of journals we examined was determined based on VHB-
JOURQUAL 3 (VHB 2015). The sample consists of 36 A- or B-rated journals from
the subsection “Accounting and Controlling” and “Business Ethics”,1 which resulted
in 249 papers referring to budgetary slack. The sample was reduced to 162 articles
by excluding articles on honest reporting that did not focus on budgetary slack. The
remaining 162 articles comprise the sample for this study.2 The extensive supply of
papers covering slack in any of its facets required subjective judgements regarding
the consideration of individual papers. Thus, the paper selection is limited regarding
content, but thereby improves applicability and focus. The journals in which these
papers were published are shown in Table 1.
1 Within these journals, we searched for “slack”, “budget slack”, “budgetary slack”, “honesty”, and “honest
reporting”.
2 The sample was determined in June 2014 and updated in January 2018.
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Table 1 Illustration by journal name, acronym, ranking by VHB (2015)a and the number of papers consid-
ering budgetary slack
Journal name Journal Journal ranking by Number of papers

acronym VHB (2015)
No. %
ABACUS ABACUS B 2 1.2

Accounting and Business Research ABR B 8 4.9
Accounting, Auditing, and Accountability AAAJ B 2 1.2
Journal
Accounting, Organizations and AOS A 34 21.0
Society
Behavioral Research in Accounting BRIA B 6 3.7
Contemporary Accounting Research CAR A 13 8.0
Critical Perspectives on Accounting CPA B 3 1.9
European Accounting Review EAR A 6 3.7
International Journal of Accounting IJA B 1 0.6
Journal of Accounting and Economics JAE A+ 3 1.9
Journal of Accounting and Public Policy JAPP B 3 1.9
Journal of Accounting & Organizational JAOC B 1 0.6
Change
Journal of Accounting, Auditing and Finance JAAF B 1 0.6
Journal of Accounting Literature JAL B 1 0.6
Journal of Accounting Research JAR A+ 9 5.6
Journal of Business Ethics JBE B 8 4.9
Journal of Business Finance and Accounting JBFA B 3 1.9
Journal of International Accounting, JIAAT B 3 1.9
Auditing and Taxation
Journal of International Accounting JIAR B 2 1.2
Research
Journal of Management Accounting JMAR B 14 8.6
Research
Management Accounting Research MAR A 6 3.7
Managerial and Decision Economics MDE B 1 0.6
Review of Accounting Studies RAS A 3 1.9
Review of Quantitative Finance and RQFA B 2 1.2
Accounting
The Accounting Review TAR A+ 27 16.7
Total 162 100
http://vhbonline.org/vhb4you/jourqual/vhb-jourqual-3/teilrating-rech/
http://vhbonline.org/vhb4you/jourqual/vhb-jourqual-3/teilrating-wew/
3.2 Topic categorization, theoretical perspectives, and object of analysis
The first step to analyse the budgetary slack literature is to structure it by defining and
using content-specific (sub-)categories based on the topic discussed. Hesford et al.
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Table 2 Topic categorization

Management control
Budgeting
Target setting
Participative budgeting
Budget-related (dysfunctional) behaviour (slack creation)
Capital budgeting
International control
Organizational control
Performance measurement and evaluation
Cost accounting
Others
(2007) differentiate between the cost accounting literature, the management control
literature, and others, which include contributions from business ethics. We comple-
ment this distinction using the subcategories presented in Table 2. This categorization
is not only applied in order to allow a classification of the papers, but also to depict
possible avenues for future research.
Budget-related attitudes are classified together with budget-related behaviour. Cap-
ital budgeting includes research covering resource allocation decisions in investment
settings. Research on international control covers the interaction of management con-
trol systems with cultural differences. The organizational control subcategory contains
all the studies on control systems in organizations that could not be classified in a more
specific category. The subcategory covering performance measurement and evalua-
tion contains studies that examine the characteristics of performance measurement and
the design of incentive systems as well as their effects on organizational behaviour
and performance. Cost accounting consists of articles addressing cost allocation, cost
practices, and other cost accounting topics. Finally, the “others” category contains all
the topics that do not naturally fit into one of the specified categories, specific business
ethics contributions, as well as articles which analyse multiple topics without a clear
focus on one of the categories.
Table 3 presents the frequency distribution of articles addressing the sub-categories
for budgetary slack research, which were shown in Table 2. The budget-related (dys-
functional) behaviour category is the largest, with 59 papers (36% of the total). This
topic also includes the literature examining behaviour and attitudes associated with
budgetary slack. The category of literature investigating budgetary slack and partic-
ipative budgeting consists of 24 papers (15% of the total). Organizational control
represents 17 articles (11% of the total), performance measurement and evaluation
represent 16 articles (10% of the total). Research on capital budgeting has grown over
the last 30 years and now totals 15 papers in our sample (9% of the total). Others (14
articles, 9% of the total), cost accounting (nine articles, 6% of the total) and target
setting (eight articles, 5%) constitute the rest of the sample. No article is classified
under international control.
Following Covaleski et al. (2007) (see also Hesford et al. 2007, or Shields and
Shields 1998), we classified the theoretical perspectives underlying the papers on
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Table 3 Frequency distribution by topic categorization
Topic categorization –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total
No. %
Management control
Budgeting
Target setting 0 0 3 1 3 1 8 4.9
Participative 0 3 7 6 6 2 24 14.8
budgeting
Budget-related 2 4 10 14 12 17 59 36.4
behaviour
Capital budgeting 0 0 2 5 7 1 15 9.3
International control 0 0 0 0 0 0 0 0
Organizational 0 1 4 5 6 1 17 10.5
control
Performance 0 2 6 4 3 1 16 9.9
measurement and
evaluation
Cost accounting 0 0 2 4 2 1 9 5.6
Others 0 1 1 5 4 3 14 8.6
budgetary slack to provide future research with possible avenues. Those papers based
on economic theories are mainly based on agency theory to study how economic value
is affected through inefficient resource allocation. Psychology-based papers focus on
the effects of individuals on budgetary slack. Sociology-based papers study how the
creation of budgetary slack is affected by the competing values and the plurality of
interests in organizations.
Table 4 provides the frequency distribution by theoretical perspective and shows
that there is an emphasis on economics, psychology, and the connection of the two
fields. The number of economics-oriented papers rather decreased over time, whereas
psychology-based papers increased within the last years. Using psychology and
sociology-based theories has become more relevant, too. Economics is the theoret-
ical perspective for 52 papers (32% of the total), psychology for 36 papers (22% of
the total), and economics/psychology for 36 papers (22% of the total). Taken alone,
sociology is a minor field. Thirteen papers are based on another theoretical perspective
(8%); these papers review the literature, considering it from several perspectives (e.g.
Briers and Hirst 1990; Dunk and Nouri 1998; Kilfoyle and Richardson 2011).
Regarding the research object, Birnberg (2011) distinguishes between individuals,
small groups, organizations, and environmental conditions. Studies on individuals
typically focus on the reactions of a single actor to specific stimuli or settings. This
segment of the literature contains papers that examine individual decision making as
well as the reactions of individuals to decisions made by a second actor. Research
applied to small groups examines the interactions among the multiple participants
involved in setting budgets. Small groups consist of a small number of individuals that
are in the same unit at the time of the study; therefore, studies allowing for or focused
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Table 4 Frequency Distribution by Theoretical Perspective
Theoretical –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total

perspective
No. %
Economics 0 2 18 18 10 4 52 32.1
Psychology 1 4 6 6 10 9 36 22.2
Sociology 0 0 0 2 3 0 5 3.1
Others 0 0 4 6 2 1 13 8.0
Economics/psychology 1 2 5 9 13 6 36 22.2
Economics/sociology 0 2 0 1 2 1 6 3.7
Psychology/sociology 0 1 2 2 3 6 14 8.6
Table 5 Frequency distribution by analysed unit
Analysed unit –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total
No. %
Individuals 2 7 20 21 26 22 98 60.5
Small groups 0 1 1 0 1 0 3 1.9
Organizations 0 3 9 11 11 2 36 22.2
Environmental 0 0 0 0 0 0 0 0
conditions
Multiple units 0 0 5 12 5 3 25 15.4
on different levels in a hierarchy are excluded. Research on organizations focuses

on the characteristics of the organization; relevant studies might examine the effects
of structural characteristics, such as task complexity or the design of the accounting
system. Environmental conditions represent interactions with society.
Table 5 illustrates the frequency distribution of the research objects. Most research
papers (N 98) focus on individuals, while organizations are analysed in 36 articles.
Twenty-five articles consider multiple objects; in most papers, these are individuals
and organizations (e.g. Davila and Wouters 2005; Lukka 1988; Young 1985. Little
attention was paid to small groups, which were in the centre of interest in only three
papers, and environmental conditions have thus far been neglected.
Based on these classifications, the combination of the criteria of topic categoriza-
tion, theoretical perspective, and research object combined to include 315 possible
permutations. 65 of these permutations were actually applied. The combination most
often applied is budget-related behaviour, psychology, and individuals (24 times).
3.3 Content-specific emphasis and the variables used
Classification by variables is an acknowledged means of reviewing literature (e.g.

Briers and Hirst 1990; Shields and Shields 1998). In the present research, we apply
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the framework presented by Briers and Hirst (1990), which is almost identical to
the Shields and Shields’ (1998) approach. This framework classifies studies based
on the inclusion of antecedent, independent, moderator, intervening, and dependent
variables. We consider only articles that fit the Briers and Hirst (1990) framework.
Papers in which the authors do not analyse causal relations (e.g. Ramadan 1989)—or
in which such a framework is not applicable (such as with reviews)—were not anal-
ysed. Appendix 1 shows detailed classifications. The listed articles are not ordered
alphabetically but by year of publication to depict the development of the variables
investigated over time.
Following Briers and Hirst (1990), we could employ the classification to 90 arti-
cles. Only three articles cover antecedent variables. In thirty-one papers moderator
variables are studied, whereas in 24 papers intervening variables are examined. In
forty papers additive causal model forms are applied that solely include independent
and dependent variables. In the following, we summarize which variables affect bud-
getary slack.
Research investigating the interrelation between budgetary participation and
budgetary slack has yielded mixed evidence. Thus, Young (1985) conclude that par-
ticipative budgeting increases slack, whereas Dunk (1993), Merchant (1985) and Lau
and Eggleton (2003) show that participation can also reduce slack. Lal et al. (1996)
confirmed the results by Merchant (1985) for a cross national setting. Nouri and Parker
(1996) posit that both effects are possible, depending on organizational commitment.
Nouri and Parker (1998) expanded their earlier work by showing that budget participa-
tion leads to high budget adequacy which, in turn, increases job performance directly
and indirectly via organizational commitment. Douglas and Wier (2000) show from
an ethical perspective that budgetary participation enhances information asymme-
try; yet this does not carry on to slack creation. De Baerdemaeker and Bruggeman
(2015) show a slack decreasing effect of participation in strategic planning due to
higher organisational commitment. An analysis by Brown et al. (2017) shows that
participation in terms of budget setting by subordinates decreases slack reporting
compared to a superior setting the budget. To better understand the effects of partic-
ipation on budgetary slack, more granular insights into the underlying processes are
necessary.
Chow et al. (1988, 1994) and Waller (1988) examine the effects of pay schemes on
budgetary slack creation and subordinate misreporting. The authors show that slack is
created less with truth-inducing schemes than with slack-inducing schemes. Addition-
ally, slack creation is affected by risk attitude and information asymmetry. Chow et al.
(1994) analyse the extant of misrepresentation under several different pay schemes.
Waller (1988) and Chow et al. (1988) agree that slack is created under both truth-
inducing and slack-inducing pay schemes. Waller (1988) describes a slack-decreasing
effect of truth-inducing schemes for risk-neutral but not for risk-averse subjects. Chow
et al. (1988) show significantly less slack creation under a truth-inducing scheme com-
pared to a slack-inducing scheme. Hobson et al. (2011) examined individuals’ moral
judgments regarding budgetary slack under truth-inducing and slack-inducing pay
schemes. Individuals under slack-inducing pay schemes claim that budgetary slack is
unethical, whereas individuals under truth-inducing pay schemes do not make such
claims. Chow et al. (2000) found that two analytically derived incentive schemes
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(Groves-, Osband and Reichelstein-scheme) are more effective as compared to a lin-

ear profit sharing pay scheme in reducing misrepresentations and their negative effect
on firm profit. Even more effective are non-mechanistic superiors who used selective,
costly and imperfect audits, together with subjective judgment and prior period expe-
rience. Arnold et al. (2008) show that truth-telling is the dominant strategy equilibrium
in the Groves mechanism. But their experiment does not confirm truthful reporting in
a situation, in which participants were not allowed to communicate. Contrary findings
have been found in a setting with communication, where participants establish sta-
ble collusion strategies and misreport by overstating productivity parameters. Positive
auditing probability mitigates this effect. The authors also show inefficient resource
allocations with a profit sharing treatment when communication is absent. In terms of
efficiency, the profit sharing scheme is also advantageous in their experiment.
A significant literature stream shows that information asymmetry also increases
budgetary slack, although that effect is influenced by several factors. Young (1985)
demonstrated slack-increasing effects of information asymmetry and risk aversion
in participative budgeting. Douglas and Wier (2000) did not determine a significant
effect of information asymmetry on slack creation. Fisher et al. (2002a) show that slack
increases with negotiated agreements under information asymmetry but does not dif-
fer under information asymmetry per se. Specifically, Fisher et al. (2002b) contend
that information asymmetry has a slack-increasing effect when budgets are not used
to allocate resources. Hannan et al. (2006) examined managerial honesty at differ-
ent levels of information asymmetry by manipulating the precision of an information
system. The authors show that a precise information system that reduces information
asymmetry also decreases managerial honesty. This effect results from a trade-off
between the psychological benefits of appearing honest and the economic benefits of
misrepresentation. A follow-up analysis by Abdel-Rahim and Stevens (2018) shows
contrasting results by outlining that reduced information asymmetry can establish pref-
erences for honest reporting. The authors observe the highest level of honesty when a
precise information system is applicated with high accuracy. Lau and Eggleton (2003)
describe a low propensity to create slack when budgetary participation is allowed in a
context involving low information asymmetry. The authors show that the propensity to
create slack remains low in situations characterized by high budget emphasis and high
information asymmetry. Heinle et al. (2014) illustrate that a company’s information
environment shows a non-monotonic relation to budgetary slack creation. Indjejikian
and Matêjka (2006) provide evidence for a positive association of slack with busi-
ness unit growth, which they used as proxy for the extent of information asymmetry
between corporate headquarters and local business unit management. Stevens (2002)
show that reputation concerns are negatively associated with information asymmetry
and thus diminish as information asymmetry increases. As reputational concerns are
also negatively related to budgetary slack, an increase in information asymmetry also
increases budgetary slack.
Reputational concerns as well as ethics and fairness concerns continue to be issues in
budgetary slack research. Our analysis shows that fairness and reputational concerns
decrease budgetary slack but that ethics concerns might not. Arnold and Schreiber
(2013) argue that reputational concerns have slack-decreasing effects in capital bud-
geting settings. Webb (2002) reveals a decrease in budgetary slack due to a concern for
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maintaining favourable reputation. Fisher et al. (2002a) emphasize justice and fairness
considerations as the cause of poor subordinate performance when superiors impose
a budget after negotiations. Schatzberg and Stevens (2008) indicate that fairness con-
cerns reduce budgetary slack but that ethical concerns do not. Guo et al. (2017) show
that perceived unfairness of vertical pay dispersion has a negative effect on employees’
budgeting decisions. Douglas and Wier (2000) and Douglas et al. (2007) examined
ethical positions’ effect on slack creation. They show that relativism increases, and
idealism decreases budgetary slack.
Current research also considered the effects of social, rather than ethical norms
(Blay et al. 2016). Abdel-Rahim and Stevens (2018) state that strong personal pref-
erences for honesty will result in a conformation to this norm, even in the presence
of high information asymmetry and financial gains from biased reporting. Managers
showing weaker preferences for honesty, however, can be motivated by social sanc-
tions to report honestly. Precise information systems provide the transparency required
for the social interaction. Brunner and Ostermaier (2017b) analysed peer influence
on managerial honesty. Their results indicate that dishonesty increases when peers
report dishonestly but does not decrease to the same degree when peers report hon-
estly. Especially partial transparency helps to justify dishonest reporting, which might
even be fuelled by disappointed expectations regarding peer behaviour. As shown by
Brink et al. (2017), social norms for honesty can also be activated by monitoring
with economic penalties. Codes of conduct and settings without penalties, however,
showed comparably higher dishonest reporting. Cardinaels and Jia (2016) highlight
the importance of audits regarding peer influence on managerial misreporting. Their
experimental evidence reveals that truthful reporting is only driven by descriptive peer
norms when reporting decisions are audited. The effect of injunctive social norms on
budget reporting honesty was examined by Altenburger (2017). The conformation to
preferences of the peer group influences managerial behaviour and thus honest report-
ing. However, the effect of injunctive social norms is substantially impeded when there
are minorities providing alternative preferences.
3.4 Methodological aspects
Classifications by research method imply an assignment to one of the following eight

methods: analytical, archival, case/field study, experiment, framework-based, review,
survey-based, and others/multiple (Hesford et al. 2007).3
Table 64 shows the papers’ research methods and samples. In papers with exper-
iments, the number of participants ranges from 16 to 374. In survey-based studies,
the number of participants ranges from 26 to 406. The participants in experiments
were undergraduates in 24 articles, MBA students in three articles, professionals in
five articles, students (without further description) in 15 articles, and undergraduate
3 Analytical, archival, experimental, and survey-based studies are easily distinguishable. Field studies and
archival research differ based on the manner in which archival work is a part of field studies. Framework-
based studies differ from reviews based on the development of new perspectives, whereas review articles
mainly serve to structure the previous literature (Hesford et al. 2007).
4 The articles are ordered alphabetically to offer a reference book setting for research methods and samples.
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and graduate students in seven articles. The participants in survey-based studies were
exclusively professionals.
Table 7 shows that the most frequently used method are experiments which
were employed in 54 papers (33% of the total). Thirty-five articles (22% of the
total) used surveys, and 26 (16% of the total) used analytical methods. Another 22
papers (14% of the total) provide a literature review, and nine papers (6%) applied
case or field study approaches. The least frequently applied methods were archival
(seven papers), multiple-method-approaches (six papers) and framework studies (three
papers). Table 7 also illustrates that until 2004, surveys dominated, but since that time,
experiments have been used more often, whereas surveys became less important.
Thus, experiments were the prevailing method for research on budgetary slack which
is reason enough to more closely examine experimental research on budgetary slack.
Appendix 2 illustrates in detail the variables used in experimental research on
budgetary slack. The differentiation based on independent, dependent, moderator, and
intervening variables is maintained. Antecedent variables were excluded because no
article in this sample considers them. Because current experimental research is the
field of interest, only 35 articles that were published since 2005 and which examined
budgetary slack as their major topic, are considered. In Appendix 2, the articles are
not ordered alphabetically but by year of publication to illustrate the development of
this research stream over time.
This analysis shows a growing focus on budgetary slack under the term of honesty in
reporting. Honesty and budgetary slack were the dependent variables in the majority
of experimental studies. Although there is a great variety of independent variables
reflecting the mass of factors affecting honesty and budgetary slack, we note that there
is little research on ethical values, the sense of justice and the effects of other personal
traits on budgetary slack (as previously discussed in chapter 3.1 above).
4 Discussion and avenues for future research
Our analysis shows that budgetary slack is a well-established paradigm in accounting

research. Contributions from business ethics research exist, but only play a minor role
in the academic discussion. Budget-related (dysfunctional) behaviour and participative
budgeting have been the primary topics in budgeting research thus far. From a theo-
retical perspective, economics, psychology, and the intersection of both are the major
theoretical perspectives that are addressed in the literature; notably, there has been an
increase in contributions from the psychology and economics/psychology perspective,
whereas the input of economics has rather decreased. Thus, this naturally draws atten-
tion to the sociological perspective, which continues to offer diverse avenues for future
research, such as by involving competing values in organizations and analysing their
possible impact on creating slack. Furthermore, sociological research might exam-
ine whether and how an organization’s characteristics and values affect management
control systems.
Most research focused on the individual as the focal unit, whereas small teams
remain almost completely understudied, though the significance of group-level anal-
ysis is described by Birnberg (2011). The most often applied permutation of these
123
C. Daumoser et al.
Table 6 Research method and sample
Paper Method Sample
Abdel-Rahim and Stevens (2018) Experiment 158 undergraduate and graduate students
Altenburger (2017) Experiment 209 undergraduate and graduate students
Anderson and Lillis (2011) Survey 207 managers and controllers
Antle et al. (1999) Analytical –
Antle et al. (2001) Analytical –
Antle and Fellingham (1995) Analytical –
Antle and Fellingham (1997) Review –
Arnold (2015) Experiment 170 students
Arnold et al. (2008) Experiment 198 university students and employees
Arnold and Artz (2015) Multiple 97 firms
Arnold and Gillenkirch (2015) Experiment 180 students
Arnold and Schreiber (2013) Experiment 200 undergraduate students
Arya and Glover (1996) Analytical –
Arya and Glover (2013) Analytical –
Arya et al. (1996) Analytical –
Arya et al. (1997) Analytical –
Balakrishnan (1990) Analytical –
Belkaoui (1985) Experiment 60 undergraduate and graduate students
Birnberg (2011) Framework –
Birnberg et al. (1983) Review –
Blay et al. (2016) Review –
Bouwens and Kroos (2011) Archival Retail firm
Briers and Hirst (1990) Review –
Brink et al. (2014) Experiment 160 undergraduate students
Brink et al. (2017) Experiment 180 employees
Brown et al. (2009) Review 21 papers
Brown et al. (2014) Experiment 180 undergraduate students
Brown et al. (2017) Experiment 144 undergraduate students
Brownell and McInnes (1986) Survey 108 professionals
Brüggen and Luft (2011) Experiment 80 students
Brüggen and Luft (2016) Experiment 84 undergraduate students
Brunner and Ostermaier (2017a) Experiment 374 students
Brunner and Ostermaier (2017b) Experiment 174 students
Cammann (1976) Survey 357 managers
Cardinaels and Yin (2015) Experiment 128 students
Cardinaels and Jia (2016) Experiment 152 undergraduate and graduate students
Chalos and Cherian (1995) Archival 207 school districts
Chen et al. (2015) Experiment 92 undergraduate students
Chenhall (2003) Review –
Chow et al. (1988) Experiment 40 students
123
Table 6 continued
Paper Method Sample
Chow et al. (1991) Experiment 55 students

Chow et al. (1994) Experiment 44 undergraduate students
Chow et al. (2000) Experiment 108 undergraduate students
Christiensen (1982) Analytical –
Chung and Hsu (2017) Experiment 57 undergraduate students
Church et al. (2012) Experiment 174 undergraduate students
Church et al. (2014) Experiment 180 undergraduate students
Clor-Proell et al. (2015) Experiment 95 undergraduate and graduate students
Collins (1978) Survey 101 professionals
Collins et al. (1984) Survey 95 professionals
Collins et al. (1999) Survey 406 professionals
Covaleski et al. (2003) Review –
Davila and Wouters (2005) Case/field study Four logistic sites of a manufacturer
Davis et al. (2006) Experiment 77 professionals
De Baerdemaeker and Bruggeman Survey 247 professionals
(2015)
Douglas and Wier (2000) Survey 220 professionals
Douglas and Wier (2005) Survey 220 managers
Douglas et al. (2007) Survey 395 professionals
Douthit and Stevens (2015) Experiment 16 students
Dunk (1990) Survey 26 professionals
Dunk (1993) Survey 79 professionals
Dunk and Nouri (1998) Review –
Dunk and Perera (1997) Field study 7 managers
Eskenazi et al. (2016) Experiment 29 controllers
Evans et al. (2001) Experiment 28 MBA students
Ewert and Ernst (1999) Review –
Farlee (1998) Analytical –
Farlee et al. (1996) Analytical –
Fauré and Rouleau (2011) Field study Large construction firm
Fisher et al. (2000) Experiment 185 undergraduate students
Fisher et al. (2002a) Experiment 104 undergraduate students
Fisher et al. (2002b) Experiment 174 undergraduate students
Giroux and Shields (1993) Archival 125 U.S. cities
Goretzki et al. (2017) Field study 15 controller
Guo et al. (2017) Experiment 114 undergraduate students
Hall (2016) Review –
Hannan et al. (2006) Experiment 150 undergraduate and graduate students
Hannan et al. (2010) Experiment 184 undergraduate students
Hartmann (2000) Review –
123
C. Daumoser et al.
Table 6 continued
Paper Method Sample
Hartmann and Maas (2010) Experiment 136 professionals in part-time studies

Hartmann and Moers (1999) Review –
Heinle et al. (2014) Analytical –
Hirst (1983) Analytical –
Hobson et al. (2011) Experiment 104 students
Huang and Chen (2009) Survey 216 professionals
Huddart (2017) Analytical –
Hughes and Kwon (1990) Framwork –
Indjejikian and Matĕjka (2006) Survey 104 professionals
Indjejikian and Matĕjka (2012) Survey 242 professionals
Kamin and Ronen (1978) Archival 310 large industrial firms
Kanodia (1993) Analytical –
Kihn (2011) Case study High-tech company in Finland
Kilfoyle and Richardson (2011) Review –
Kim (1992) Experiment 81 undergraduate students
Kirby et al. (1991) Analytical –
Kramer and Hartmann (2014) Survey 127 professionals
Kunz (2017) Review –
Lal et al. (1996) Survey 83 professionals
Lambert (2001) Analytical –
Lau and Eggleton (2003) Survey 117 professionals
Leone and Rock (2002) Archival North american division of a large
multinational corporation
Luft (2016) Review –
Lukka (1988) Multiple 1 large firm with several profit centers
(case study)
Lyne (1988) Survey 210 professionals
Lyne (1992) Survey 210 professionals
Maas and Matějka (2009) Multiple 134 business unit controllers (survey)
Maas and van Rinsum (2013) Experiment 126 undergraduate students
Magner et al. (1996) Survey 95 professionals
Matuszewski (2010) Experiment 224 undergraduate and graduate students
Mehafdi (2010) Analytical –
Merchant (1985) Survey 170 professionals
Merchant and Manzoni (1989) Field study 203 employees
Mitchell (1994) Review –
Mittendorf (2006) Analytical –
Newman (2014) Experiment 81 students
Nikias et al. (2010) Experiment 112 students
Nouri (1994) Survey 139 professionals
Nouri and Parker (1996) Survey 135 professionals
123
Table 6 continued
Paper Method Sample
Nouri and Parker (1998) Survey 135 professionals

Onsi (1973) Multiple 32 (interview) and 107 (questionnaire)
professionals
Otley (1978) Case/Field study 41 professionals (interview and
questionnaire)
Otley (1985) Field study Two different organizations
Paik (1993) Analytical –
Parker and Kyj (2006) Survey 70 professionals
Pope (1984) Review –
Ramadan (1989) Survey 120 professionals
Rankin et al. (2008) Experiment 30 undergraduate students
Reichelstein (1992) Analytical –
Rothenberg (2009) Analytical –
Salterio (2015) Review –
Salterio and Webb (2006) Review –
Schatzberg and Stevens (2008) Experiment 96 MBA students
Schiff and Lewin (1970) Review –
Schreck (2014) Experiment 60 students
Schwartz et al. (2012) Experiment 100 undergraduate students
Shields (1997) Review –
Shields et al. (2000) Survey 358 professionals
Shields and Shields (1998) Multiple 47 studies (review); 60 professionals
(survey)
Shields and Young (1993) Survey 98 controllers
Simons (1988) Survey 86 professionals
Sprinkle (2003) Multiple –
Sridhar (1994) Analytical –
Stevens (2002) Experiment 52 students
Tisdell (1984) Analytical –
Todd and Ramanathan (1994) Archival NYPD 1982-86
Turner and Guilding (2012) Survey 101 managers
Van der Stede (1997) Survey 46 corporate parents and 153 business
units
Van der Stede (2000) Survey 153 professionals
Van der Stede (2001a) Survey 153 professionals
Van der Stede (2001b) Survey 153 professionals
Vaysman (1996) Analytical –
Walker and Johnson (1999) Archival Consumer products company
Waller (1988) Experiment 51 students
Waller (1994) Review –
Waller and Bishop (1990) Experiment 72 undergraduate students
123
C. Daumoser et al.
Table 6 continued
Paper Method Sample
Waterhouse and Tiessen (1978) Framework –

Webb (2002) Experiment 90 undergraduate students
Wickramasinghe and Hopper (2005) Field study 160 employees
Yeom et al. (1993) Analytical –
Young (1985) Experiment 40 MBA students
Young et al. (1993) Experiment 96 undergraduate students
Zhang (2008) Experiment 60 undergraduate students
Table 7 Frequency Distribution by Research Method
Method –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total
No. %
Analytical 0 3 7 12 3 1 26 16.0
Archival 0 1 2 3 1 0 7 4.3
Case/field study 0 1 2 1 4 1 9 5.6
Experiment 0 0 9 7 21 17 54 33.3
Framework-based 0 1 1 0 1 0 3 1.9
Review 1 2 3 8 3 5 22 13.6
Survey-based 0 3 10 12 9 1 35 21.6
Other/multiple 1 0 1 2 1 1 6 3.7
classifications is budget-related behaviour, psychology, and individuals. Additionally,

research on capital budgeting has continuously increased and might become more
important in the coming years. Points of contact between budgetary slack and capital
budgeting might be found in the aggregation and timing of reports in capital budgeting
settings or in the use of control instruments in capital budgeting processes and in their
effects on budgetary slack creation. Researchers should consider this development in
selecting their future projects; practitioners might profit from a close link to scientists
by adapting new findings to business practice.
Regarding the content of the studies we analysed, we found the following results.
First, participative budgeting can increase as well as decrease the creation of bud-
getary slack. Accordingly, the involvement of employees in the budgeting process
should be controlled properly by ensuring the fit between task, the persons involved,
their values (e.g. fairness concerns), and the pay scheme. Second, some studies show
that slack creation occurs independently of the pay scheme, whereas others found
that slack occurs less with truth-inducing schemes than with slack-inducing schemes.
Additionally, slack creation is affected both by risk attitude and information asymme-
try. These results support the need for individually adjusted pay schemes including
truth-inducing incentives. Third, information asymmetry increases budgetary slack,
but that effect is influenced by several factors. Fourth, fairness and reputational con-
123
cerns decrease budgetary slack, although ethics concerns do not, which underpin the
importance of fairness and reputational concerns as an integral part of an organizational
culture and helps to quantify the advantages of an established organizational culture.
Finally, the analysis shows that social norms decrease slack creation. Thus, companies
could consider social norms as a possibility to foster honesty in managerial reporting.
The analysis of the methods employed in the literature reveals that experiments
are currently the dominant method for research on budgetary slack, whereas surveys
and analytical methods continue to lose significance. This is important, particularly
for researchers who aim to contribute to this research stream. After presenting the
state of the art of budgetary slack research, the question remains which new avenues
could open up for future research As discussed above, research is needed on the
effects of individual or personality factors on the creation of budgetary slack, e.g.
ethical values or ethical behaviour. This research might be conducted by analysing
intervening and moderating variables. For example, gender as a moderating variable
on honesty revealed mixed evidence. Whereas some research found that men are more
inclined to lie to maximize personal benefit (Dreber and Johannesson 2008), other
research found no such differences (Childs 2012).
From a methodological perspective, another method that could gain relevance for
budgetary slack research and particularly the suggested examination of personality
factors’ influences is neuro-accounting. Birnberg and Ganguly (2012) discuss the
relevance of neuroeconomics in behavioural accounting research. Neuroeconomics
refers to a field of study characterized by an overlap between research into behavioural
economics and the research of neuroscientists and neuropsychologists. Eskenazi et al.
(2016) went ahead in this field by showing that the human mirror neuron system
functionalities affect controllers’ ability to withstand pressure from their business
unit manager to misreport.
Whereas neuro-accounting will advance current research from an economic and
psychological perspective and deepen knowledge on the decision making of individ-
uals in budgeting settings, researchers might also focus on the little-studied economic
and sociological perspective of budgeting in an organizational context. The economic
perspective might put the owners in the centre of future research by examining their
growing role as an active component of organizational management. By focusing on
the sociological perspective in an organizational context, researchers could address the
significance of the organizational culture as a pivotal feature of efficient resource allo-
cation in a budgeting process. Hall (2016) shows similar avenues for future research
for example by highlighting links between individual and organisational-level studies
or by demanding greater use of field studies in contrast to surveys, as well as focussing
on the role of emotions. To conclude, this study contributes to slack research by pro-
viding an overview and a structuring of the broad literature involving budgetary slack
and honesty in reporting. Budgetary slack is a well-established field of research yet
invites further investigation.
123
Appendix 1
Illustration by variables
123
Variables
Paper Dependent Intervening Moderator Independent Antecedent
Onsi (1973) Slack attitude Several managerial

behavioural variables
(e.g. slack manipulation,
slack detection)
Cammann (1976) Subordinate responses to Subordinate participation Superior use of control
uses of control systems and job difficulty systems
Collins (1978) Budgetary response Attitudes towards budget Personal flexibility,
attitudes (positive, characteristics perceived budget
negative) characteristics (e.g.
accuracy), demographic
variables (e.g. age)
Belkaoui (1985) Budgetary slack creation Self-esteem feedback
Merchant (1985) Propensity to create Importance of meeting
budgetary slack budget, participation,
technology, ability to
detect slack
Young (1985) Amount of budgetary Risk-aversion, private Budgetary participation
slack, importance of information
being seen as a hard
worker, degree of social
pressure felt
Chow et al. (1988) Budgetary slack, Information asymmetry Pay scheme
performance (truth-inducing,
slack-inducing)
C. Daumoser et al.
Variables
Simons (1988) Firm performance Budget goal tightness Business strategy, internal
organizational
conditions
Waller (1988) Budgetary slack Risk-neutrality, Pay-scheme
risk-aversion
Dunk (1990) Managerial performance Agreement on evaluation Participative budgeting
criteria
Waller and Bishop (1990) Managers’ Unit profit scheme, unit
misrepresentation, profit-plus-penalty
resource consumption scheme, Groves scheme
Kim (1992) Budget preferences (tight, Status relative to average
safe) performance,
dispositional risk
attitude
Dunk (1993) Budgetary slack Budgetary participation,
information asymmetry,
budget emphasis
Giroux and Shields (1993) Level of governmental Audit, budget, city
expenditures manager and certificate
of achievement, political
competition, total debt
Shields and Young (1993) Firm-wide performance Participative budgeting, Information asymmetry
budget-based incentives
123
Variables
123
Young et al. (1993) Budgetary slack, Intragroup cooperation,
performance intergroup competitive
feedback
Chow et al. (1994) Subordinate Pay scheme (profit
misrepresentations sharing,
single-subordinate
truth-inducing scheme,
Groves scheme)
Nouri (1994) Budgetary slack Organizational Job involvement
commitment
Todd and Ramanathan Performance in the Police operations;
(1994) not-for-profit sector budgetary measures
Lal et al. (1996) Budgetary slack Importance of meeting
budget, participation,
technology, ability to
detect slack
Magner et al. (1996) Budget utility, Budget quality Budgetary participation
job-relevant information
Nouri and Parker (1996) Budgetary slack Organizational Budgetary participation
commitment
Van der Stede (1997) Corporate performance Corporate diversification;
internal control system
Nouri and Parker (1998) Job performance Budget adequacy, Budgetary participation
organizational
commitment
Collins et al. (1999) Budgetary effort Budget game (devious, Locale (United States and
incremental, economic) Latin America)
C. Daumoser et al.
Variables
Walker and Johnson Subordinates’ Budget-based incentive

(1999) participatory budget compensation scheme
estimates
Chow et al. (2000) Subordinates’ Groves scheme, Osband
misrepresentation and Reichelstein
scheme,
non-mechanistic
superior, linear profit
sharing scheme
Douglas and Wier (2000) Budgetary slack Information asymmetry, Budgetary participation
incentive to create
budgetary slack, ethical
position (relativism,
idealism)
Fisher et al. (2000) Budgetary slack, Budget setting:

subordinate unilaterally, negotiation
performance process (agreement,
behaviour, structure)
Shields et al. (2000) Job performance Standard tightness, Participative standard
Standard-based setting
incentives, job-related
stress
Van der Stede (2000) Managerial short-term Rigid budgetary control, Business unit competitive Business unit past
orientation budgetary slack strategy; past business performance and
unit performance competitive strategy
Evans et al. (2001) Managerial reporting Preferences for wealth and
honesty honesty: contract design
123
Variables
123
Van der Stede (2001b) Budgetary slack Budgetary controls, Corporate diversification,
associated incentives business unit strategy
Fisher et al. (2002a) Budgetary slack, Information asymmetry, Negotiation process
subordinate justice and fairness
performance considerations
Fisher et al. (2002b) Subordinate’s initial Using budgets for
budget proposals, slack, performance evaluation
performance and resource allocation,
information asymmetry
Leone and Rock (2002) Managers’ discretionary Budget ratcheting
accrual choices
Stevens (2002) Budgetary slack Reputation and ethical Level of information
concerns asymmetry
Webb (2002) Budgetary slack Reputation concerns,
variance investigation
Lau and Eggleton (2003) Propensity to create Information asymmetry, Budgetary participation
budgetary slack budget emphasis
Davila and Wouters Budget emphasis Budgetary slack Demanding conditions Alternative goals
(2005)
Douglas and Wier (2005) Budgetary slack Budgetary participation,
incentive to create slack,
ethical ideology
Davis et al. (2006) Budgetary slack, Obedience pressure to
perceived responsibility create slack
for budget
recommendation
C. Daumoser et al.
Variables
Hannan et al. (2006) Managerial honesty Information system Information system

precision existence
Indjejikian and Matêjka Organizational slack Information asymmetry
(2006) between corporate
headquarter and
business unit manager;
managerial accounting
system
Parker and Kyj (2006) Job performance Vertical information Budget participation;
sharing, organizational
commitment, role
ambiguity
Douglas et al. (2007) Budgetary slack, National culture Ethical position
budgetary participation
Arnold et al. (2008) Misreporting Groves mechanism, profit Communication

sharing
Rankin et al. (2008) Budgetary slack Final budget authority
(superior, subordinate),
mode of budget
communication (offer,
factual assertion)
Schatzberg and Stevens Budgetary slack, effort Rejection power, pair
(2008) rotation, experience,
concerns for fairness
and ethics
Zhang (2008) Reporting honesty, Perception regarding the Peer reporting system
whistleblowing fairness of the principal,
communication among
agents
123
Variables
123
Huang and Chen (2009) Attitudes towards the Budgeting games Leadership behaviour
budgetary process (devious, economic) (contingent reward,
contingent punishment)
Maas and Matějka (2009) Data misreporting, local Role conflict, role Emphasis on the
decision-making support ambiguity functional responsibility
of business unit
controllers
Hannan et al. (2010) Budgetary slack, Span of control
superior’s willingness to
reject projects
Hartmann and Maas Budgetary slack Controller involvement in Social pressure to create
(2010) management, budgetary slack
machiavellianism
Matuszewski (2010) Honesty in managerial Participant remuneration,
reporting horizontal equity of
salary
Nikias et al. (2010) Budgetary slack Aggregation and timing of
budgetary reports
Anderson and Lillis Business strategy, budget Corporate frugality
(2011) culture, cost
management practices
Bouwens and Kroos Effort reduction Target ratcheting
(2011)
Brüggen and Luft (2011) Misrepresentation of Level of competition
private information
Hobson et al. (2011) Moral judgments Pay scheme, personal
regarding budgetary values (e.g. traditional
slack values)
C. Daumoser et al.
Variables
Church et al. (2012) Honest reporting, Awareness of Shared interests

budgetary slack misreporting, other
employees’ preference
for honesty
Turner and Guilding Biasing of capital Locus of power between
(2012) budgeting cash flow hotel owner and
forecasts operator; emphasis
attached to the payback
investment appraisal
method; adequacy of
funds allocated to the
furniture, fittings, and
equipment account;
challenge in accessing
reserve account funds;

remaining length of
management contract;
emphasis on financial
versus non-financial
factors in investment
appraisal
Arnold and Schreiber Superior/subordinate Reputational aspects, level Audits in a fixed/random Subordinates’ past norm
(2013) payoff, slack creation of social content matching setting violations
Maas and van Rinsum Reporting honesty Control system design Impact on peers
(2013)
Brink et al. (2014) Budgetary slack Final budget authority Cost system information
Brown et al. (2014) Honest budgetary Ranking
reporting
123
Variables
123
Church et al. (2014) Opportunistic reporting Honesty preference Discretion in information
acquisition
Heinle et al. (2014) Budgetary slack, firm Top-down/bottom-up
performance budget Paradigms;
information asymmetry
between principal and
agent
Kramer and Hartmann Budgetary slack; Social/economic exchange Top-down versus
(2014) managerial performance with the company bottom-up orientation
Newman (2014) Managerial reporting Tightness of informal cost
honesty targets (tight, moderate,
loose)
Schreck (2014) Honesty in managerial Rivalry Gender Competition
reporting
Arnold (2015) Negotiation agreement, Exogenous constraints Opportunity costs,
subordinate effort, financial pressure,
budget commitment budget imposition,
favourable budgeting
process perceptions
Arnold and Artz (2015) Firm performance Target flexibility Predominant use of targets Target difficulty
for decision making
Arnold and Gillenkirch Superior’s task outcome Budget negotiation Performance evaluation,
(2015) planning
Cardinaels and Yin (2015) Honest cost reporting Social norms, trust Incentive contract versus
fixed-salary contract
Chen et al. (2015) Accuracy and optimism of Performance-based Forecast type,
forecasts incentives
C. Daumoser et al.
Variables
Clor-Proell et al. (2015) Employee fraud Budget goal difficulty Promotion availability
De Baerdemaeker and Budgetary slack Affective organisational Participative strategic
Brugeman (2015) commitment, planning
autonomous budget
motivation
Douthit and Stevens Budgetary slack Superior rejection Honesty preferences in
(2015) authority participative budgeting
Brüggen and Luft (2016) Cost underestimation Changing versus
continuing superiors
Cardinaels and Jia (2016) Honest reporting Audits Incentives, peer behaviour
Eskenazi et al. (2016) Ability to withstand Managers’ personal versus Neurobiological aspects
pressure to misreport organizational interest
Guo et al. (2017) Misreporting Vertical pay dispersion
Abdel-Rahim and Stevens Honesty in managerial Perceived information Information system Information system
(2018) reporting asymmetry accuracy precision
Altenburger (2017) Budget reporting honesty Dissent Injunctive social norms
Brink et al. (2017) Reporting honesty Codes of conduct,
monitoring, penalties,
Machiavellianism
Brown et al. (2017) Honest reporting Participative budgeting,
budget framing
Brunner and Ostermaier Sabotage in capital Distrust, intent to punish Factual assertion Intent to be honest,
(2017a) budgeting reciprocity
Brunner and Ostermaier Managerial honesty Peer influence:
(2017b)
Chung and Hsu (2017) Firm profit Honest reporting Trust versus optimal Cognitive moral
hurdle contract development
123
Appendix 2
Current experiments illustrated by variables
123
Variables
Paper Dependent Intervening Moderator Independent
Davis et al. (2006) Budgetary slack: inflation of Obedience pressure resulting in

budget estimate; Perceived no obedience, total obedience,
responsibility for budget zone of compromise
recommendation: 100%
allocation method
Hannan et al. Managerial honesty: The cost Information system precision: Information system existence
(2006) report made by the manager, precise (0.25 lira range for
the proportion of cost reports actual cost), coarse (0.5 lira
falling within the range of the range for actual cost)
information system signal
Arnold et al. Misrepresentation Groves mechanism, profit Communication
(2008) sharing
Rankin et al. Budgetary slack: reported cost Final budget authority (superior,
(2008) minus actual cost subordinate), mode of budget
communication (offer, factual
assertion),
Schatzberg and Slack: Expected production less Rejection power (0 or 1), pair
Stevens (2008) self-set budget divided by rotation (0 or 1), experience (0
expected production; Low or 1), fairness concerns (1–7),
Effort: Time producers ethics concerns (1–7)
provided low effort
Hannan et al. Superior’s willingness to reject Span of control: low span (eight
(2010) projects: cost threshold above superiors, eight subordinates),
which projects are rejected; high span (four superiors, 12
Budgetary slack: mean reported subordinates)
cost
C. Daumoser et al.
Variables
Hartmann and Budgetary slack: likelihood for Controller involvement in Social pressure to create
Maas (2010) slack creation in the scenario management: high, low budgetary slack: high, low
(embedded in the scenario); (embedded in the scenario)
Machiavellianism: Mach IV
scale (Christie and Geis 1970)
Matus-zewski Honesty in managerial reporting: Pay of each participant:
(2010) change in honesty; Differences participant salary variable (no
between first and second half of change, increased, decreased);
the experiment in the portion of Horizontal equity: salary
the payoff available (difference changes (increased:
between maximum cost a inequitable to equitable;
participant could have reported decreased: equitable to
and actual cost) that the inequitable; no change:
participant did not claim equitable)
Nikias et al. Creation of budgetary slack: Aggregation and timing of

(2010) proportion of slack retained budgetary reports (for two
(budget − actual cost)/50 − projects): aggregate
actual cost (subordinates observe each
project’s cost and submit one
budget), sequential
(subordinates observe costs
and submit individual budgets
sequentially), delayed
treatment (subordinates
observe both costs before
providing individual budgets)
123
Variables
123
Brüggen and Luft Misrepresentation of private Level of competition generated
(2011) signal: the agent’s revenue by capital rationing:
prediction minus his or her Principals could accept three,
private signal of the most likely no more than two, or no more
revenue; Misrepresentation of than one project
expected revenue: the agent’s
revenue prediction minus the
expected revenue conditional
on his or her private signal;
Actual misrepresentation as a
percentage of possible
misrepresentation
Hobson et al. Moral judgment regarding Pay scheme: slack inducing,
(2011) budgetary slack: 1 “strongly truth-inducing; Personal
disagree” to 7 “strongly agree” values: traditional values,
in response to the question: “To responsibility, empathy
have set the budget [measured by Jackson
significantly below the forecast Personality Inventory-Revised
of productions would have been questionnaire (Jackson 1994)]
unethical” (Stevens 2002)
Church et al. Honesty: 1 − [(budgeted cost − Awareness of misreporting: Shared interests: no-sharing
(2012) actual cost)/(6000 − knowledge: whether the condition (division manager
actual cost)]; Slack: manager’s report and actual keeps the entire amount of
budgeted cost − actual cost cost are known to the slack), sharing condition
assistant; Other employees’ (slack is split equally between
preference for honesty: 1 “The division manager and
budget should not be inflated” assistant)
to 11 “The budget should be
inflated to the full extent”
C. Daumoser et al.
Variables
Maas and van Reporting honesty: Control system design: Impact on peers: Inclusion of a
Rinsum (2013) Overstatement is calculated as Open/closed information group performance-based
report (number of correct policy element in the participants’
answers) minus score (actual pay function relating to the
number of correct answers), average reported score of all
Dishonesty is other participants
Overstatement/(100 − Score)
Brink et al. (2014) Budgetary slack Final budget authority (superior, Cost system information (public
(budgeted cost − actual cost) subordinate) and verifiable, private),
Brown et al. Honest budgetary reporting Ranking: firm profit, own
(2014) [(Budget request − compensation, both firm profit
Project cost)/(Revenue − and own compensation,
Project cost)] randomly
Church et al. Opportunistic reporting Honesty preference: Low, Discretion in information
(2014) [(reported bonus − moderate, high (according to acquisition (present/absent)

actual bonus)/(25 − opportunistic reporting)
actual bonus)]
Newman (2014) Managerial reporting honesty: Tightness of informal cost
honesty defined as targets: moderate (near the
1 − [(budgeted cost − mean of the cost range), loose
actual cost)/($30−actual cost)] (at the upper end of the cost
range), tight (at the lower end
of the cost range)
123
Variables
123
Schreck (2014) Honesty in managerial reporting: Rivalry (lower honesty Gender: male, female Competition (economic
honesty defined as participants preferences): Subjects do not pressure to lie): no
overstatements relative to the compete for scarce resources competition treatment (every
maximum potential but for their position in a project receives funding),
overstatement ranking; Expected monetary economic pressure treatment
benefits of lying (subjects compete for scarce
financial resources), no rivalry
Arnold (2015) Negotiation agreement; Exogenous constraints: superior Opportunity cost: superior’s
subordinate effort: performance opportunity cost/financial working time is (not)
divided by capability; budget pressure independent of the negotiation
commitment length; Financial pressure:
superior’s payoff is (not)
independent of subordinate’s
and superior’s total
performance; Budget
imposition, favourable
budgeting perceptions
Arnold and Superior’s task outcome Budget negotiation Performance evaluation budget,
Gillenkirch (Potential subordinate bonus (subordinate’s initial budget planning budget
(2015) based on the subordinate’s proposal, estimate of his (separate/single budget
estimated performance performance capability, setting)
capability; Realized planning performance; superior’s initial
error) counteroffer)
Cardinaels and Honest cost reporting Social norms and trust: (7-point Incentive contract versus
Yin (2015) [(mean rep. costs − Likert scale ranging from fixed-salary contract
mean act. costs)/ “fully disagree” to “fully
(max. rep. costs pos. − agree”)
mean act. costs)]
C. Daumoser et al.
Variables
Chen et al. (2015) Accuracy of forecasts (difference Performance-based incentive Forecast type
between forecast and actual (present/absent) (disaggregated/aggregated)
performance), optimism of
forecast (excess of forecast
over the actual performance)
and performance (number of
correct answers)
Clor-Proell et al. Employee fraud: distance Budget goal difficulty: high/low Promotion availability: not
(2015) between reported costs and cost goal available, available after each
actual costs round, available at the
conclusion
Douthit and Budgetary slack Superior rejection authority Honesty (agreement with the
Stevens (2015) (reported cost − actual cost) (factual assertion, salary statement “I wanted both
authority; knowledge about parties to have even payoffs,”
superior’s endowment) on a seven-point Likert scale)

Brüggen and Luft Cost underestimation: (a) Changing versus continuing
(2016) subordinate’s private cost signal superiors
minus his or her cost forecast;
(b) expected value of costs
given the private signal minus
the subordinate’s cost forecast;
(c) percent understatement
measure: subordinate’s actual
understatement divided by the
maximum possible
understatement
123
Variables
123
Cardinaels and Jia Honest reporting: Audit: The audit team’s Peer honesty: Message that a
(2016) (1 − (true cost-reported detection probability increases high/low number of peer
cost)/(true cost − 500)) × 100 with the level of deviation managers report a cost
from a truthful report number that equals the true
cost of the investment;
Incentive:
10% or 50% of the divison’s
reported profit
Eskenazi et al. Ability to withstand pressure to Managers’ personal versus Neurobiological aspects
(2016) misreport (Scale from 1 “very organizational interest (decrease in power of mu
unlikely” to 7 “very likely” waves in the emotional
whether they would engage in expressions
the action proposed by the BU condition relative to the abstract
manager) shapes condition)
Guo et al. (2017) Misreporting: reported slack Vertical pay dispersion (high:
(reported cost − actual cost) $25/$10; low: $25/$25,
$10/$10)
C. Daumoser et al.
Variables
Abdel-Rahim and Honesty: 1 − [(budgeted cost − Perceived information Information system accuracy: Information system precision:
Stevens (2018) actual cost)/6] asymmetry: Inverse of high (90/10%), low (70/30%) equal to 1 if the system is
response to the exit precise and 0 if coarse
questionnaire item “If the
corporate headquarters’ cost
system had generated an
estimate of the actual cost
within a wider (narrower)
range, I would have felt more
(less) flexible to increase my
earnings by reporting a higher
cost (7-point Likert scale)
Altenburger Budget reporting honesty: (1 − Dissent: Minority shows Injunctive social norms:
(2017) (budgeted costs − actual different preferences than the Participants see statements
costs)/(maximum possible respective majority regarding honesty or

report − actual costs)) opportunism of five
anonymous colleagues
Brink et al. (2017) Reporting honesty: participants’ Codes of conduct: Code, no
self-reports of the number of code;
identified pairs of numbers that Monitoring: No monitoring,
sum to 10, unsolvable task monitoring and penalty,
monitoring but no penalty;
Machiavellianism: High/low
measured using the average of
the 20-question MACH IV
scale
Brown et al. Honest reporting: (budget Participative budgeting:
(2017) report − cost of production) Subordinate/superior sets the
budget; Budget framing:
Honest, fair, preferred
123
Variables
123
Brunner and Sabotage in capital budgeting: Distrust: Managers were asked Factual assertion (yes/no) Intent to be honest: Managers
Ostermaier number of times a manager to what extent they agree that were asked to state the extent
(2017a) sabotages the investment the hurdle contract signals to which they agreed that they
divided by the number of times distrust; intent to punish: intended to be honest with
he can sabotage it Managers were asked to state owners; Reciprocity: owner
the extent to which they can (cannot) chose the hurdle
agreed that they intended to contract
punish owners for distrusting
them
Brunner and Managerial honesty: (reported Peer influence: transparency:
Ostermaier cost − actual cost)/(100 − Managers know each other’s
(2017b) actual cost) × 100 cost and report (full),
managers learn each other’s
report but not cost (partial)
Chung and Hsu Firm profit Honest reporting: 1-payoff Trust versus optimal hurdle Cognitive moral development:
(2017) claim/payoff available contract defining issues test
C. Daumoser et al.
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J Manag Control

Honesty in budgeting: a review of morality and control

Christian Daumoser1 · Bernhard Hirsch2 ·

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Abstract Budgetary slack is a heavily researched topic in the field of management

1 ESCP Europe, Berlin, Germany

Keywords Honesty · Budgeting · Budgetary slack · Managerial reporting

JEL Classification M41

Budgetary slack is a phenomenon that involves “a process of understating revenues

2 Theoretical background: definitions and concepts of budgetary slack

Maximum per- Minimum perfor- Budget of the

subordinate perior accepts

Fig. 1 Slack according to Lukka (1982)

DEPENDENT INTERVENING INDEPENDENT ANTECEDENT

Fig. 2 Analytical framework, developed by Briers and Hirst (1990)

of participants in a corporate budgeting context resulting in increased compensation

3 What we know about budgetary slack

3.1 Our research approach and sample

Researchers have accumulated vast knowledge regarding the creation of budgetary

Journal name Journal Journal ranking by Number of papers

ABACUS ABACUS B 2 1.2

3.2 Topic categorization, theoretical perspectives, and object of analysis

Table 2 Topic categorization

Table 3 Frequency distribution by topic categorization

Topic categorization –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total

Table 4 Frequency Distribution by Theoretical Perspective

Theoretical –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total

Table 5 Frequency distribution by analysed unit

Analysed unit –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total

on different levels in a hierarchy are excluded. Research on organizations focuses

3.3 Content-specific emphasis and the variables used

Classification by variables is an acknowledged means of reviewing literature (e.g.

(Groves-, Osband and Reichelstein-scheme) are more effective as compared to a lin-

3.4 Methodological aspects

Classifications by research method imply an assignment to one of the following eight

4 Discussion and avenues for future research

Our analysis shows that budgetary slack is a well-established paradigm in accounting

Table 6 Research method and sample

Paper Method Sample

Paper Method Sample

Chow et al. (1991) Experiment 55 students

Paper Method Sample

Hartmann and Maas (2010) Experiment 136 professionals in part-time studies

Paper Method Sample

Nouri and Parker (1998) Survey 135 professionals

Paper Method Sample

Waterhouse and Tiessen (1978) Framework –

Table 7 Frequency Distribution by Research Method

Method –1974 1975–1984 1985–1994 1995–2004 2005–2014 2015– Total

classifications is budget-related behaviour, psychology, and individuals. Additionally,

Paper Dependent Intervening Moderator Independent Antecedent

Onsi (1973) Slack attitude Several managerial

Paper Dependent Intervening Moderator Independent Antecedent

Paper Dependent Intervening Moderator Independent Antecedent

Paper Dependent Intervening Moderator Independent Antecedent

Walker and Johnson Subordinates’ Budget-based incentive

Fisher et al. (2000) Budgetary slack, Budget setting:

Paper Dependent Intervening Moderator Independent Antecedent

Paper Dependent Intervening Moderator Independent Antecedent

Hannan et al. (2006) Managerial honesty Information system Information system

Arnold et al. (2008) Misreporting Groves mechanism, profit Communication

Paper Dependent Intervening Moderator Independent Antecedent

Paper Dependent Intervening Moderator Independent Antecedent