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

Jason L. Brown, Joseph G. Fisher, Sean A. Peffer, Geoffrey B. Sprinkle

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)31-44
Number of pages14
JournalJournal of Management Accounting Research
Volume29
Issue number1
DOIs
StatePublished - Mar 2017

Bibliographical note

Publisher Copyright:
© 2017, American Accounting Association. All rights reserved.

Keywords

  • Budgeting
  • Framing
  • Honesty
  • Participative budgeting

ASJC Scopus subject areas

  • Business and International Management
  • Accounting

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