The effect of information asymmetry on negotiated budgets: An empirical investigation

Joseph Fisher, James R. Frederickson, Sean A. Peffer

Research output: Contribution to journalArticlepeer-review

76 Scopus citations

Abstract

This study examines three issues: (1) the effect of information asymmetry on the budget negotiation process, (2) the effect of information asymmetry on budgetary slack when budgets are set through a negotiation process, and (3) whether subordinates consider superiors imposing a budget following a failed negotiation as being low in procedural justice, which in turn causes low subordinate performance. The results suggest that smaller differences in initial negotiation positions do not indicate a higher likelihood of agreement when initial differences are due to differential information symmetry. Further, information asymmetry affects the relationship between negotiation agreement and budgetary slack. Last, inconsistent with a pure economic perspective, having superiors impose a budget after a failed negotiation causes justice or fairness considerations to demotivate subordinates.

Original languageEnglish
Pages (from-to)27-43
Number of pages17
JournalAccounting, Organizations and Society
Volume27
Issue number1-2
DOIs
StatePublished - Jan 2002

Bibliographical note

Funding Information:
This paper has benefited from the comments of Jamie Pratt, Jerry Salamon, John Waterhouse, participants of the 1998 American Accounting Association National Meeting, the 2000 American Accounting Association Management Accounting Section Meeting, two anonymous reviewers, and workshop participants at INSEAD, Nanyang Technological University, University of Kentucky, University of Oklahoma, and University of Waterloo. Indiana University School of Business provided financial support.

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science
  • Organizational Behavior and Human Resource Management
  • Information Systems and Management

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