Using Negotiated Budgets for Planning and Performance Evaluation: An Experimental Study

48 Pages Posted: 30 Jul 2009 Last revised: 23 Aug 2014

See all articles by Markus C. Arnold

Markus C. Arnold

University of Bern - Institute for Accounting

Robert M. Gillenkirch

University of Osnabrueck - Faculty of Business and Economics

Date Written: June 1, 2014

Abstract

The notion that different budgeting functions are in conflict with each other is well established. While prior studies have focused on the economic interactions between conflicting budgeting functions, we examine how behavioral interactions affect budget negotiations. In particular, we experimentally investigate the effects of an additional planning task, both in a setting in which performance evaluation and planning can be solved with separate budgets and in a setting in which the superior is restricted to using a single budget. Our results support the conjecture that the superior’s additional planning task increases the subordinate’s interpersonal accountability to the superior. Specifically, subordinates’ bids during the negotiation and their performance following negotiation impasses increase, and these effects tend to be even larger when the superior is restricted to a single budget. Thus, the behavioral benefits of restricting the superior to a single budget more than offset the loss in flexibility. Our results add to the understanding of the interactions between multiple budgeting functions and help to explain why firms often use a single budget for multiple purposes.

Keywords: Budget negotiations, performance evaluation, planning, performance

JEL Classification: J33, M41, M52

Suggested Citation

Arnold, Markus C. and Gillenkirch, Robert M., Using Negotiated Budgets for Planning and Performance Evaluation: An Experimental Study (June 1, 2014). AAA 2010 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1440666 or http://dx.doi.org/10.2139/ssrn.1440666

Markus C. Arnold

University of Bern - Institute for Accounting ( email )

Engehaldenstr. 4
Bern, 3012
Switzerland

Robert M. Gillenkirch (Contact Author)

University of Osnabrueck - Faculty of Business and Economics ( email )

Rolandstr. 8
Osnabrück, D-49069
Germany

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