Budget Slack of Responsibility Centers: A New Approach of Evaluation

Abstract

Budget slack is one of the unresolved issues in management accounting theory. When studying the budget slack of firm’s responsibility centers, this paper uses a unique perspective of the transfer values of firm’s responsibility centers, has an empirical finding that transfer value mechanism could help evaluate the budget slack of firm’s responsibility centers, and then develops a two-step approach for the evaluation. This result reveals an interesting tie between budget slack and transfer values, and could greatly help firms improve the budget management of their responsibility centers.

Keywords: budget slack, transfer value, operation efficiency

JEL Classification: M41, H61, M49