Budget Adjustments and Spending Patterns: A Transaction Cycle View
American Accounting Association, Digital library, 2016
Posted: 24 Dec 2016
Date Written: December 24, 2016
Organizational- and departmental-level budgeting suffer from various shortcomings, such as asymmetric ratcheting. In this regard, we theorize, and propose, budgeting at the transaction-cycle level for effective budget designs. The transaction-cycle level budget requires management justification for resource assignment to business processes, often spanning multiple departments. The transaction-cycle typology consists of five cycles: production, expenditure, financial, revenue, and human-resources. In order to distinguish among transaction cycles, we use their relative positions within the value chain and technology content in their business processes. As a proof-of-concept, we develop theoretical arguments for asymmetric ratcheting in operating budgets at the transaction-cycle level in hospitals, and empirically examine this phenomenon using longitudinal archival data. Our hypotheses examine budgetary responses to over- and under-spending variances in operating budgets for fixed and variable costs. Our findings suggest that a transaction cycle’s position in the value chain and its technology content play a role in determining asymmetric ratcheting during budgeting. We discuss our contributions from the perspectives of theory and practice of accounting, budgeting, and accounting information systems.
Keywords: transaction-cycle, technology, value chain, operating budget, budget variance, fixed costs, variable costs, partial adjustment model, healthcare, accounting information systems
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