The Effect of Honesty Preferences and Superior Authority on Budget Proposals

Posted: 9 Apr 2008 Last revised: 29 Apr 2008

See all articles by Frederick W. Rankin

Frederick W. Rankin

Colorado State University, Fort Collins - College of Business

Steven T. Schwartz

SUNY at Binghamton - School of Management

Richard A. Young

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Multiple version iconThere are 2 versions of this paper

Abstract

Research in budgeting suggests that subordinates may exhibit economically significant degrees of honesty, in spite of pecuniary incentives to do otherwise. This study continues the exploration of honesty in budgeting along two dimensions. First, unlike prior experiments, we measure the incremental effect of honesty by manipulating whether budget requests are made in the form of a factual assertion or not. Second, prior designs may have emphasized the ethical dimension of budgeting by granting the subordinate wide discretion over setting the budget, whereas we manipulate whether the subordinate or the superior has final authority over setting the budget. We find that less slack is created when budget communication requires a factual assertion in the subordinate authority treatment, but not when the superior has final authority. Hence, we find an incremental effect of honesty only when the subordinate has final authority. We conjecture, and provide some evidence, that this is due to subordinates framing the superior authority situation as one of negotiation where each party acts in his or her self-interest, rather than as an ethical dilemma. This view, that budgeting is essentially devoid of ethical considerations, is consistent with some recent characterizations of budget practices.

Keywords: Participatory Budgeting, Honesty, Slack, Experiment

JEL Classification: M40, M46, J33, G31

Suggested Citation

Rankin, Frederick W. and Schwartz, Steven T. and Young, Richard A., The Effect of Honesty Preferences and Superior Authority on Budget Proposals. Fisher College of Business Working Paper; Accounting Review, July 2008. Available at SSRN: https://ssrn.com/abstract=960257

Frederick W. Rankin

Colorado State University, Fort Collins - College of Business ( email )

Fort Collins, CO 80523
United States

Steven T. Schwartz

SUNY at Binghamton - School of Management ( email )

Binghamton, NY 13902-6015
United States
607-777-2102 (Phone)

Richard A. Young (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States
614-292-0889 (Phone)
614-292-2118 (Fax)

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