Abstract
Variance investigation (VI) has been identified as an effective mechanism to reduce budgetary slack at the ex ante budgeting stage. This paper focuses on two further research questions: (1) the extent to which two different accountability-oriented control aspects (i.e., external investigation and self-reporting) of VI affect budgetary slack and (2) the extent of the moderating effect of moral development on the relationship between these two accountability-oriented control aspects and budgetary slack. Our experimental results show that both external investigation and self-reporting can reduce the propensity of creating slack at the ex ante budgeting stage. More specifically, the effect of external investigation on reducing the propensity of creating budgetary slack is greater than that of self-reporting. This study further reveals that moral development moderates the effect of external investigation on budgetary slack. When comparing subordinates with low moral development with those with high moral development, our results show that the effect of external investigation on budgetary slack is stronger among the former group than the latter group. This study does not find any moderating effect of moral development on the relationship between self-reporting and budgetary slack. Our study sheds some new light on varying effects of two accountability-oriented control aspects of VI on budgetary slack, which are also moderated by different levels of subordinates’ moral development. These results may be considered in the design and implementation of management control systems.
Highlights
Variance investigation (VI) is known as one of the management control mechanisms to reduce budgetary slack, due to its ability to relieve information asymmetry (Lambert, 1985) and to generate accountability pressure (Webb, 2002)
We find that there is no significant difference on the mean score on this item in the no VI context compared to only external investigation of VI context
This study has examined in details the relationship between two control aspects of VI and budgetary slack from the accountability perspective and the moderating effect of moral development on this relationship
Summary
Variance investigation (VI) is known as one of the management control mechanisms to reduce budgetary slack, due to its ability to relieve information asymmetry (Lambert, 1985) and to generate accountability pressure (Webb, 2002). Majority of existing budgeting studies regard VI as a control mechanism of the ex post budgeting (implementation) stage, at which managers investigate variances between forecasts and actuals and assign responsibility for those variances to appropriate behavior subjects (Brownell, 1983; Hirst and Lowy, 1990; Emsley, 2001). VI can generate a curbing effect if it is implemented during the ex ante budgeting (setting) stage and regarded as a specific control feature (Webb, 2002) due to its inherent accountability notion. It is reasonable to regard Webb’s (2002) VI as part of accountability-oriented control systems (Merchant and Otley, 2006; Bergsteiner, 2012)
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