The Influence of Horizontal Equity, Self Efficacy, and Ethical Position on the Creation of Budgetary Slack

Abstract

THE INFLUENCE OF HORIZONTAL EQUITY, SELF EFFICACY, AND ETHICAL POSITION ONE THE CREATION OF BUDGETARY SLACK By Ira A. Abdullah, Ph.D. A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business at Virginia Commonwealth University. Virginia Commonwealth University, 2013. Chair: Dr. Benson Wier, Professor Department of Accounting Virginia Commonwealth University Co Chair: Dr. Alisa G. Brink, Assistant Professor Department of Accounting Virginia Commonwealth University The budgeting process plays an important role in organizations’ planning and controlling functions. Managers often have incentives to misreport their private information and inaccurately set budget targets so that they are easily achievable. Such inaccuracy in budget targets is referred to as budgetary slack. Prior research documents that managers’ decisions to create budgetary slack are influenced by both preferences for wealth and non-pecuniary motivations. The objective of this study is to provide a better understanding of how social preferences such as preferences for horizontal equity, self efficacy perceptions, and ethical position influence managers’ budgetary slack creation. The results reveal a significant interaction between horizontal equity (equal and unequal compensation relative to a peer) and self efficacy (poor and