The Measurements and Determinants of Budgetary Slack: Empirical Evidence of Listed Companies in Thailand

Abstract

The new approach of budgetary slack measurement is introduced and used in the empirical investigation of the association between budgetary slack and its determinants. Comparisons of the results with other budgetary slack measurements are provided. Prior survey studies usually measure budgetary slack using management perceptions of the budget achievability. In this study, the ex post measure of firm’s annual budget achievability with the exclusion of earnings management through discretionary accruals has been used in an attempt to objectively measure budgetary slack. Both primary data from mailed survey questionnaires and secondary data from the annual financial statements are utilized in the analysis. The survey data on budget figures of the year 2009, perceived budget achievability, and all determinants are gleaned from 38 respondents working in the corporate level of listed non-financial firms in Thailand to match their firms’ annual financial statements, and the cross-sectional modified Jones (1995) model is employed to estimate discretionary accruals. Various determinants of budgetary slack are combined and classified into three categories: environmental factor, organizational factors, and individual factors. The study further examines those determinants on budgetary slack and compares their association with each budgetary slack measurement. The results show that the suggested measurement and the traditional measurement of budgetary slack are significantly, positively correlated and the association between budgetary slack and its determinants is relatively sensitive to the measurements of budgetary slack. This study contributes to prior literature an objective measure of budgetary slack. The respondents in this study are corporate management who involve extensively in budgeting process and are accountable for firms’ performance. Hence, the results in this study may suggest new evidence of organizational level.