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

Abstract

This study introduces an objective measurement of budgetary slack based on ex post measure of firm's annual budget achievability with the exclusion of earnings management through discretionary accruals rather than the traditional subjective measurement based on management's perceptions. Also, this study empirically examines the association between budgetary slack and its determinants under various budgetary slack measurements. This study uses data from survey questionnaires and data from the annual financial statements for the year ended 2009 of listed non-financial and non-rehabilitation companies in Thailand. The population covers 387 firms and there are 38 returned and usable questionnaires which is 10% response rate. Although the objective measurement of budgetary slack is statistically found to be positively related to the traditional subjective measurement, the suggested objective measurement is considered to be a superior one. Moreover, the association between budgetary slack and its determinants is relatively sensitive to the measurements of budgetary slack. Traditional budgetary slack measurements are subjective measures based on respondents' subjective view, i.e., ―managers' perception of the target achievability‖. These types of measurements have long been proposed and utilized in most budgetary slack studies even though they possess drawback, e.g., respondents may have different perceptions under the same environment. As such, an objective measurement of budgetary slack based on numerically measurable and insensitive to each respondent's perception is sought to ensure its reliability. Nevertheless, budgetary slack is not directly observable. Thus, this study intends to propose an objective measurement of budgetary slack in the hope to improve the reliability and the quality of such. This study employs both primary data from mailed survey questionnaires and secondary data from the annual financial statements in the analysis. The sampled firms are companies listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) as of the year ended 2009, all of which use budget for performance evaluation. This study excludes companies in financial industry and companies under rehabilitation for the reason that their financial reporting requirements and their characteristics of business operation are different. Survey data on budget figures of the year 2009, perceived budget achievability, and all determinant factors are gleaned from the management at the corporate level of the listed companies to match their companies' annual financial statements. The final set of samples in this study consists of 38 firms, representing 10% of the total population (387 firms). The small sample size is due to the difficulty in obtaining the