The Study Of Budgetary Slack Based On Corporate Governance

Budget have achieved great development in the academic or in the practical community since it has been introduced into China from the West in the end of the last century. In practical fields budget has been more and more criticized by practitioners and academics.Budgetary control has brought a lot of side-effects which makes the budget caught in controversy. Budget slack behavior is a major aspect of the budget side effects. Budgetary slack is a very prominent problem in our budget management practices. In recent years, many scholars began to gradually study the reasons of budgetary slack based on the foreign research in order to solve the problem of budgetary slack. However, there are still some shortcomings in existing research. On the one hand, study perspective is a problem. By referring to foreign research scholars think the design and behavior of budget system are the main causes of budget slack.However, they ignored the system background of the budget execution. On the other hand the depth of the study is another problem. These studies only directly found the causes of the budgetary slack These problems such as how these factors impact budgetary slack and under what conditions these factors affect it have not been studed yet. It has become an important aspect of the research from the system perspective to understand the field of management accounting change occurred in the new Western management accounting.In view of the problems in existing research, this article studed systematicly how corporate governance (corporate level management factors) affects budgetary slack based on contract theory and management control theory. The main contents are as follows:â‘ This paper analyzed the theoretical relationship between corporate governance and budgetary slack. Based on contract theory and management control theory this paper studed the relationship between corporate governance and budgetary slack. We think corporate governance is an important factor affecting the budgetary slack through the establishment and analyzing of the budget game model.â‘¡Empirical studies have shown the nature and to what extent and corporate governance affected budgetary slack. This paper also studed the effect of the strategic management as a mediator and the effect of environmental uncertainty as a moderator between corporate governance and budgetary slack. Our study proved the size and direction of corporate governance factors affecting the budgetary slack by multiple regression analysis of voluntary disclosure about the budget in listed companies.â‘¢This paper studied the economic consequences of budgetary slack.We examined the relationship among corporate governance, budget slack and the performance through the establishment of simultaneous equations.This can provides a further theoretical proof of solving the problem of budgetary slack.By empirical research, we draws the following conclusions:â‘ Stock nature, power balance with shareholder structure, management ownership significantly influenced the budget management system. State-owned enterprises have a larger budgetar slack value than private enterprises, which indicated overall budget management and control of private enterprise was better than state-owned enterprises. Other major shareholders power balance significantly inhibited the budgetary slack. This conclusion verified the results of current related research from another perspective which other large shareholders can play an active role in corporate governance. Managerial Ownership and budget slack has a significant negative correlation, which indicates that management shareholdings as incentive mechanism of solving the agency problem can reduce the extent of budgetary slack, management ownership has played a positive effect in budget system.â‘¡iversified strategic management has not been an mediator between the corporate governance and budget management. Diversified strategic management has been a significant moderator between the power balance with shareholder structure and budgetary slack. As the strategic management of most enterprises in China have not played a guiding role on the budgetary management, strategic management failed to be a mediator.When the strategic management has been a moderator between the power balance with shareholder structure and budgetary slack, the power balance can play a greater inhibition on slack as the higher degree of business diversification.â‘¢Environmental uncertainty moderates the relationship between corporate governance and budgetary slack. Environmental uncertainty moderates the relationship between power balance and the slack. When environmental uncertainty is low, the slack significantly is inhibited by the power balance with shareholder structure. When environmental uncertainty is high, power balance can not play a significant inhibition on slack. The relationship between the managerial ownership and budgetary slack has also been significantly adjusted by environmental uncertainty. When environmental uncertainty is lower, management ownership can play a greater the negative effect on slack.â‘£Budget slack had a significant negative effect on current performance of the enterprise. We examined the relationship among corporate governance, budget slack and performance through simultaneous equations. The greater managerial ownership and the power balance, the lower budgetary slack,and the better business performance is. This conclusion has shown that budgetary slack has been mainly caused by agency problems.Budgetary slack produced by agents self-serving behavior was lower when corporate governance structure is good, which improve the performance. To some extent this conclusion shows the nature of the current budgetary slack in business.