| Budgeting management is an important management and control means for modern enterprises to strengthen internal control and achieve their strategic objectives.Aim at achieving a specific production goal or business plan,the budget plan formulated by the enterprise is in the form of currency,cash flow and specific planning description,which makes a detailed arrangement for the future production and business activities of the enterprise and reasonably allocates the limited resources owned by the enterprise.Budgeting management has played a strong control function in the enterprise,and the completion degree of the budget target set by the enterprise can be regarded as its performance evaluation standard.In addition,the budget target is closely related to the incentive mechanism of the enterprise.The establishment of budget target is the starting point of implementing comprehensive budgeting management,which lays the foundation for the effective operation of budgeting management system.However,the problem of budgetary slack affects the determination of budget target difficulty,and thus hinders the effective play control function of comprehensive budgeting management in enterprises.From the foreign research evidence,the phenomenon of budgetary slack is proved to be existing generally in the budgeting of enterprises(Dunk & Nouri,1998).Merchant(1985)studied the budgeting management behavior of enterprises in electronic industry based on a survey,then found that there is obvious slack in the budget formulated by managers,and when the performance evaluation of managers is linked with the completion of budget plan,the probability of budgetary slack will increase significantly.Merchant and Manzoni(1989)found that 80% of the presidents in survey sample clearly indicated that slack exists in their budget plan,and they believed that their employees could benefit from a slacker budget plan.Indjejikian & Nanda(2002)found a high degree of continuity in the excess bonus received by business managers,which means that budgetary slack not only exists but also persists.Since the early 1990 s,comprehensive budgeting management has been gradually implemented in China.With vigorous promotion of government and standardized implementation requirements,Chinese enterprises have generally implemented comprehensive budgeting management and accumulated important practical working experience(Yu et al.,2004).The monetary compensation incentive contract and performance appraisal of listed companies in China are usually linked with budgeting management(Ye et al.,2014;Pan et al.,2006),Liu et al.(2014)found that the executives of state-owned enterprises in China are more inclined to strive for more budgetary slack through prior negotiation to reduce the difficulty of their salary assessment objectives.It can be seen that the phenomenon of budgetary slack also generally exists in the budgeting management of Chinese enterprises.The current research on budgetary slack is in a disagreement,the theory of principal-agent interprets budgetary slack as an inevitable loss of efficiency caused by adopting budgeting management.When the enterprises link budget completion with the performance evaluation standard,subordinates will deliberately make use of the budget information they hold to create slack in budget preparation,which reduces the difficulty of budget goal and improves their income level.However,this behavior may damage the company's interests and affect the effectiveness of the company's budgeting management.Contingency theory holds that budgetary slack is a choice made by enterprises to cope with changes in internal and external economic environment(Chenhall,2003),Loose performance goals can motivate employees to perform better in complex work(Kelly et al.,2014),Li(2015)found that loose budget goal has obviously stimulated the innovation enthusiasm of employees.This paper reviews the relevant research literature of budgetary slack,and compares budgetary slack research based on the current three perspectives of Social Science(Economics,Psychology,Sociology).This paper aims to study whether there are differences in the behavior of senior executives with different demographic traits in establishing budgetary slack.After discussion,the theoretical basis of the analysis is based on the cross-cutting perspective of economics and psychology,and the personal psychological factors are taken as the starting point to conduct research in combination with the relevant theories of behavioral economics and basic psychological viewpoints.Firstly,combining the mental accounting theory of behavioral economics to analyze the causes of budgetary slack,we can see that budgetary slack is a strategic choice of self-interest behavior of senior executives,and when the psychological factors of senior executives change,they will make adjustment to this strategic choice.Previous studies have proved that the internal moral sense,procedural justice and reputation consideration can all affect the behavior of executives to establish budgetary slack(Stevens,2002;Libby,2003;Little et al.,2002;Wentzel,2004).This paper draws on the Upper Echelons Theory proposed by Hambrick and Mason(1984),which measures the psychological structure of budget responsible parties based on its demographic traits,and then analyzes the habit of senior managers to establish budgetary slack with the addiction theory in behavioral economics.It can be known that the psychological factors related to the personal experience or social impact of senior managers will affect their behavior habit of establishing budgetary slack.Taking the A-share listed companies in China from 2003 to 2015 as the research sample,we collected the budget data of the company's main business income manually,and then calculated the budgetary slack data.Based on the theoretical derivation,this paper concludes that the relevant work experience,political background intensity and other characteristics of senior executives may affect their behavioral propensity to establish budgetary slack.Considering the availability of demographic traits data of senior executives,the paper mainly selects the chairman,CEO and CFO as the representative figures of enterprise senior executives to establish the hypothesis.This paper draws the following conclusions through empirical research:(1)CEOs with closer political ties have a relatively low degree of creating budgetary slack;(2)CEOs with accounting or financial related work experience are more likely to create more budgetary slack than CEOs without such work experience;(3)Compared with male chairman,female chairman is more inclined to adopt budget plan with more budgetary slack;(4)CFOs with higher education are less likely to establish budgetary slack than CFOs with lower education.Specifically,CEOs with close political ties need to maintain their personal reputation specially in addition to their work in the company.They will more regulate their behavior,and not prefer more budgetary slack in budgeting to pursue their own economic interests,because this practice may threaten their reputation and political identity.CEOs with financial related work experience means that they have advantages of finance and accounting expertise,so they appear more confident and handy in budgeting.Aim at improving their own and subordinate's compensation,maintain personal work ability evaluation and increase work flexibility,such CEOs are more likely to use professional knowledge and position convenience to establish slack in budgeting;The chairman of board attaches great importance to the long-term development of the company and the sustainable growth of performance.Compared with the male chairman,the female chairman is more cautious and conservative.Aim at increasing the flexibility of the company's operation,disperse the impact of changes in the market economic environment,and reduce the harmful profit manipulation of subordinates,the female chairman prefers the budget plan with lower budget target difficulty,which includes more budgetary slack;CFOs have good financial expertise and they master the leading information in budgeting.The highly educated CFOs receive more social moral education,and their strong sense of morality keep them from establishing budgetary slack out of the pursuit of personal interests.From the analysis of behavioral economics theory,we can see that budget slack is a strategic choice of executives' self-interest behavior,which will damage the interests of the company.For better understand the possible damage to the company's interests caused by budgetary slack,this paper explores the relationship between budgetary slack and several important economic characteristics of the company.This paper draws the following conclusions through empirical research:(1)the degree of budgetary slack is negatively related to the market value of the company;(2)the existence of budgetary slack will make the level of earnings management of the company decline in the future;(3)budgetary slack is positively related to the market risk undertaken by the company.Specifically,corporate value is affected by investors in the market.When the budget slack is regarded as a bad signal to the market,the investors will reduce the proportion of investment in the company.As a result,the market value of the company will decline,so will the corporate value;Budgetary slack will reduce the difficulty of business targets,and managers' salary is more easy to reach a high level,so they will reduce the whitewash earnings management behavior out of improving their own income,which is reflected in the lower level of earnings management of the enterprise in the next year;When managers understand that budgetary slack is included in the company's budget plan,the difficulty of their performance objectives will be significantly reduced.The existence of budget slack has reduced the risk of work failure for them.At this time,they are more willing to choose more risky investment with higher return,and the risk undertaken by the company will increase accordingly.The main contributions of this paper are as follows: Firstly,it provides a new perspective for the study of the causes of budgetary slack,and it is also a supplement to the empirical research evidence of budgetary slack.The existing literature about the causes of budgetary slack are mostly based on experiments(Young,1985;Cheng,2008;Zheng & Wang,2008),paying attention to information asymmetry,manager's behavior,compensation scheme,etc.In terms of personal factors,more attention is paid to the reputation of executives,personal ethics and sense of responsibility(Douglas,2002;Webb,2002;Yuen,2004),most of the research methods are survey,but empirical research evidence is scarce.From the perspective of Upper Echelons Theory,this paper uses the demographic traits of executives to measure their psychological structure,and then studies the relationship between the demographic traits of executives and their tendency to establish budgetary slack,which provides incremental contributions to empirical research on the relationship between personal characteristics of executives and budgetary slack;Secondly,this paper innovatively introduces behavioral economics theory into the study of the causes of budgetary slack,making up for the shortcomings of principalagent theory in the previous similar literature.The principal-agent theory interprets budgetary slack as the self-interest behavior of executives,which can be a basic support for the analysis of this paper.However,in the analysis of principal-agent theory,executives are assumed to be completely rational and consistent with their preferences,which is not consistent with the actual situation.The behavioral economics theory is helpful to analyze the influence of senior executives' different psychological characteristics on their propensity to establish budgetary slack,which provides a strong theoretical support for the study of budgetary slack motivation on the level of individual characteristics;Thirdly,this paper studies the relationship between budgetary slack and three kinds of important economic characteristics of the company,and then makes a supplement to the empirical research evidence for the economic consequences that budgetary slack may bring to the company.There is no uniform conclusion about the relationship between budgetary slack and company performance in the existing literature,and there are few researches on the relationship between budgetary slack and company value.This paper fills in the vacancy of this kind of research.Company value can reflect the long-term performance of company to some extent.From the conclusion of this study,budgetary slack will damage company value and long-term performance,so the company should minimize budgetary slack.The conclusion about the relationship between budgetary slack and earnings management is the same as that of the existing literature(Luo,2010;Pan & Cheng,2007).However,the relationship between budgetary slack and firm risk has not been studied before.This paper makes marginal contribution to the research on the correlation between budgetary slack and firm risk from theoretical analysis and empirical research.In the future,we can further study the relationship between budgetary slack and R & D innovation of the company;Fourthly,the conclusion of the study can help improve the governance mechanism of modern companies,optimize the process of enterprise budgeting management,and keep the company in a favorable long-term development.This paper is helpful for companies to select executives with different demographic traits according to their budgetary slack habits,and it can optimize the structure of company's senior executive team.In addition,referring to the conclusion of this paper on the correlation between budgetary slack and several important economic characteristics of the company,the company can take budgetary slack as an economic index to predict its possible adverse impact in the future,timely adjust the company's budgeting plan for the next year to effectively control the budgetary slack,so that several important economic characteristics of the company are in the range conducive to the long-term development of the company. |
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