Empirical Evidences On Budget Ratchet And Budget Slack

In budget management, the client through the budget ratchet to suppress opportunistic behavior that arising from the information asymmetry. In general, information asymmetry exists between the principal and agent. It is precisely because the existence of information asymmetry, the agent's opportunistic behavior only likely to occur. In budget management, budget slack is typical of scenario to opportunistic which bases on information asymmetry. In order to suppress opportunistic behavior that arising from information asymmetry, the principal through the past performance of the agent to observe the agent's ability and efforts level, the current performance becomes an important reference to the latter part of the standards which result budget ratchet. In this paper, the context of asymmetric information, taking operating income for the object, visiting the budget ratchet effect and the budget slack together, taking Shanghai and Shenzhen A-share listed companies as samples to study the three problems: first, verify the exists of budget slack; second, verify the exists of budget ratchet; third, if the budget ratchet and budget slack exist in budgeting, we will analysis the relationship between budget ratchet and budget slack, that is to say, whether the budget ratchet suppresses budget slack.In this paper, we take China's Shanghai and Shenzhen A-share market listed companies as the research object and select listed companies for the study sample which disclose the number of revenue budget in 2005-2008 annual report, using SPSS statistical software and EXCEL to verify the exists of budget slack and budget ratchet, using multiple linear regression to verify the relationship between budget slack and budget ratchet on the condition that agency costs and environmental changes exist in sample of companies, and we through sound test to verify the stability of the model which overcomes the defects of literature which is not only for model to model robust analysis.The results show that: there is more than 60% of the listed companies in the selected sample of companies exist budget slack behavior; revenue budgeting ratchet exists in listed companies and the positive budget ratchet is greater than the negative budget ratchet; budget ratchet has negative effect on budget slack significantly. The results show that the presence of budget ratchet would make the budget responsible's pursuit of short-term and current interests suppressed and budget ratchet will guide the budget responsible to conduct a long-term behavior.