An Empirical Study On The Reason Of Capital Budgeting Preparation Slack

Capital budgeting is the budget that is the allocation of resources of capital projects, now the budget is a classic controlling measure to internal management, including capital budgeting, the listed companies have less research in capital budgeting, particularly in the preparation slack of the capital budgeting. so according to the meaning of the research, Budge slack is an unavoidable phenomenon in the process of budgeting preparation, including budget preparation slack and budget execution slack. After review of the capital budget and budget slack from the domestic and foreign literature, agency theory, organizational slack theory and contingency theory can explain budget slack generating reasons.In the capital budgeting process, because the ownership is apart of management in the firms, as a result, they could have agency cost, asymmetry information and subordinates characteristics problems, which are the reasons of capital budgeting preparation slack. This paper research on two issues, the first, is there the existence of preparation slack of capital budgeting? The second, if there is the preparation slack of the capital budget, what are the reasons?In this paper, the data from the listed company's annual report in 2008, the completed projects that budget are greater than actual performances that are used to research on the reasons of capital budgeting preparation. According to the Shanghai and Shenzhen's data, the study use completed investment projects to analyze, focusing on the agency theory, organizational slack theory and contingency theory perspective, to establish multiple linear regression equations to research the reasons of the capital budgeting preparation slack, the three theories were quantified with the corresponding specific indicators to measure, together with the introduction of the four control variables to test the preparation slack of capital budgeting. From the regression test results, agency costs and organizational slack are able to generate capital budget slack, and have a power way to explain, they have positive correlation with the preparation slack, and have larger power, and based on contingency theory, Chairman's feature has some positive influences on preparation slack of capital budgeting, but the degree is lower. After further inspection, the preparation slack rate of the capital budget is divided into two sub-samples by the average number, to analyze which factors cause the higher or lower levels of capital budgeting preparation slack. The results show that the high degree of preparation slack is due to agency costs mainly, while the lower level of the preparation slack due to organizational slack mainly. On this basis, this paper provide some relevant recommendations, we should take appropriate measures of suppression to the higher rate caused by the agency costs. To improve the capital investment efficiency, At the same time, we should establish the concept of medium to the lower rate caused by organizational slack.