Information Asymmetry, Moral Hazard And Budgetary Slack--An Experimental Study

As an effective modern enterprise management tool, budget management has been widely used in Chinese and foreign enterprises. However, we found a number of problems to solve in the application and implementation of budget management, one of which is budgetary slack. To successfully solve it, we must explore the causes of budgetary slack to curb the budgetary slack behavior and achieve organizational performance by improving the budgetary mechanism.This article investigates the causes of budgetary slack from the perspective of agency theory and psychological theory and builds a new theoretical basis. In this paper, we observe the behavior of human in the simulated environment using the laboratory research methods, combined with surveys and other means, and find the mechanism of budgetary slack behavior.This paper is divided into five parts:ChapterⅠ:Introduction. By analyzing the status of budget management to carry out by practitioners at home and abroad and its problems, it elicits the background of this paper and introduces the importance of this study. It also describes the main research method, has set up a basic framework, gives a clear theoretical and practical contribution.ChapterⅡ:Literature review on the budgetary slack research. This chapter conducts a review and comment on the situation of budgetary slack research from the perspective of causes on budgetary slack, has a comparative analysis of differences in budgetary slack research at home and abroad, and finds our research gap.ChapterⅢ:Theoretical analysis on budgetary slack. As different scholars have different understanding on budgetary slack in different periods, this chapter clarifies the evolution of the concept of budgetary slack, gives a clear definition and evaluation of budgetary slack. Then it elaborates how information asymmetry, reputation and budget ethics influence the budgetary slack behavior using principal-agent theory and psychological theory.ChapterⅣ: Experimental study on budgetary slack. This chapter deduces the hypothesis that information asymmetry, reputation and ethics mechanisms have the impact of budgetary slack based on agency theory and psychological theory, and then designs the research experiment. It introduces the experimental design process, steps, questionnaire distribution and experimental data acquisition process. We recover experimental data, and pre-process these data, weed out invalid data and extreme values, and then do statistical analysis of the experimental data, including related tests, T tests and regression analysis, and finally report the results of the experimental data.ChapterⅤ:policy advice, research limitations and future research prospects. This chapter explains the empirical results from the theoretical background of budgetary slack research, finds the inherent laws of budgetary slack behavior, and proposes the policy recommendations in line with budget management practices in China. It also analyses the limitations of this experimental study based on the difficulties and problems encountered in the research process, and proposes the direction of future research on budgetary slack.This study confirms that reputation and ethics can be the effective internal mechanisms that control individual self-interested behavior. Experiment proves reputation and ethics concern of subordinate have a significant negative correlation with amount of budgetary slack. Reputation and ethics concern of subordinate can also restrain the degree of budgetary slack when the superior managers have less information to monitor the slack behavior of subordinates in the budgeting. So whether the intrinsic social adjustment or personal adjustment factors are able to restrain the behavior of budgetary slack, and will not change with the degree of information asymmetry between upper and lower levers. This conclusion is inconsistent with Stevens (2002). We think it is reason that the Chinese "face" thought is much more serious than westerners, so it is also taken to the experimental environment by participants. Evans et al (2001) found that budgetary participants are often make an honest report on capacity at the expense of their personal interests, which is the pursuit of honest, but also an inherent control mechanism. This conclusion is consistent with its.Main contribution of this paper:First of all, this is the first attempt to quantify budget ethics and reputation and other variables, and then test the relationship between them and budgetary slack.Secondly, the domestic empirical research about budgetary slack is based on agency theory and contingency theory. It began rather late and there are no more in-depth study. This paper is based on agency theory and psychological theory, which is the forefront of international academic research. This article indicates the direction of future research on China's budgetary slack.Finally, this paper is not only forward-looking in theory, but provides a lot of reference value for the budget management practices for Chinese enterprises. We find the theoretical basis of budget problems in Chinese enterprises. Meanwhile it discovers inhibition mechanism of budgetary slack in order to improve organizational performance.The limitations of this article:In order to control the process of experiment strictly, this paper chooses the Master students as the experimental subject. But after all students no practical experience have less profound understanding of budget management than practitioners. So its findings lags behind practice somewhat.In addition, although this slack-oriented compensation plan allows the idea of preparing the budgetary slack, it is not necessarily the optimal form of contract. In this study, we control the information asymmetry between the upper and lower levels with upper's knowledge of subordinate's capacity. But sometimes it may not be set up in the actual production environment. This is the greatest difference between experimental study and field study.