Research On The Cause Of Budgetary Slack And Case Study

Since the1920s, after its application in some enterprises in the west and the success it achieved, budget management has been rapidly promoted and widely applied. Once serving as a planning or coordinating procedure, budget management has now developed into an integrated management approach with functions of control, evaluation, incentives and so on. However, a large number of practices show that there exist some problems in budget management, among which is budgetary slack. Budgetary slack will cause of dislocation of enterprise resources, inaccuracy of performance appraisal, low efficiency of business management and other problems. Therefore, budgetary slack has been a hot issue in academic research since the concept was raised. However, researches on such issues as "how does budgetary slack emerge" and "what measures can we adopt to effectively overcome budgetary slack" are still very limited and no conclusion have been drawn so far.In order to clarify the formation mechanism of budgetary slack, the author, from the perspective of theoretical integration, builds a model of budgetary slack formation mechanism by employing the behavioral science theory, principal-agent theory and the game theory. According to this model, the individual’s internal needs and external environment are incentives for the generation of budgetary slack motives. These motives, however, do not necessarily cause the budgetary slack to happen. It is the game results between budge executors and managers that eventually turn the budgetary slack motives into actual behaviors. Meanwhile, the author employs this model to explain the contradictory conclusions in previous studies. In case study, the author adopts the method of field research to analyze the reasons of budgetary slack existing in parent-subsidiary companies. The study shows that, when the external environment is relatively uncertainty, internal needs of subsidiary company to create budgetary slack will be strengthened. Under this circumstances, if the incentive mechanism is not effective enough, budgetary slack will emerge.