Research On Managerial Risk Preference And Budgetary Slack

As the important part of China’s national economy, state-owned manufacturing listed companies’development directly influences the performance of our national economy—whether the national economy can achieve an efficient, sustainable and stable development somewhat depends on it. Recent years, there are many problems existing in the process of its development, particularly issues like the company’s internal management and its corporate management, which are certainly will hinder the development of the manufacturing sector in the future. Budget management is major way of prompting companies to complete their business plan and to achieve business objectives, so that the authenticity of its formulation and the effectiveness of its implementation is of vital importance. However, there are many managers in the state-owned manufacturing listed companies, who intentionally overestimated the company’s cost or the materials needed and underestimate corporate income or productive capacity while they are making budgets in order to easily reach the budget target and gain an profit for themselves. As a consequence, the problem of budget slack shows itself. The function of budget to forecast and plan business operations and financial results has also been weakened. Then, how does the budget slack problem come into being? Whether does this have some relevance to the idiosyncrasies of managers? Will managers’risk style preference have a certain impact on the corporate budget? These problems have caused widespread concern among academics and managers. Based on the analysis above, this paper will examine the impact of the risk preference style of managers from state-owned manufacturing listed companies on budget slack, so as to solve the problem of budget slack in corporate budget management and to provide some reference for a reasonable scientific development of state-owned manufacturing sector.The study of this thesis is divided into five parts. The first part is an introduction, which is mainly an elaboration of the research background, significance and methods. And it proposes innovative points and features of this thesis. The second part consists of two aspects:definition of the concept and analysis of relevant basic theory. The second part first defines the concept relevant to risk preference and budget slack, followed by further analysis of the basic theory-principal-agent theory, contingency theory, behavioral theory, expected utility theory, risk preference combinatorial theory. The third part is theoretical analysis. It first analyzes effect factors of managerial risk preference and the causes of budget slack, and then proposes hypotheses the relationship of managers’risk preference and budget slack. The fourth part is empirical analysis section. First, it elaborates on the data source and samples selecting. Next, it selects indicators and builds principal component analysis. The final part attempts to determine the explanatory variables and the explained variables and to build a multiple regression model. The empirical study results show that:first, there is a significant negative correlation between the risk preference of managers from s state-owned manufacturing listed companies and budget slack; second, there is a significant positive correlation between the change of risk preference and budget slack in state-owned manufacturing firms. The fifth part is conclusions and policy recommendations. It summarizes the conclusions of this thesis, puts forward relevant policy recommendations, explains the deficiencies of this study and proposes possibilities for future research.The innovation of this thesis lie in the following points:first, in terms of the research content, few previous studies have combined the study of budget slack and that of managers’idiosyncrasies. Then, with regards to the empirical research, the previous study of problems of budgetary slack has taken normative research and experimental research, relatively fewer cases employ empirical study method. In studying the managers’risk preference, this thesis examines the relevance between managers’risk preference and budget slack by using indicators which indicates the level of managers’risk preference and the company’s and building a comprehensive evaluation system of managers’risk preference through principal component analysis.