Budgetary Slack, Information Asymmetry, Budgetary Participation & Budget Emphasis.

The influence of information asymmetry and budget emphasis on the relationship between participation and slack.

Chong M. Lau and Ian R. C. Eggleton*

Presenter: Soumitra kundu

Introduction
Budgetary slack -when the people involved in creating a budget deliberately under-estimate the amount of revenue to be generated, or over-estimate the amount of expenses during the budget period.
Three crucial predictor variable of Slack
Information Asymmetry: one party has more or better information than the other.
Budget Emphasis Meeting budget goal target Reward
Participation an opportunity of budget holders to participate in setting their own budgets.



Theory development
Prior studies have theorized that budgetary participation, information
asymmetryand budget emphasis are three important predictor variables which may
influence the subordinates' propensity to create slack but empirical results remain
unclear.
Dunk (1993) tried to resolve—by three predictor variables into a single model
High budgetary participation is associated with slack creation.
High information asymmetry is associated with slack creation.
High budget emphasis provides the motive to create slack.
None of these hypotheses were supported by his results.
Prospect theory (Kahnemanand Tversky, 1979) find that high budgetary
participation,are likely to be discouraged from slack creation activities.
And
propensity to create slack is likely to be low when high participation is allowed in a
high budget emphasis situation. (Hopwood, 1972 & Lau et al., 1995)

Thisstudy,whichadoptedacontingencyapproach,thattherelationshipbetweenbudgetaryparticipationandthesubordinatespropensitytocreateslackismoderatedbyinformationasymmetryandbugetemphasis.Itisbasedontheassumptionofself-interestservingindividuals.

Thanks

Slack
1.Information Asymmetry
2.Budget Emphasis
3.Participation