The Effect Of Employee Ethical Ideology On Organizational Budget Slack: An Empirical Examination And Practical Discussion

Abstract

Budget slack costs institutions money because there is a misallocation of assets.  Therefore, organizations have a vested interest in hiring managers who do not have a propensity toward creating slack. Budget slack results when managers intentionally include more organizational resources in the budget than they anticipate needing (or when they understate revenue-producing activities).  Extensive time and effort is invested into a company's budgeting process.  The budget is often the primary point of financial control over the distribution of organizational resources (i.e., time, money, and materials).  Prior research in business ethics has attempted to explain and predict when a manager will engage in this behavior, examining antecedents such as budget participation, cultural differences, and reward systems.  The current paper expands on previous studies and examines the influence of individual ethical factors.  Specifically, the influence of an individual’s ethical ideology is examined in relationship to their propensity to create budget slack.