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

Author: ZhuBo
Tutor: MaoHongTao
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Information asymmetry Budget moral Reputation Mechanism Budgetary slack
CLC: F275
Type: Master's thesis
Year: 2010
Downloads: 353
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Abstract

Budget management as a modern enterprise an effective management tool in the actual operation of the Chinese and foreign enterprises have been widely used. Although, from the 1950s onwards, budget management methods constantly being practical criticism, and at the same time by the result of the impact of the \But so far, the budget management method not only still widely used in practice, and increasing the scope of its application. Promote the application and implementation of budget management process, also found that many of the pressing problem, one of which is budgetary slack. Motivation to successfully solve the budget the relaxation problem must explore the root causes of budgetary slack caused that budgetary slack behavior, found that the behavior of budgetary slack motivation through improved budgetary mechanisms to curb budgetary slack and improve organizational performance. In this paper, experimental research methods experimenters design experiments scenes control study variables, observed relaxation behavior test object budget, and to explore the behavior of budgetary slack motives law. From agency theory and psychological theory perspective to explore the behavior of budgetary slack motivation Motivation new theoretical foundation for building budget relaxation behavior. In this paper, the research methods of the laboratory experiments, combined with questionnaires simulation environment under the observation of human behavior, found to cause the budget mechanism of relaxation behavior. By design many experimental aspects of the experimental process control, critical control points on the experimental data, collected through statistical software to analyze these data to identify the internal relations of the data found that the basic motivation of the budget relaxation behavior. This paper is divided into five sections: Chapter I: Introduction. By analyzing the budget management of domestic and foreign enterprises to carry out its problems, and leads to the background of this study, the significance of this study. Also explained the present study, the main research methods, to build the basic structure of the framework to clear theoretical contribution of this study and practical contribution. Chapter II: the budgetary slack at home and abroad to study literature review. This part of the main dynamic relaxation behavior from the budget due to the angle of the domestic and foreign budgetary slack Research review and comment on comparative analysis of the differences in budget relaxation studies at home and abroad, found our budget relaxation research gaps. Chapter III: the budget the relaxation theory research analysis. Evaluation of the budgetary slack budgetary slack conceptual evolution of different periods and different scholars have different understanding of the behavior of budgetary slack budgetary slack in the research and development process, this chapter has combed clear article defines the concept and budget relaxation behavior . Then use the principal-agent theory and psychological theories were elaborated information asymmetric and reputation mechanisms, budget moral mechanism of suppression of the relaxation behavior of the budget and its mechanism of action. Chapter IV: the budgetary slack experimental study analysis. This chapter begins to deduce from agency theory and psychological theory of asymmetric information and reputation mechanisms, budget moral hypotheses on the mechanism of the effects of budgetary slack, and then according to this article experimental design of the research hypotheses. The main the introduced experimental design process, steps, questionnaires and their experimental data acquisition process. Through the recovery of experimental data, analysis and data preprocessing, weed out invalid data and extreme values, and then do statistical analysis of the experimental data, including the correlation test, T-test and regression analysis, the results of the final report of the experimental data obtained The conclusions of this study. Chapter 5: policy advice, research limitations and future research prospects. Through the experimental results, the combination the budget slack theoretical background of the research results explain the inherent law to find the relaxation behavior of the budget and policy proposals put forward on this basis, in line with our budget management practice. Combined with the difficulties and problems encountered in the process of this experimental study, the analysis of the limitations of the experimental study, the direction of future research in the field of development. In this study, based on agency theory and psychology theory to examine the information asymmetry, budget moral reputation mechanisms, risk preferences and factors such as the impact of budgetary slack, especially ethics, reputation, and risk of the introduction of the non-monetary factors, expansion of budget relaxation theory research literature. By the introduction of non-monetary factors, this study can explain more budgetary slack differences, and provide a new vision for the future of research in this field. In this study, by examining the information asymmetry budgetary slack, inhibit the the budgetary slack phenomenon of the most essential factors to participate in the process of budget management reputation and its moral concern, the discovery of this article is an innovative field of budgetary slack literature contribution. These people from budget management to participate in non-material factors is an important factor in the self-interested behavior control budgetary slack. On the level of a large number of previous experimental research literature found budgeting people in the relaxation-oriented compensation plan does not budget line selection to maximize personal interests, but maintained a relatively low level of budgetary slack, while this article found that the more reasonable interpretation of the reason, it is budgeting control factors. Arrow (1985) observed in the company's management practices, superior to subordinate budget completion incentive rather than a form of currency, and also in company-wide recognition or social rewards in the form of informed criticism. The conclusions of this study to further verify the reputation of the persons involved in budget management practice moral concern is the internal mechanism to control the behavior of individual opportunism. This study confirmed the effectiveness of internal control mechanisms such as reputation and moral self-interested behavior of individuals. In this study, by way of the open-ended questionnaire measuring budget involved in the person's reputation and moral concern, and to prove the amount of slack and relaxation-oriented compensation plan under budget was a significant negative correlation relationship. The experimental proof subordinates reputation attention and moral concern significant negative correlation between the budget amount of slack in the subordinate. When The superior monitoring subordinate relaxation behavior of managers in the budget with less information, reputational concerns and moral concerns also able to inhibit the degree of budgetary slack subordinates, regardless of social regulation intrapersonal adjustment factors are able to restrain budget relaxation behavior the role, and not on the degree of information asymmetry between different levels change, inconsistent and Stevens (2002) concluded. The reason, we think it is mainly due to the \It is because of this focus on the construction of their own reputation, the behavior of the employees in the enterprise is serious about your boss or colleagues, subordinate reputation for the same degree of concern in the high information asymmetry conditions relaxation behavior can be suppressed under the budget of their own views. That this new discovery, and also happens to be consistent with the culture of our country. The reputation factor social pressures of the conclusions and Young (1985) concluded that, because of the reputation of the subordinate concerned about the social pressure is on the lower level, thus inhibiting the relaxation behavior of subordinates budget. Evans et al (2001) found that the budget participants often at the expense of their own personal interests to make a the honest production capacity report, this is the honest pursuit of budgetary participation is also an internal control mechanism, moral conclusions to its conclusion consistent. The main contribution of this paper: First, domestic academia uncommon budget ethics, budget culture, budget reputation with budget slack relationship, only few literature is mainly based on the theoretical analysis of the specification, this paper is the first attempt budget moral budget reputation quantify the variables, the budgetary slack relations budget moral budget reputation variables the empirical testing. Second, the domestic budget relaxation behavior moving due mainly related to the theoretical basis of the study of empirical research agency theory and contingency theory, and of a late start, and still do not have a more in-depth study. Budgetary slack published empirical studies on only five, and the study of the application of theories mainly focus on the basis of earlier studies abroad, there is a big gap with the international mainstream theory and research methods. The theoretical basis of this article is the agency theory and psychological theory, which is the international forefront of academic research, this article pointed out the direction of future budgetary slack research. Finally, not only in theory, a forward-looking, and budget management practices provide a lot of valuable find a theoretical basis for the the budget slack problem exists in the budget management practices in Chinese enterprises, and also to study the inhibition of budgetary slack mechanism, to improve organizational performance. Our current theory still remain in the budget relaxation studies abroad early on the level of awareness of the theoretical basis is relatively simple, but with the continuous development of China's economy and society, there is a growing spiritually satisfying, and therefore in the enterprise management process must be fully taken into account employees' mental requirements. Also in the budget management process, you need to fully absorb the theoretical knowledge of organizational behavior and social psychology, to establish harmonious budget culture to inspire staff enthusiasm and initiative. This is what this article intends found through experiments, this paper hopes to provide policy advice to the practical. Limitations: Although this experimental study was expected conclusions of this article, but the experimental procedures, or there are some limitations. For the experimental implementation of strict control, the selected subjects in this paper is a student at the school, school students, after all, did not practice so profound understanding of budget management, research findings and practice still lags far behind, future studies should be used on-site research methods. In addition, although the relaxation-oriented compensation plan allows subordinates slack budgeting ideas, but this pay contract form is not necessarily the optimal form of contract, this article is based on the completion of the previous literature, experimental material. In this study, the use of a higher level managers to control the degree of information asymmetry between the upper and lower levels of the lower levels of production capacity unknowable This situation, however, may not be set up in the actual production environment sometimes, this is precisely the biggest difference with the field studies of experimental study .

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