Does the Peer Pressure Position and Self-Statement Mechanisms Reduce Behavior to Create Budget Slacks? An Experimental Approach

Abstract

The budgeting system has historically played a role in management control. However, recently it has
become the subject of considerable criticism from researchers. Budgeting often results in dysfunctional
behavior, spending a lot of management time adapting in an uncertain environment. This study aims to
investigate dysfunctional behavior that is reflected in the creation of budgetary slack. Several previous studies
have considered budgetary slack due to pressure from the authorities, and subordinates have no choice to take
dysfunctional actions. We focus on mitigating or reducing budgetary slack through peer pressure and selfdisclosure mechanisms. One hundred and thirty-three master students volunteered to participate in the
experiment, with a 2x2x2 within-subject design. In this paper, we present experimental findings that provide
evidence that managers who are instructed to create budgetary slack can be reduced through peer pressure
mechanisms and self-statements. Managers who obey the leadership's orders to create budgetary slack tend to
be lower when signing self-statements than managers who do not sign self-statements. Another evidence is that
budgetary slack can be minimized by peer pressure, and peer pressure interactions can reduce compliance
pressure and budgetary slack. Peer pressure and self-statement mechanisms have been shown to moderate the
relationship between compliance pressure and budgetary slack. These findings suggest that social norm theory
can explain that the dysfunctional or opportunistic behavior of managers during the budgeting process can be
controlled by peer pressure mechanisms and self-statements. Therefore, companies need to pay more attention
to peer pressure and self-statement as management control tools, especially regarding budgeting.