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

Abstract Propensity to create slack may be influenced by the subordinates 'reactions to budgetary participation. Prior research indicates that subordinates react favourably to high budgetary participation when it serves some useful purposes for them. Participation may be useful to them in a low information asymmetry situation, when they do not have more information than their superiors, because it enables them to gain from an exchange of information with their superiors. It may also be useful to them in a high budget emphasis situation, when meeting budgeted targets is important, because it enables them to influence the levels of budget targets. Prospect theory suggests that subordinates who find participation useful may have a low propensity to create slack for fear of jeopardising their participation privileges. Hence, subordinates' propensity to create slack is likely to be low when high participation is allowed in a low information asymmetry situation. When information asymmetry is high, propensity to create slack is also likely to be low when high participation is allowed in a high budget emphasis situation. The results, based on a sample of 103 manufacturing managers, provide support for these expectations.