The effect of the budget slack creation and budget internal control by managers on maximization of utility function in budgetary participation

Document Type : Original Article


1 Faculty of Accounting group, Tarbiat Modares University, Tehran, Iran

2 MSc. Student of Accounting, Tarbiat Modares University, Tehran, Iran


When evaluating of the senior manager’s performance is based on the achieving to budget and they have responsibility to report the capacity of resources which are in their part too; it is possible to create budget slack and effect on their performance evaluation by providing pessimistic and conservatively estimates or manipulated information of income and expenses. So, Senior Manager and Budget Manager try to maximize their utility by using of budget slack tools and internal control system, respectively. The aim of this study is to investigate the effect of budget slack creation and budget internal control by managers on their utility by means of game theory. Hypotheses were tested by panel data of financial statements and Manager’s ethical attitude of 56 manufacturing company of Tehran Stock Exchange between 2011 and 2015. The main and subs hypothesis were analysis, by best response function method and Mann-Whitney test. Base on the results, if the internal control of budget is weak, the strategy of budget slack creation by senior manager would maximize his utility. Also, if the senior manager looking for create the budget slack, the strategy of budget internal control by budget manager would maximize his utility. Otherwise, the mentioned strategies have no significant effects on their utility.


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