Flexible Budgeting under Uncertainty: A Real Options Perspective

Bo-Göran Ekholm (bo-goran.ekholm@hanken.fi) and Jan Wallin (jan.wallin@hanken.fi)
Additional contact information
Bo-Göran Ekholm: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland
Jan Wallin: Swedish School of Economics and Business Administration, Postal: Handelsesplanaden 2, P.O.B. 287; FIN 65101 Vaasa, Finland

No 520, Working Papers from Hanken School of Economics

Abstract: This paper examines the relationships between uncertainty and the perceived usefulness of traditional annual budgets versus flexible budgets in 95 Swedish companies. We form hypotheses that the perceived usefulness of the annual budgets as well as the attitudes to more flexible budget alternatives are influenced by the uncertainty that the companies face. Our study distinguishes between two separate kinds of uncertainty: exogenous stochastic uncertainty (deriving from the firm’s environment) and endogenous deterministic uncertainty (caused by the strategic choices made by the firm itself). Based on a structural equations modelling analysis of data from a mail survey we found that the more accentuated exogenous uncertainty a company faces, the more accentuated is the expected trend towards flexibility in the budget system, and vice versa; the more endogenous uncertainty they face, the more negative are their attitudes towards budget flexibility. We also found that these relationships were not present with regard to the attitudes towards the usefulness of the annual budget. Noteworthy is, however, that there was a significant negative relationship between the perceived usefulness of the annual budget and budget flexibility. Thus, our results seem to indicate that the degree of flexibility in the budget system is influenced by both general attitudes towards the usefulness of traditional budgets and by the actual degree of exogenous uncertainty a company faces and by the strategy that it executes.

Keywords: Budget criticism; flexible budgets; uncertainty; real options reasoning; structural equations modelling (search for similar items in EconPapers)
Pages: 17 pages
Date: 2006-11-09
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://brunnen.shh.fi/portals/pubmanager/pdf/520-951-555-930-8.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to brunnen.shh.fi:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhb:hanken:0520

Access Statistics for this paper

More papers in Working Papers from Hanken School of Economics Hanken School of Economics, Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Staffan Dellringer (staffan.dellringer@hanken.fi this e-mail address is bad, please contact repec@repec.org).