The revival of zero‐based budgeting: drivers and consequences of firm‐level adoptions

Rodney Coyte, Martin Messner and Shan Zhou

Accounting and Finance, 2022, vol. 62, issue 3, 3147-3188

Abstract: The paper examines the recent revival of zero‐based budgeting (ZBB) in the US. Using archival data, we show that the renewed interest in ZBB was linked to the activities of a hedge fund, 3G Capital, which introduced the practice in newly acquired firms. Other firms picked up the practice, particularly so in some industries, and justified adoption mainly on the basis of expected cost savings. In addition, we show that these adopting firms were smaller than non‐adopters, suggesting that less complexity favours adoption. We also find some evidence that they were more strongly leveraged than non‐adopters, suggesting a cost discipline effect of debt financing. However, in terms of the consequences of adoption, we do not find evidence for significant cost savings in adopting firms overall, although we find some evidence of significant cost savings among those firms referencing 3G in their SEC filings.

Date: 2022
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