The use of a single budget or separate budgets for planning and performance evaluation

Markus Arnold and Martin Artz

Accounting, Organizations and Society, 2019, vol. 73, issue C, 50-67

Abstract: Budgeting has different functions in the firm that are not necessarily congruent with each other but conflict. In many firms, budgets are simultaneously used for both operative planning and performance evaluation. Although prior literature recommends using different budget levels for different purposes to resolve potential conflicts between these functions, empirical evidence indicates that most firms use a single budget level for planning and performance evaluation. To examine the questions of whether and why firms do so, we analyze potential costs emerging from these budgeting conflicts. We suggest that firms trade off these costs against the behavioral costs of reduced credibility when the performance evaluation budget deviates from the planning budget. We test our hypotheses using survey data from management accounting executives and find evidence for the predicted trade-offs. Moreover, we find that using a single budget level for both purposes at the beginning of the year does not imply using a single budget level at the end of the year as firms often adjust budgets differently for planning and performance evaluation. Our study contributes to the literature by reconciling discrepancies between descriptive empirical practice and recommendations from prior literature about the use of a single versus separate budgets for multiple purposes.

Keywords: Budgeting; Budget functions; Budget levels; Planning; Performance evaluation; Target setting (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0361368218303234
Full text for ScienceDirect subscribers only

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:eee:aosoci:v:73:y:2019:i:c:p:50-67

DOI: 10.1016/j.aos.2018.06.001

Access Statistics for this article

Accounting, Organizations and Society is currently edited by Christopher Chapman

More articles in Accounting, Organizations and Society from Elsevier
Bibliographic data for series maintained by Catherine Liu ().