Budgeting, Psychological Contracts, and Budgetary Misreporting

Susanna Gallani (), Ranjani Krishnan (), Eric J. Marinich () and Michael D. Shields ()
Additional contact information
Susanna Gallani: Harvard Business School, Accounting and Management Unit
Ranjani Krishnan: Eli Broad School of Management, Michigan State University
Eric J. Marinich: Miami University
Michael D. Shields: Michigan State University

No 16-017, Harvard Business School Working Papers from Harvard Business School

Abstract: This study examines the effect of psychological contract breach on budgetary misreporting. Psychological contracts are mental models or schemas that govern how employees understand their exchange relationships with their employers. Psychological contract breach leads to feelings of violation and can occur even when employees' economic contracts are fulfilled. We study the effects of psychological contract breach on three common types of employee participation in budgeting that differ in the degree of employees' influence over their approved budgets. These include affirmative budgeting (full influence), consultative budgeting (moderate influence), and authoritative budgeting (low influence). When organizations communicate that employees will be involved in budgeting, employees develop psychological contracts of affirmative budgeting. If employees subsequently experience authoritative or consultative budgeting, their psychological contracts are breached. Employees who experience psychological contract breach seek redress through budgetary misreporting. Experimental results indicate that psychological contract breach partially mediates the relation between budgeting type and budgetary misreporting. Results also indicate asymmetry in the effects of psychological contract breach versus repair. Effects of breach on budgetary misreporting persist even after the breach no longer occurs.

Keywords: Psychological Contract; Budgeting; Misreporting (search for similar items in EconPapers)
JEL-codes: L14 M40 M41 M55 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2015-08, Revised 2018-01
New Economics Papers: this item is included in nep-cbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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