Do fairness perceptions of scarce resource allocation decisions influence managers' budgeting behaviors? A test of organizational justice theory

The primary purpose of this study is to investigate the impact of organizational justice on the budgetary participation-performance relationship. The effect of organizational justice on budgetary slack and budget satisfaction, and the relationship between budgetary slack and information asymmetry are also examined. A field methodology is employed in which survivors of aggressive budget cuts and downsizing in a large urban hospital are surveyed to test the proposed hypotheses.;This research provides evidence that perceptions of organizational justice mediate the budgetary participation-performance relationship. Specifically, the results suggest that managers' perceptions of fairness increase when they participate in the budgeting process. Furthermore, managers who hold favorable perceptions of organizational justice tend to outperform managers who hold unfavorable perceptions of fairness. Regarding budgetary slack, the results suggest that the inclusion of slack into efficiency targets is negatively related to perceptions of fairness, but positively related to information asymmetry between superiors and subordinates. Evidence toward the development of a more refined measure of budgetary slack is also provided. Finally, results of this study demonstrate that prior findings from the organizational justice field (e.g., the fair process effect and the relationship between distributive justice perceptions and the formation of attitudes toward personal level outcomes) hold in a budgeting domain.;Overall, this study provides numerous contributions to the budgeting literature. Prior research regarding the impact of budgetary participation on performance has produced mixed results. The findings in this study increase our understanding of the budgetary participation-performance relationship by demonstrating that perceptions of fairness significantly influence budgeting behaviors during downsizing. Specifically, the evidence suggests that employee involvement in the budgeting process fosters a sense of fairness, which, in turn, significantly enhances performance. Additional contributions include the use of a field approach with service sector managers, the further extension of organizational justice research into a budgeting domain, and the refinement of a measure of budgetary slack. Finally, the issues investigated in this study are of practical relevance to managers involved in scarce resource allocation decisions.