An Empirical Study On Capital Budgetary Enforce Slack Based On Agency Theory

Budget management as an efficient management tool, has been employed in many companies. With the budget management has been more deeply employed, some urgent questions have been given birth to. Budgetary slack has been singled out as one of the primary unsolved problems in budgeting. As a part of full budgeting, capital budget has budgetary slack, too.Creating budgetary slack refers to the practice of underestimating revenues, overestimating costs, or underestimating performance capabilities in order to make budgeted targets more easily achievable (Mann, 1988). In fact we cannot ignore the bad effect of budgetary slack. Budgetary slack represents inefficiency and managerial self-interest which detracts from the value of the firm (Leibenstein,1966;Williamson,1964). People who think budgetary slack is bad , think budgetary slack can increase exchange cost in corporation,erode resource and reduce operation efficiency. The worst is , it can develop employee'dishonesty behavior habit. Michael Jensen who had got the Nobel Prize thought this dishonesty behavior habit can destroy the believe basement in company, and hedge the long development of company.Because the bad side of budgetary slack, there are many theories about budgetary slack. These theories are focus on management and making budgetary, but, whether slack exists in the process of capital budgetary enforce? We call the slack in the process of capital budgetary enforce as capital budgetary enforce slack. Capital budgetary enforce slack is the opportunism of enforce capital budgetary. We should test whether capital budgetary enforce slack is exist, and which factors affect capital budgetary enforce slack.This paper take studies sample as listed company of manufacturing firms in China from 2003 to 2006. Using Shin & Kim(2002)'s define of Capital budgetary enforce slack ,and multi regression analyses to inspect whether Capital budgetary enforce slack is exist in listed company and which factors affect capital budgetary enforce slack.The findings indicates, the behavior of capital budgetary enforce slack is prevalent in companies, but not serious. The agency theory can explain capital budgetary enforce slack, the higher the cost of agency, the more serious the capital budgetary enforce slack. Cash flows,Changes in cash holding and Sales growth can affect capital budgetary enforce slack, too.