Experimental Study Of Budget Planning Method,Performance Assessment Method, And Fat Tail Of Budget Execution

Being a method of management and control, budget has played an important role in corporate management and has been widely spread for decades since1920s. With the introduction of management accounting theories from western countries, the concept of budget management has been accepted by Chinese enterprises. Furthermore, the scope of the concept has been enlarged, from the single node of budget planning to a whole process, which also includes budget implementation, feedback, adjustment, evaluation and assessment. In the mean time, the academic theory of budget management was also fruitful along with the development in practice.The objective of this paper is to discuss budgetary slack and try to seek for the reason that cause the common phenomena of fat tail of budget execution in Chinese society, thereby providing theoretical support for improvement and rectification in budget management.This study is based on experimental research. Through the setting of experimental condition and the control of research variables, we try to observe the different behaviors among the subjects. In this paper, we investigate the impact of budget planning and performance assessment on fat tail of budget execution.We find that the method of budget planning and performance assessment both have significant association with fat tail of budget execution, while the performance assessment method has a more significant association with fat tail of budget execution. More specifically, fat tail of budget execution is significantly higher when we using base budgeting approach in budget planning than using zero-base budgeting. And fat tail of budget execution is significantly higher when the method of performance assessment is truth-inducing than slack-inducing.The additional experiment exams the impact of incentive range on fat tail of budget execution. The results indicate that incentive range has a moderating effect on the association between performance assessment method and fat tail of budget execution. Under the slack-inducing pay scheme, the increase of reward range will lead to a decrease of fat tail of budget execution; while under the truth-inducing pay scheme, the increase of punishment range will lead to an increase of fat tail of budget execution.