A contribution to our understanding of the psychological effects underlying the budgeting process and its outcomes

Budgeting plays an important role in organizations as it is the cornerstone of the majority of management control systems. It refers to both the budget as a set of numbers and the budgeting process, which refers to an interactive process in which future activities and deliverables are translated into quantitative, financial terms. Given its central role in organizations, much research effort has been devoted to budgeting in general and its functioning as a motivation and performance evaluation tool in particular. Despite the vast amount of research, some loose ends remain. How budgeting can exactly motivate employees is still a black box. This dissertation aims to open this black box by clarifying the psychological mechanisms underlying the budgeting process and its outcomes. In particular, we focus on budget participation and budgetary slack. After all, organizations spend large amounts of money in attempts to ‘make their budgeting process work’ and manage the amount of slack created within this process. A better understanding of budget participation’s motivational effects and budgetary slack’s antecedents will be useful for efficient resource allocation. The first study explores how and when budget participation motivates managers to work toward budget attainment. The findings of prior research regarding the relationship between budget participation and budget motivation are inconsistent. We untangle these mixed effects by providing evidence of diverse forms of budget participation and multiple types of budget motivation. We also shed light on the role of basic psychological need satisfaction as the underlying mechanism in the participation-motivation relationship. Moreover, we identify three boundary conditions that add to the complexity of budget participation for motivational purposes: true participation, participation congruence, and strategic alignment. As such, we enrich prior budgeting studies that implicitly ignored the existence of multiple forms of budget participation and types of budget motivation. Given our focus on budgeting as a motivation-tool, it is also important to examine budgetary slack. Inspired by the results from the first study that illustrated the importance of strategy in a budgeting context, we examine in our second study the relationship between participation in strategic planning and budgetary slack. Building on self-determination and organizational commitment theory, we develop a model and gather data through a survey. This