Article
The Effect of the Interaction of Peer Influence and Affect on Budgetary Slack*
Xin Geng,
Arron Scott Fleming, Alyssa S. J. Ong,
Corresponding Author
Xin Geng
Berry College
Corresponding author.
Search for more papers by this authorXin Geng,
Arron Scott Fleming, Alyssa S. J. Ong,
Corresponding Author
Xin Geng
Berry College
Corresponding author.
Search for more papers by this authorFirst published: 28 April 2025
*
Accepted by Leslie Berger. We would like to thank Pepperdine University and Berry College for the funding provided on this project. We would also like to thank Jeffery Larkin, David Aizenberg, and Kevin Rios for their research assistance.
ABSTRACT
enGiven the strong financial incentives embedded in participative budgeting, the creation of budgetary slack is prevalent and constant. Research has shown that peer influence is related to budgetary reporting. However, such an effect is likely to be moderated by other factors. We argue that the effect of peer influence on budgetary slack depends on budget-setters' affect. In an experiment where participants set budgets and work on production tasks, we find that positive affect leads to a greater decrease in budgetary slack under honest peer influence compared to negative affect—specifically, budget-setters create the least amount when they are in positive affect and peer influence is honest. We also find that participants' moral judgment and moral obligations are negatively associated with the amount of budgetary slack created.
RÉSUMÉ
frINTERACTION DE L'INFLUENCE DES PAIRS ET DE L'AFFECT SUR LA MARGE DE MANŒUVRE BUDGÉTAIRE
Compte tenu des importants incitatifs financiers associés à la gestion budgétaire participative, la création d'une marge de manœuvre budgétaire est prévalente et constante. La recherche a fait ressortir un lien entre l'influence des pairs et l'information budgétaire communiquée. Toutefois, un tel effet est susceptible d'être modéré par d'autres facteurs. Nous soutenons que l'effet de l'influence des pairs sur la marge de manœuvre budgétaire dépend de l'affect des responsables de l'établissement du budget. Dans le cadre d'une expérience où les participants établissent des budgets et accomplissent certaines tâches de production, nous montrons qu'en situation d'influence de pairs honnêtes, un affect positif entraîne une réduction plus importante de la marge de manœuvre budgétaire qu'un affect négatif — plus précisément, les responsables de l'établissement du budget dégagent une marge de manœuvre plus petite lorsque leur affect est positif et qu'ils subissent l'influence de pairs honnêtes. Nous établissons aussi que le jugement moral et les obligations morales des participants sont associés de façon négative à l'ampleur de la marge de manœuvre budgétaire dégagée.
Open Research
Data Availability Statement
Data are available upon request.
Supporting Information
| Filename | Description |
|---|---|
| apr12403-sup-0001-Appendix.docxWord 2007 document , 62.2 KB | Data S1. Supporting Information. |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
References
- Ajzen, I. (1991). The theory of planned behavior. Organizational Behavior and Human Decision Processes, 50(2), 179–211.
- Altenburger, M. (2017). The effect of injunctive social norms and dissent on budget reporting honesty. Journal of International Accounting Research, 16(2), 9–31.
- Altenburger, M. (2021). Mood and honesty in budget reporting. Management Accounting Research, 50, Article 100707.
- Badger, J., & Reddy, P. (2009). The effects of birth order on personality traits and feelings of academic sibling rivalry. Psychology Teaching Review, 15(1), 45–54.
10.53841/bpsptr.2009.15.1.45 Google Scholar
- Bagley, P. L. (2010). Negative affect: A consequence of multiple accountabilities in auditing. Auditing: A Journal of Practice & Theory, 29(2), 141–157.
- Barsky, N. P., & Morris, J. T. (2016). Corporate budgeting: Perceptions of a next generation of corporate leaders. Management Accounting Quarterly, 17(4), 1–10.
- Baumgartner, H., Sujan, M., & Bettman, J. R. (1992). Autobiographical memories, affect, and consumer information processing. Journal of Consumer Psychology, 1(1), 53–82.
10.1016/S1057-7408(08)80045-9 Google Scholar
- Beckjord, E. B., Finney Rutten, L. J., Arora, N. K., Moser, R. P., & Hesse, B. W. (2008). Information processing and negative affect: Evidence from the 2003 Health Information National Trends Survey. Health Psychology, 27(2), 249–257.
- Bhattacharjee, S., Moreno, K. K., & Riley, T. (2012). The interplay of interpersonal affect and source reliability on auditors' inventory judgments. Contemporary Accounting Research, 29(4), 1087–1108.
- Bicchieri, C. (2016). Norms in the wild: How to diagnose, measure, and change social norms. Oxford University Press.
- Blay, A., Douthit, J., & Fulmer, B., III. (2019). Why don't people lie? Negative affect intensity and preferences for honesty in budgetary reporting. Management Accounting Research, 42, 56–65.
- Blay, A. D., Gooden, E. S., Mellon, M. J., & Stevens, D. E. (2018). The usefulness of social norm theory in empirical business ethics research: A review and suggestions for future research. Journal of Business Ethics, 152(1), 191–206.
- Brehm, S., & Kassin, S. (1990). Social psychology. Houghton Mifflin.
- Brown, J. L., Evans, J. H., III, & Moser, D. V. (2009). Agency theory and participative budgeting experiments. Journal of Management Accounting Research, 21(1), 317–345.
10.2308/jmar.2009.21.1.317 Google Scholar
- Brunner, M., & Ostermaier, A. (2019). Peer influence on managerial honesty: The role of transparency and expectations. Journal of Business Ethics, 154, 127–145.
- Buckless, F. A., & Ravenscroft, S. P. (1990). Contrast coding: A refinement of ANOVA in behavioral analysis. The Accounting Review, 65(4), 933–945.
- Cardinaels, E., & Jia, Y. (2016). How audits moderate the effects of incentives and peer behavior on misreporting. European Accounting Review, 25(1), 183–204.
- Cardinaels, E., & Yin, H. (2015). Think twice before going for incentives: Social norms and the principal's decision on compensation contracts. Journal of Accounting Research, 53(5), 985–1015.
- Chong, V. K., Eggleton, I. R., & Leong, M. K. (2006). The multiple roles of participative budgeting on job performance. Advances in Accounting, 22, 67–95.
10.1016/S0882-6110(06)22004-2 Google Scholar
- Chung, J. O., Cohen, J. R., & Monroe, G. S. (2008). The effect of moods on auditors' inventory valuation decisions. Auditing: A Journal of Practice & Theory, 27(2), 137–159.
- Church, B. K., Hannan, R. L., & Kuang, X. J. (2012). Shared interest and honesty in budget reporting. Accounting, Organizations and Society, 37(3), 155–167.
- Cianci, A. M., & Bierstaker, J. L. (2009). The impact of positive and negative mood on the hypothesis generation and ethical judgments of auditors. Auditing: A Journal of Practice & Theory, 28(2), 119–144.
- Davis, S., DeZoort, F. T., & Kopp, L. S. (2006). The effect of obedience pressure and perceived responsibility on management accountants' creation of budgetary slack. Behavioral Research in Accounting, 18(1), 19–35.
10.2308/bria.2006.18.1.19 Google Scholar
- DeZoort, F. T., & Lord, A. T. (1997). A review and synthesis of pressure effects research in accounting. Journal of Accounting Literature, 16, 28–85.
- Douglas, P. C., & Wier, B. (2000). Integrating ethical dimensions into a model of budgetary slack creation. Journal of Business Ethics, 28(3), 267–277.
- Douthit, J. D., & Stevens, D. E. (2015). The robustness of honesty effects on budget proposals when the superior has rejection authority. The Accounting Review, 90(2), 467–493.
- Elliott, W. B., Jackson, K. E., Peecher, M. E., & White, B. J. (2014). The unintended effect of corporate social responsibility performance on investors' estimates of fundamental value. The Accounting Review, 89(1), 275–302.
- Evans, J. H., III, Hannan, R. L., Krishnan, R., & Moser, D. V. (2001). Honesty in managerial reporting. The Accounting Review, 76(4), 537–559.
- Farrell, A. M., Grenier, J. H., & Leiby, J. (2017). Scoundrels or stars? Theory and evidence on the quality of workers in online labor markets. The Accounting Review, 92(1), 93–114.
- Fiedler, K., Asbeck, J., & Nickel, S. (1991). Mood and constructive memory effects on social judgement. Cognition and Emotion, 5(5–6), 363–378.
- Forgas, J. P. (1995). Mood and judgment: The affect infusion model (AIM). Psychological Bulletin, 117(1), 39–66.
- Frederickson, J. R., & Cloyd, C. B. (1998). The effects of performance cues, subordinate susceptibility to social influences, and the nature of the subordinate's private information on budgetary slack. Advances in Accounting, 16(1), 89–115.
- Frijda, N. H. (1986). The emotions. Cambridge University Press.
- Gallani, S., Krishnan, R., Marinich, E. J., & Shields, M. D. (2019). Budgeting, psychological contracts, and budgetary misreporting. Management Science, 65(6), 2924–2945.
- Gaudine, A., & Thorne, L. (2001). Emotion and ethical decision-making in organizations. Journal of Business Ethics, 31(2), 175–187.
- Geng, X. (2021). The effects of perceived leader emotional intelligence and group prototypicality on subordinate whistleblowing intentions. Journal of Forensic Accounting Research, 6(1), 87–110.
10.2308/JFAR-19-037 Google Scholar
- Geng, X., & Fleming, A. S. (2021). Should I blow the whistle on my boss? An investigation of the effects of emotional intelligence and consequence framing on the subordinates' whistleblowing intentions. Journal of Forensic Accounting Research, 6(1), 291–312.
10.2308/JFAR-2019-508 Google Scholar
- Geng, X., & Kalargiros, M. (2022). Why does affect matter in accounting: A review of experimental studies on the effect of affect. Journal of Accounting Literature, 44(1), 1–39.
- Georganas, S., Tonin, M., & Vlassopoulos, M. (2015). Peer pressure and productivity: The role of observing and being observed. Journal of Economic Behavior and Organization, 117, 223–232.
- George, J. M. (2000). Emotions and leadership: The role of emotional intelligence. Human Relations, 53(8), 1027–1055.
- Goode, C., Balzarini, R. H., & Smith, H. J. (2014). Positive peer pressure: Priming member prototypicality can decrease undergraduate drinking. Journal of Applied Social Psychology, 44(8), 567–578.
- Grandey, A. A., Tam, A. P., & Brauburger, A. L. (2002). Affective states and traits in the workplace: Diary and survey data from young workers. Motivation and Emotion, 26(1), 31–55.
- Guggenmos, R. D., Piercey, M. D., & Agoglia, C. P. (2018). Custom contrast testing: Current trends and a new approach. The Accounting Review, 93(5), 223–244.
- Harmon-Jones, E., & Mills, J. (2019). An introduction to cognitive dissonance theory and an overview of current perspectives on the theory. In E. Harmon-Jones (Ed.), Cognitive dissonance: Reexamining a pivotal theory in psychology ( 2nd ed., pp. 3–24). American Psychological Association.
10.1037/0000135-001 Google Scholar
- Hartmann, F. G., & Maas, V. S. (2010). Why business unit controllers create budget slack: Involvement in management, social pressure, and Machiavellianism. Behavioral Research in Accounting, 22(2), 27–49.
10.2308/bria.2010.22.2.27 Google Scholar
- Hayes, M. J., & Reckers, P. M. J. (2020). The role of narcissistic hypocrisy in the development of accounting estimates. Contemporary Accounting Research, 37(2), 1199–1216.
- Heinle, M. S., Ross, N., & Saouma, R. E. (2014). A theory of participative budgeting. The Accounting Review, 89(3), 1025–1050.
- Hobson, J. L., Mellon, M. J., & Stevens, D. E. (2011). Determinants of moral judgments regarding budgetary slack: An experimental examination of pay scheme and personal values. Behavioral Research in Accounting, 23(1), 87–107.
10.2308/bria.2011.23.1.87 Google Scholar
- Holderness, D. K., Jr., Olsen, K. J., & Thornock, T. A. (2017). Who are you to tell me that?! The moderating effect of performance feedback source and psychological entitlement on individual performance. Journal of Management Accounting Research, 29(2), 33–46.
- Huddart, S. J., & Qu, H. (2013). Rotten apples and sterling examples: Moral reasoning and peer influences on honesty in managerial reporting. American Accounting Association (AAA) 2013 Management Accounting Section (MAS) Meeting Paper. https://doi.org/10.2139/ssrn.2133072
10.2139/ssrn.2133072 Google Scholar
- Hunt, N. C., & Scheetz, A. M. (2019). Using MTurk to distribute a survey or experiment: Methodological considerations. Journal of Information Systems, 33(1), 43–65.
- Isbell, L. M., Lair, E. C., & Rovenpor, D. R. (2013). Affect-as-information about processing styles: A cognitive malleability approach. Social and Personality Psychology Compass, 7(2), 93–114.
10.1111/spc3.12010 Google Scholar
- Isen, A. M., Daubman, K. A., & Nowicki, G. P. (1987). Positive affect facilitates creative problem solving. Journal of Personality and Social Psychology, 52(6), 1122–1131.
- Jefferson, T., Jr., Herbst, J. H., & McCrae, R. R. (1998). Associations between birth order and personality traits: Evidence from self-reports and observer ratings. Journal of Research in Personality, 32(4), 498–509.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
- Jex, S. M., Bachrach, D. G., & Sorenson, S. (2003). The impact of situational constraints, role stressors, and commitment on employee altruism. Journal of Occupational Health Psychology, 8(3), 171–180.
- Johnson, E. N., Lowe, D. J., & Reckers, P. M. J. (2016). The influence of mood on subordinates' ability to resist coercive pressure in public accounting. Contemporary Accounting Research, 33(1), 261–287.
- Junker, N. M., Häusser, J. A., Mojzisch, A., Theisges, L., & van Dick, R. (2024). Unholy alliances: When achievement norms and group identification negatively affect objective task performance and well-being. Group Processes & Intergroup Relations, 27(6), 1437–1451.
- Kaplan, S. E., Petersen, M. J., & Samuels, J. A. (2007). Effects of subordinate likeability and balanced scorecard format on performance-related judgments. Advances in Accounting, 23, 85–111.
10.1016/S0882-6110(07)23004-4 Google Scholar
- Kaplan, S. E., Pope, K. R., & Samuels, J. A. (2015). An examination of the effects of managerial procedural safeguards, managerial likeability, and type of fraudulent act on intentions to report fraud to a manager. Behavioral Research in Accounting, 27(2), 77–94.
- Kees, J., Berry, C., Burton, S., & Sheehan, K. (2017). An analysis of data quality: Professional panels, student subject pools, and Amazon's Mechanical Turk. Journal of Advertising, 46(1), 141–155.
- Keller, A. C., Smith, K. T., & Smith, L. M. (2007). Do gender, educational level, religiosity, and work experience affect the ethical decision-making of US accountants? Critical Perspectives on Accounting, 18(3), 299–314.
10.1016/j.cpa.2006.01.006 Google Scholar
- Kida, T. E., Moreno, K. K., & Smith, J. F. (2001). The influence of affect on managers' capital-budgeting decisions. Contemporary Accounting Research, 18(3), 477–494.
- Knowles, E. S., & Linn, J. A. (2004). Resistance and persuasion. Routledge.
10.4324/9781410609816 Google Scholar
- Kren, L. (2003). Effects of uncertainty, participation, and control system monitoring on the propensity to create budget slack and actual budget slack created. Advances in Management Accounting, 11, 143–167.
- Li, C., & Drake, A. (2023). Peer influence on managerial honesty: The moderating role of earnings position. Advances in Management Accounting, 34, 177–201.
10.1108/S1474-787120220000034007 Google Scholar
- Libby, T. (1999). The influence of voice and explanation on performance in a participative budgeting setting. Accounting, Organizations and Society, 24(2), 125–137.
- Libby, T. (2003). The effect of fairness in contracting on the creation of budgetary slack. Advances in Accounting Behavioral Research, 6, 145–169.
10.1016/S1474-7979(03)06007-1 Google Scholar
- Lord, A. T., & DeZoort, F. T. (2001). The impact of commitment and moral reasoning on auditors' responses to social influence pressure. Accounting, Organizations and Society, 26(3), 215–235.
- Lurie, Y. (2004). Humanizing business through emotions: On the role of emotions in ethics. Journal of Business Ethics, 49, 1–11.
- Maiga, A. S., & Jacobs, F. A. (2007). The moderating effect of manager's ethical judgment on the relationship between budget participation and budget slack. Advances in Accounting, 23, 113–145.
10.1016/S0882-6110(07)23005-6 Google Scholar
- Marini, V. A., & Kurtz, J. E. (2011). Birth order differences in normal personality traits: Perspectives from within and outside the family. Personality and Individual Differences, 51(8), 910–914.
- Mayer, J. D., & Salovey, P. (1997). What is emotional intelligence? In P Salovey & D Sluyter (Eds.), Emotional development and emotional intelligence: Implications for educators (pp. 3−31). Basic Books.
- Merchant, K. A. (1989). Rewarding results: Motivating profit center managers. Harvard Business School Press.
- Moreno, K., Kida, T., & Smith, J. F. (2002). The impact of affective reactions on risky decision making in accounting contexts. Journal of Accounting Research, 40(5), 1331–1349.
- Noval, L. J., & Stahl, G. K. (2017). Accounting for proscriptive and prescriptive morality in the workplace: The double-edged sword effect of mood on managerial ethical decision making. Journal of Business Ethics, 142, 589–602.
- Paulhus, D. L., Trapnell, P. D., & Chen, D. (1999). Birth order effects on personality and achievement within families. Psychological Science, 10(6), 482–488.
- Paz, M., Reichert, B. E., & Woods, A. (2014). How does peer honesty affect focal manager honesty in a budget reporting setting? Advances in Accounting Behavioral Research, 16, 85–114.
10.1108/S1475-1488(2013)0000016009 Google Scholar
- Pfau, M., Szabo, A., Anderson, J., Morrill, J., Zubric, J., & H-Wan, H. H. (2001). The role and impact of affect in the process of resistance to persuasion. Human Communication Research, 27(2), 216–252.
- Ponemon, L. A. (1992). Auditor underreporting of time and moral reasoning: An experimental lab study. Contemporary Accounting Research, 9(1), 171–189.
10.1111/j.1911-3846.1992.tb00875.x Google Scholar
- Rankin, F. W., Schwartz, S. T., & Young, R. A. (2008). The effect of honesty and superior authority on budget proposals. The Accounting Review, 83(4), 1083–1099.
- Rohrer, J. M., Egloff, B., & Schmukle, S. C. (2017). Probing birth-order effects on narrow traits using specification-curve analysis. Psychological Science, 28(12), 1821–1832.
- Rosenberg, T. (2013). Harnessing positive peer pressure to create altruism. Social Research: An International Quarterly, 80(2), 491–510.
10.1353/sor.2013.0019 Google Scholar
- Salterio, S. E., & Webb, A. (2006). Honesty in accounting and control: A discussion of “The effect of information systems on honesty in managerial reporting: A behavioral perspective.” Contemporary Accounting Research, 23(4), 919–932.
- Schatzberg, J. W., & Stevens, D. E. (2008). Public and private forms of opportunism within the organization: A joint examination of budget and effort behavior. Journal of Management Accounting Research, 20, 59–81.
10.2308/jmar.2008.20.1.59 Google Scholar
- Schwering, A. (2017). The influence of peer honesty and anonymity on managerial reporting. Journal of Business Economics, 87(9), 1151–1172.
10.1007/s11573-017-0861-9 Google Scholar
- Shields, J. F., & Shields, M. D. (1998). Antecedents of participative budgeting. Accounting, Organizations and Society, 23(1), 49–76.
- Shields, M. D., & Young, S. M. (1993). Antecedents and consequences of participative budgeting: Evidence on the effects of asymmetrical information. Journal of Management Accounting Research, 5, 265–280.
- Stevens, D. E. (2002). The effects of reputation and ethics on budgetary slack. Journal of Management Accounting Research, 14(1), 153–171.
10.2308/jmar.2002.14.1.153 Google Scholar
- Sulloway, F. J. (1996). Born to rebel: Birth order, family dynamics, and creative lives. Pantheon Books.
- Sulloway, F. J. (1999). Birth order. In M. Runco & S. Pritzker (Eds.), Encyclopedia of creativity (Vol. 1, pp. 189–202). Academic Press.
- Sulloway, F. J. (2001). Birth order, sibling competition, and human behavior. In H. R. Holcomb (Ed.), Conceptual challenges in evolutionary psychology (pp. 39–83). Springer.
10.1007/978-94-010-0618-7_3 Google Scholar
- Tayler, W. B., & Bloomfield, R. J. (2011). Norms, conformity, and controls. Journal of Accounting Research, 49(3), 753–790.
- Tice, D. M., Baumeister, R. F., Shmueli, D., & Muraven, M. (2007). Restoring the self: Positive affect helps improve self-regulation following ego depletion. Journal of Experimental Social Psychology, 43(3), 379–384.
- Tiedens, L. Z., & Linton, S. (2001). Judgment under emotional certainty and uncertainty: The effects of specific emotions on information processing. Journal of Personality and Social Psychology, 81(6), 973–988.
- Trevino, L. K., Weaver, G. R., & Reynolds, S. J. (2006). Behavioral ethics in organizations: A review. Journal of Management, 32(6), 951–990.
- Tucker, B. P. (2019). Heard it through the grapevine: Conceptualizing informal control through the lens of social network theory. Journal of Management Accounting Research, 31(1), 219–245.
- Watson, D., Clark, L. A., & Carey, G. (1988). Positive and negative affectivity and their relation to anxiety and depressive disorders. Journal of Abnormal Psychology, 97(3), 346–353.
- Watson, D., & Tellegen, A. (1985). Toward a consensual structure of mood. Psychological Bulletin, 98(2), 219–235.
- Watson, D., Wiese, D., Vaidya, J., & Tellegen, A. (1999). The two general activation systems of affect: Structural findings, evolutionary considerations, and psychobiological evidence. Journal of Personality and Social Psychology, 76(5), 820–838.
- Weiss, H. M., & Cropanzano, R. (1996). Affective events theory: A theoretical discussion of the structure, causes and consequences of affective experiences at work. In B. M. Staw & L. L. Cummings (Eds.), Research in organizational behavior: An annual series of analytical essays and critical reviews (Vol. 18, pp. 1–74). JAI Press.
- Wellen, J. M., Hogg, M. A., & Terry, D. J. (1998). Group norms and attitude–behavior consistency: The role of group salience and mood. Group Dynamics: Theory, Research, and Practice, 2(1), 48–56.
10.1037/1089-2699.2.1.48 Google Scholar
- Wyer, R. S., Jr., Clore, G. L., & Isbell, L. M. (1999). Affect and information processing. Advances in Experimental Social Psychology, 31, 1–77.
10.1016/S0065-2601(08)60271-3 Google Scholar
- Young, S. M. (1985). Participative budgeting: The effects of risk aversion and asymmetric information on budgetary slack. Journal of Accounting Research, 23(2), 829–842.
- Zhang, L., Xia, Y., Liu, B., & Han, L. (2018). Why don't I help you? The relationship between role stressors and helping behavior from a cognitive dissonance perspective. Frontiers in Psychology, 8, 1–11.
10.3389/fpsyg.2017.02220 Google Scholar
