The Role of Behavioral Accounting in Understanding Budgetary Slack and Managerial Decision Bias

Posted: Mar 16, 2007

• Isabella Torres
• Jack Allen
• Jack Gonzalez

Abstract

The phenomenon of budgetary slack represents one of the most persistent challenges in management accounting, with significant implications for organizational performance and resource allocation efficiency. Traditional accounting research has predominantly approached this issue through economic and agency theory lenses, focusing on incentive structures and information asymmetry. However, these conventional frameworks often fail to capture the complex behavioral dynamics that underlie managerial decision-making in budgetary processes. This research introduces a novel behavioral accounting perspective that integrates psychological principles with computational modeling to provide a more comprehensive understanding of how budgetary slack emerges and persists in organizational contexts. Budgetary slack, defined as the intentional underestimation of revenues or overestimation of expenses in the budgeting process, has traditionally been viewed as a manifestation of agency problems where managers pursue self-interest at the expense of organizational objectives.