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Why Business Unit Controllers Create BudgetSlack: Involvement in Management, Social

Pressure, and Machiavellianism

Frank G. H. Hartmann

Erasmus University

Victor S. Maas

University of Amsterdam

ABSTRACT: This paper investigates business unit BU controllers’ inclination to en-

gage in the creation of budgetary slack. In particular, we explore whether controllers

who are involved in BU decision making are more susceptible to social pressure to

engage in slack creation than controllers who are not. We expect, and find, a crucial

role of the controller’s personality. Results from an experiment among 136 manage-

ment accountants suggest that the personality construct Machiavellianism interacts

with involvement to explain controllers’ responses to social pressure to create budget-

ary slack. Controllers scoring high on Machiavellianism are more likely to give in to

pressure by BU management to create budgetary slack when they have been involved

in decision making. In contrast, controllers scoring low on Machiavellianism are less

likely to give in to pressure to create slack when they have been involved in decision

making.

Keywords: controllers; budget slack; ethics; social pressure; conflict of interest;Machiavellianism.

Data Availability: Data used in this study are not publicly available due to confidenti-

ality agreements with the participants.

INTRODUCTION

The role of business unit BU controllers typically comprises two sets of responsibilities.

On the one hand, BU controllers contribute to corporate control by reporting about the

activities and performance of their unit to higher-level management. On the other hand, BU

controllers contribute to their unit’s performance by supporting BU managers’ strategic and op-

Frank Hartmann is at the Rotterdam School of Management, Erasmus University. This paper has benefited from comments

and suggestions from the two anonymous reviewers and the editor, and from seminar participants at the 5th Conference onNew Directions in Management Accounting, the 2007 AAA MAS Midyear Meeting, the 2007 EAA Annual Conference,the 2009 AAA Annual Symposium on Ethics Research in Accounting, and seminars at the University of Amsterdam andPablo de Olavide University. We also thank Jim Hunton, Michal Matf jka, Ken Merchant, David Naranjo-Gil, PaoloPerego, Marcel van Rinsum, Mike Shields, Roland Speklé, and Marty Stuebs for help and/or comments on earlier drafts of

the paper.

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting AssociationVol. 22, No. 2 DOI: 10.2308/bria.2010.22.2.272010 pp. 27–49

Published Online: September 2010

27


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erational decision making Indjejikian and Matf jka 2006; Maas and Matf jka 2009. The literature

suggests a limited compatibility of these two sets of responsibilities, as controllers’ involvement in

their BU’s strategic and operational decision making may reduce their independence from unit

management, which could weaken corporate control e.g., Sathe 1982. Consistent with this view,

Indjejikian and Matf jka 2006 provide survey evidence, which suggests that organizational slack is higher in firms in which BU controllers focus relatively more on providing decision-making

information to BU managers than on providing information for corporate control to higher-level

management.

Despite this potential downside to BU controller involvement in managerial decision making,

there is evidence that such involvement is increasing e.g., Siegel and Sorenson 1999; Järvenpää

2007, which in turn suggests that the downside risk of controller involvement in management

may also be increasing. We perform an experiment among 136 professional management accoun-

tants to explore whether and when BU controllers’ involvement in their unit’s management affects

their inclination to allow slack in BU budgetary reports.

We propose that controllers are faced with a conflict of interest when they see a possibility to

create budgetary slack, as slack creation may be beneficial to their unit but run against the interests

of the organization as a whole. We expect and find that involvement in BU management influences

the extent to which BU controllers perceive this conflict of interest to constitute an ethical di-

lemma, but that involvement does not necessarily increase the likelihood that BU controllers

engage in budgetary slack creation. Instead, our results suggest that involvement in management

influences BU controllers’ reactions to social pressure from other unit managers to create budget

slack in a way that depends on their personality. More specifically, it appears that the personality

construct Machiavellianism, the tendency of an individual “to detach from considerations of ethics

and perform actions that profit the self” Schepers 2003, 341, determines controllers’ reactions to

various combinations of involvement and pressure. Whereas controllers scoring high on Machia-

vellianism are more likely to give in to pressure to create budgetary slack when involved in

decision making, less Machiavellian controllers are less prone to create slack under this condition.

Our findings contribute to the literature in at least three ways. First, we contribute to a recent

stream of studies that examine the design of the controllership function in organizations Indje-

jikian and Matf jka 2006, 2009; Maas and Mat

f jka 2009 by showing that social pressure andpersonality differences interact with functional design in determining controller behavior. Second,

we contribute to the literature on budgetary game playing by extending the findings of Davis et al.

2006 regarding the role of management accountants in budgeting processes and slack creation.

Finally, we contribute to the literature on accounting ethics by examining Machiavellianism as a

predictor of management accountants’ ethical decision making, thus building on earlier work by

Wakefield 2008, Ghosh and Crain 1996, and Ghosh 2000.

The paper proceeds as follows: In the next section, we introduce the constructs, which are

central to our analysis, and we develop our hypotheses. In the third section, we present the design

of the experiment. The results of the study are presented in the fourth section. In the fifth section,

we discuss our findings, their limitations, and their relevance for future research and for business

practice.

HYPOTHESIS DEVELOPMENTBU Controllers and the Creation of Budget Slack

Following Webb 2002, 361, we define budget slack as the intentional biasing of perfor-

mance targets below their expected levels. A common concern in budgeting is that BU managers

have incentives to create budget slack to maximize the expected value of the payoffs from budget

target achievement Webb 2002; Nouri and Parker 1996, while it is in corporate managers’ and

owners’ interest that budget proposals reflect the units’ performance potential as accurately as

28 Hartmann and Maas

Behavioral Research In Accounting Volume 22, Number 2, 2010American Accounting Association

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possible Fisher et al. 2000; Indjejikian and Matf jka 2006. To mitigate such budget-related

agency problems, organizations typically engage BU controllers to act as independent monitors in

the process. Controllers are made responsible for collecting, organizing, and reporting the data that

are used in budget negotiations and performance evaluations. These tasks require substantial

professional judgment, for example when assumptions are to be made about future developments,

or valuation methods have to be selected to produce budget proposals Maines et al. 2006; Collins

et al. 1987. As a consequence, unit controllers have considerable discretion in representing the

economic reality of their BU. They may use this discretion to represent the economic situation of

the BU to higher-level managers fairly and objectively, but may also abuse this discretion to

provide higher-level managers with biased judgments, which help the local unit and its managers

achieve their budgetary goals.

There is little systematic evidence on the factors that cause unit controllers to engage in the

creation of budget slack. Indjejikian and Matf jka 2006 and Maas and Matf jka 2009 both

suggest that budget slack depends on the position of the unit controller in the organizational

hierarchy. Davis et al. 2006 mention pressure from the superior as a causal antecedent of slack

creation. Although we will argue that both factors play a role, we propose that controllers’ en-

gagement in the creation of budget slack can also be understood as a reaction to an ethicaldilemma. The available discretion, which controllers can—but should not—abuse to the benefit of

their BU, provides such a dilemma, since it forces them to make a trade-off between local and

corporate loyalties. While some studies have looked at the behavior of accountants in ethical

dilemmas Stevens 2002; Shafer et al. 2004, little is known about how BU controllers deal with

such trade-offs. We propose that controllers’ engagement in slack creation is the outcome of a

three-way interaction between involvement in management, pressure from BU managers, and the

personality factor Machiavellianism. Below, we first discuss the relevance of these three factors

for understanding slack creation. Then we demonstrate the importance of considering these factors

simultaneously.

Controller Involvement in Management

Controller involvement in management is the extent to which controllers are active partici-pants in the unit’s operational and strategic decision-making processes and share responsibility for

the outcomes of these processes Sathe 1982; Hopper 1980. The costs and benefits associated

with controller involvement in management have been discussed quite extensively in the literature.

It is generally accepted that the quality of managerial decisions will improve by active engagement

of unit controllers in decision processes Regel 2003; Colton 2001; Sathe 1983. The reason is that

local controllers can bring to bear a unique combination of specialist knowledge in the fields of

finance and accounting, and detailed knowledge of the BU and its activities Chenhall and

Langfield-Smith 1998; Sathe 1982. The literature has also pointed to a downside to involvement,

however, emphasizing that involvement is likely to strengthen the ties between the controller and

the unit and its managers, providing a potential threat to the integrity and objectivity of unit

reporting San Miguel and Govindarajan 1984; Hopper 1980; Simon et al. 1954. This threat can

be explained by social identity theory, which suggests that participation in a group decision-making process increases individuals’ identification with this group and with the group’s outcomes

Tyler and Blader 2003; Tajfel 1969. Involvement in management will make BU membership a

more salient aspect of BU controllers’ identity. This may in turn reduce these controllers’ com-

mitment to their identity as an independent professional Stryker and Burke 2000. As Gunz and

Gunz 2007, 856 argue: “The more involved professionals are in the firm’s strategic decision-

making process, the more salient their organizational identities are likely to be by comparison with

Why Business Unit Controllers Create Budget Slack 29


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their professional identities.” Consequently, BU controllers who have contributed to the unit’s

courses of action will more likely feel that building slack into the budget to benefit the unit is an

action that is in their own personal interest as well.

This does not mean, however, that unit controllers will necessarily be more inclined to pro-

duce budget proposals that underestimate their unit’s performance potential when they have beeninvolved in managerial decision making. The reason is that allowing slack in the budget of their

“own” unit may be considered as more unprofessional and unethical than allowing slack in the

budget of a unit at arm’s length. While uninvolved unit controllers might argue that the creation of

budget slack should be considered, at least to some extent, to fall within “the rules of the budget

game” Hofstede 1967, for involved controllers there will be a salient conflict of interest. Con-

sequently, involvement in management may make unit controllers even more reluctant to allow

slack in the unit’s budget. Well aware of the temptation, and the fact that they have been entrusted

to resist it and remain independent, involved controllers may thus prove to be more strict in

observing professional guidelines and codes of conduct than uninvolved controllers Maas and

Matf jka 2009; Shafer et al. 2002. We will argue further below that the overall effect of controller

involvement in management on slack creation depends on social pressure and the degree of

Machiavellianism.

Social Pressure

In their review of social pressure research in accounting, DeZoort and Lord 1997 distinguish

between three forms of social pressure. Compliance pressure is pressure to go along with explicit

requests of individuals at any level. Obedience pressure refers to pressure to submit to the direc-

tions of an authority figure. Conformity pressure refers to pressure in groups of peers on individual

members of these groups. Pressure from BU managers on BU controllers to deliberately bias

performance targets lies at the intersection of these three types of pressure since it is pressure from

both a superior and peers to go along with an explicit request.1

Davis et al. 2006 show that management accountants are more likely to create budget slack

when faced with obedience pressure from an immediate superior the corporate CFO in their

study. This result confirms earlier findings in the social psychology and auditing literatures that

social pressure induces conformance, as individuals want to avoid the negative consequences of appearing deviant in a peer group, or of disloyalty to someone in an authority position Lord and

DeZoort 2001. The social psychology literature, however, also points out an opposite effect of

social pressure. Psychological reactance theory Brehm 1966; Brehm and Brehm 1981 in particu-

lar posits that attempts to persuade individuals to act in a specific manner are often counterpro-

ductive, because they constitute a threat to individuals’ sense of freedom and control. According to

this perspective, individuals who are pressed to act in a certain way perceive their behavioral

freedom to be reduced. This pressure arouses reactance, which is a motivational state aimed at

reestablishing a sense of freedom of choice and personal responsibility for decision outcomes.

Individuals experiencing reactance refuse to go along with the requested behavior, and often

decide to act in an exactly opposite way a “boomerang effect” Brehm and Brehm 1981, 38.

Such an effect is particularly likely to occur in reaction to being pushed to violate professional

guidelines or moral principals Brehm and Brehm 1981; Grover 1993.

Existing studies on professionals in organizations indeed indicate that pressure from managersto deviate from professional guidelines sometimes causes individuals to firmly oppose the re-

quested behavior and to place a renewed emphasis on their role as an independent professional

1While conceptually distinct, the three types of pressure are not orthogonal and may coincide and overlap in reality e.g.,Cialdini and Trost 1998.



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could be either in a cold, calculative way, trading off personal costs and benefits, or in a more

intuitive way, responding to social and ethical pressures. We propose that a clear pattern of

expectations regarding BU controllers’ behavior only emerges when the interaction between these

factors is considered.

Interaction between Involvement, Social Pressure, and Machiavellianism

Social pressure by managers to engage in the creation of budget slack constitutes a threat to

controllers’ freedom and professional independence Shafer 2002. Pressure may therefore evoke

either conformance or reactance. We expect the response to depend on controllers’ Machiavellian-

ism and their level of involvement in BU management. First, there is substantial evidence that

individuals differ in their susceptibility to social pressure Brehm and Brehm 1981; DeZoort and

Lord 1997 and that this difference is partly explained by Machiavellianism. Cristie and Geis

1970, 312 argue that “one consequence of the high Machs’ lack of susceptibility to emotional

involvements in general is a lack of susceptibility to sheer social pressure urging compliance,

cooperation, or attitude change.” Empirical studies in social psychology indeed support that low

Machs are more sensitive to social pressure than high Machs Lamm and Myers 1976; Blumstein

1973. This seems to suggest that pressure by unit managers to engage controllers in the creationof budget slack will be more effective for low Mach controllers. However, this reasoning ignores

that deliberately biasing performance estimates might be considered unethical or unprofessional

by the controller. While it may be true that low Machs find it harder to resist social pressure than

high Machs, they will also be more concerned about the violation of professional and moral norms

implied by the requested act Kleinman et al. 2003; Schepers 2003; Reiss and Mitra 1998. To

understand the effect of pressure on low and high Mach controllers, we therefore have to look at

the relationship that the controllers have with the BU they are working for.

For low Mach controllers, we expect that involvement in management will have the primary

effect of increasing the salience of conflicting interests and amplifying the extent to which slack

creation feels like a violation of trust and professional guidelines. Ceteris paribus, pressure to

engage an involved low Mach controller in the creation of budget slack is therefore more likely to

arouse reactance than pressure to engage an uninvolved low Mach controller in such acts.

Involvement in management also changes the effects of pressure for high Mach controllers,

but in a fundamentally different way. For high Mach controllers, the primary effect of involvement

is that it makes them perceive the outcome of the budgeting process as something that is in their

own interest. Because of the opportunistic and calculative nature of their decision making, high

Machs will be relatively easily persuaded to act in unprofessional or unethical ways, but only if the

personal benefits of acting in such a manner are clear Sakalaki et al. 2007; Cristie and Geis 1970.

High Mach controllers will thus be more susceptible to pressure if they are active participants in

their unit’s operational and strategic decision making. In absence of involvement, the lack of

apparent personal benefits of filing a biased estimate and their ability to resist social pressure will

make high Mach controllers relatively insensitive to the efforts of line managers to engage them in

the creation of budget slack.

In conclusion, we hypothesize that only relatively Machiavellian BU controllers will be easier

to persuade to create budget slack if they are involved in management. This is reflected in thefollowing hypotheses:

H1: The effect of social pressure on high Mach BU controllers’ engagement in the creation of

budget slack will be more positive for BU controllers who are involved in management.

H2: The effect of social pressure on low Mach BU controllers’ engagement in the creation of

budget slack will be less positive for BU controllers who are involved in management.



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Together, H1 and H2 predict a three-way interaction between social pressure, involvement in

management, and Machiavellianism affecting unit controllers’ engagement in the creation of bud-

get slack. Our expectations are graphically depicted in Figure 1, which focuses on the different

expectations for high Mach and low Mach controllers. In terms of the coding used in Figure 1, the

two hypotheses above predict that the slope of the line C H − D H is more positive than the slope of the line A H − B H and that the slope of the line C L − D L is less positive than the slope of the line

A L − B L.

RESEARCH METHOD

Research Design

To examine the hypotheses we conducted an experiment using a 2 2 between subjects

factorial design. Involvement in management and social pressure to engage in slack creation were

manipulated by varying the experimental case scenarios. Machiavellianism was measured using

the Mach IV scale developed by Cristie and Geis 1970, which was included in an exit question-

naire. This scale contains 20 items and asks participants to what extent they agree with statements

that are indicative of a Machiavellian personality. Examples are: The best way to handle people is

to tell them what they want to hear and It is safest to assume that all people have a vicious streak .

All 20 items of the Mach IV scale can be found in Appendix B. The items were scored on a

five-point Likert scale “Strongly disagree” to “Strongly agree”, in line with recent psychology

research Paulhus and Williams 2002; McHoskey et al. 1998. The validity and reliability of the

Mach IV scale is well established in the extant literature Wakefield 2008; Gunnthorsdottir et al.

2002; Fehr et al. 1992.

Participants

The participants in our study are students enrolled in a two-year part-time executive educa-

tional program in finance and control.3

Students in this program, which is offered at different

universities in The Netherlands, have previously obtained a Master of Science in an accounting- or

finance-related field, and are required to have at least three years of relevant work experience. In

total, 169 students from three different universities participated in the study. Of these 169 students,

25 indicated they were not currently employed in a management accounting position.

4

Since ourhypotheses are about the decision processes of management accountants, these participants were

excluded from the analyses. Furthermore, as is discussed below, eight of the remaining partici-

pants failed to provide a correct answer to one of the manipulation checks and their scores were

excluded as well. The final sample therefore consists of 136 students. Demographics of the par-

ticipants in the final sample are in Table 1. This table shows that the mean age of the participants

is 31.5 years old. The majority is male 86.0 percent. The average participant has 4.4 years of

experience in management accounting/control functions, has worked 3.5 years for their present

employer, and has been in their present position for 2.2 years.

Research Instrument and Procedures

The students participated in the experiment during class hours. In total we organized seven

sessions across the three different universities. All sessions proceeded according to the same

schedule. One of the authors entered the classroom at an agreed upon point of time and introducedhimself and the research project without specifying the exact purpose of the study. The students

3The program awards the title of “Register Controller” “Certified Controller”, which may be considered as the Dutchequivalent of the U.S. CMA. Students tend to be full time employees of medium and large firms. Their employersgenerally pay the program fee.

4Most of these 25 students were working as internal auditors, consultants, or general managers.



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FIGURE 1

Hypothesized Relationships

Slack

creation

BH

DH

AH

CH

High Machs

Slack creation

DL

BL

CL

AL

LowMachs

Involvement high

Involvement low

Involvement low

Involvement high

Point A: Pressure = low, Involvement = low

Point B: Pressure = high, Involvement = low

Point C: Pressure = low, Involvement = high

Point D: Pressure = high, Involvement = highL subscript denotes low Machiavellianism, H subscript denotes high Machiavellianism.

H1 predicts that BH − AHDH − CH (i.e., that the slope of the line AHBH is less positive than the slope of the

line CHDH).

H2 predicts that BL − AL DL − CL (i.e., that the slope of the line ALBL is more positive than the slope of the

line CLDL).




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were then asked to participate in the study by filling in two questionnaires. It was emphasized that

participation was voluntary. Only one student chose not to participate and left the classroom. Theparticipating students were asked not to communicate with each other while they were filling in

the questionnaires. Subsequently they were provided with the research instrument and an exit

questionnaire, which they filled in successively. Participants were randomly assigned to treatment

conditions, as different versions of the experimental materials were randomly distributed. In this

process, care was taken to allocate treatment conditions equally over sessions.

The research instrument contained a case scenario that was specially developed for this study.

The scenario describes a situation in which a BU controller needs to decide whether to deliberately

underestimate the unit’s expected performance in a budget proposal to increase the expected

payoff from reaching the budget target. The BU in the case scenario is a division of a large firm.

The unit’s management team receives a bonus based on the extent to which BU Return on

Investment ROI exceeds a target level. The BU controller, although a member of the manage-

ment team, is excluded from this incentive system. The ROI target is established on an annual

basis through a process of participative budgeting. The case describes how the BU has changed its

strategy recently and continues to remark that the results of this change are disappointing and that

it is highly unlikely that the unit will meet its ROI target this year. In October of the present year,

the management team of the BU has a meeting about the budget proposal for the next year. At this

meeting the BU general manager suggests proposing a budget that shows an unrealistically low

ROI prediction of 11 percent for the next year, because he does not want the unit to miss its target,

and the BU managers to miss their bonus, two times in a row. The controller needs to decide

whether he will accept this and will produce a report that contains unrealistically low estimates of

revenues and unrealistically high estimates of costs. The full research instrument can be found in

Appendix A.5

The manipulations of involvement in management and social pressure were embedded in the

scenarios. In the scenarios, “Splash” was the name of the BU, “Wouter Simons” was the name of

5A number of potentially relevant factors were controlled by making them explicit in the case scenario. First, the casementioned that the controller reported to both the BU general manager and a corporate controller and that the BUmanager was not in a position to officially file sanctions on the controller in case he would choose not to produce theslack inducing report. Second, it was mentioned that BU controller Wouter Simons “was aware that the chance thatcorporate headquarters will find out that the ROI proposal of 11 percent is founded on unrealistically low estimates isnegligible.” Finally, the case specified that the company and business unit were Dutch and were active in the food andbeverage industry and that the company was not listed on a stock exchange.

TABLE 1

Participant Demographic Data

Gender: Male: 117 (86.0%), Female: 19 (14.0%)

Mean SD Min. Max.

Age 31.46 4.92 25.00 51.00

Years in current position 2.23 1.59 0.20 10.00

Years worked for currentemployer

3.51 2.66 0.20 18.00

Years of experience inmanagement accountingfunctions

4.42 3.05 0.50 19.00



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the BU controller, and “Gerard van Dinkel” was the name of the BU’s general manager. In

addition to the common part of the case, participants in the high involvement conditions read the

following statement:

BU controller Wouter Simons has always been very actively involved in the BU’s strategic and

operational management. He has also contributed substantially to the initiation, development and

implementation of Splash’s new strategy.

Participants in the low involvement conditions instead read:

BU controller Wouter Simons has never been actively involved in the BU’s strategic and opera-

tional management. Neither has he contributed in any way to the initiation, development or imple-

mentation of Splash’s new strategy.

Similarly, participants in the high social pressure conditions read:

Gerard van Dinkel and the other two members of the BU management team put severe pressure on

BU controller Wouter Simons to agree to a ROI proposal of 11%.

Participants in the low social pressure conditions instead read:

Gerard van Dinkel and the other two members of the business unit’s management team do not push

BU controller Wouter Simons in any way to agree to a ROI proposal of 11% but instead leave the

decision for him to make all by himself.

The dependent variable was measured by asking participants to indicate the likelihood that

Wouter Simons, the BU controller in the case, would go ahead and produce a report that would

provide the foundation for an unrealistically low ROI estimate of 11 percent. The participants

indicate their assessment of the lik elihood in percentages between 0 percent certain not to do it

and 100 percent certain to do it.6 In the last of the seven sessions, the students, after having

indicated their likelihood scores, were also asked to describe in their own words the way they

chose the likelihood score for Wouter Simons.

The research instrument was pre-tested in a separate group of 20 part-time students enrolled

in a Master of Science in Accounting and Control program, most of who were working in a

management accounting position. This pilot test confirmed that there was substantial variance in

the dependent variable and that a significant amount of this variance could be explained by the

study’s independent variables. Moreover, the pilot test showed that participants found the caserealistic and interesting.

RESULTS

Manipulation Checks and Descriptive Statistics

The manipulation of social pressure was checked with the following post-experimental ques-

tionnaire item scored on a five-point Likert scale 1 “Strongly disagree” and 5 “Strongly

agree”: “Business unit controller Wouter Simons was under strong pressure from the other mem-

bers of the business unit management team to build slack in the unit’s ROI budget target.” The

mean score in the high-pressure conditions was 4.26, while the mean score in the low-pressure

conditions was 1.92. The difference between the scores is significant t 15.58, p 0.000. The

6The dependent variable was framed in terms of the likelihood of someone else’s behavior to control for the effects of social desirability. Asking questions in terms of likelihood of behavior is a common practice in experimental account-ing ethical dilemma studies e.g., DeZoort and Lord 1994; Jones and Kavanagh 1996; Tsui and Gul 1996, as is framingquestions in the third person to prevent social desirability bias Ponemon and Gabhart 1990. To see if framing thedependent variable in the third person affects the results we also asked participants to indicate the likelihood that theythemselves would produce the report if they were in the position of the business unit controller. The results with regardto this version of the dependent variable are qualitatively similar to the ones in the third person version and are notreported here.



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manipulation of involvement in management was checked with the following item scored on a

five-point Likert scale 1 “Strongly disagree” and 5 “Strongly agree”: “Business unit con-

troller Wouter Simons was actively involved in strategic and operational decision making at the

business unit.” The mean score in the high-involvement conditions was 4.24, while the mean score

in the low-involvement conditions was 1.65. This difference is also significant t 22.20, p

0.000

Descriptive statistics regarding the dependent variable in our experiment are in Table 2. This

table contains the number of participants and dependent variable mean scores and standard devia-

tions for all four treatment conditions in the experiment. In addition, it shows cell sizes, means,

and standard deviations for the eight cells that result when Machiavellianism is split at the median

value of 2.75 to produce a high Mach and a low Mach subgroup.

We calculate individuals’ Machiavellianism scores as their average scores on the 20 items in

the Mach IV scale ten negatively worded items were reverse coded. The Machiavellianism

scores in our sample range from 1.75 to 3.55 with a mean of 2.76 SD 0.36 and a median of

2.75. The mean score of 2.76 is slightly below the scale mean of 3, which indicates that on average

the management accountants in our sample tended to somewhat disagree with the statements

TABLE 2

Descriptive Statistics Dependent Variable

Full Sample

Involvement

High Low Overall

n Mean SD n Mean SD n Mean SD

Pressure

High 36 54.44 26.207 36 52.22 27.109 72 53.33 26.497Low 31 40.00 23.381 33 42.45 29.539 64 41.27 26.553

Overall 67 47.76 25.795 69 47.55 28.514 136 47.65 27.108

High Mach Subgroup

Involvement

High Low Overall


High 16 68.44 22.783 15 54.00 26.873 31 61.45 25.501

Low 16 35.31 19.619 19 52.16 27.144 35 44.46 25.147

Overall 32 51.88 26.843 43 52.97 26.629 66 52.44 26.532

Low Mach Subgroup

Involvement

High Low Overall


High 20 43.25 23.635 21 50.95 27.866 41 47.20 25.861

Low 15 45.00 26.592 14 29.29 28.342 29 37.41 28.113

Overall 35 44.00 24.579 35 42.29 29.663 70 43.14 27.056



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indicative of a Machiavellian personality.7

The reliability of the Mach IV scale was assessed using

Cronbach’s alpha. Cronbach alpha is 0.69, which indicates acceptable scale reliability. A one-way

ANOVA with Bonferroni corrected post hoc tests confirmed that Machiavellianism did not differ

significantly between experimental conditions.

Dependent variable scores range from 0 percent to 100 percent and there is considerablevariance in all four experimental conditions and all eight cells in a model with Machiavellianism

split at the median. The overall mean score is 47.65 SD 27.11. The highest mean score is

found in the cell with both experimental manipulations high and participants with above median

Machiavellianism scores mean 68.44, SD 22.78 while the lowest mean score is for low

Machiavellian participants in the condition with both manipulations at the low level mean

29.29, SD 28.34. The only other cell, besides these two, in which the value of the dependent

variable is significantly different from the scale midpoint of 50 percent, is the high involvement,

low-pressure situation for high Mach controllers mean 35.31, SD 19.62.

Hypothesis Tests

We test our hypotheses using moderated regression analysis. We use regression analysis

because it allows us to examine the interaction between the experimental manipulations and acontinuous variable Machiavellianism without the loss of information that would result if we

dichotomized the Machiavellianism scores Cohen et al. 2003; Hartmann and Moers 1999. Before

calculating the interaction terms, we standardized the Machiavellianism scores to facilitate inter-

pretation of the results. A hierarchical regression procedure was run with SOCIAL PRESSURE ,

INVOLVEMENT , and MACHIAVELLIANISM , the two way-interactions and the three-way inter-

action as predictors of engagement in slack creation. Using a hierarchical regression allows us to

separately evaluate the significance of the two-way and three-way interaction effects and the

contribution of including the interaction coefficients in the regression model to the explanatory

power of the model. The results are in Table 3.

The results in column 1 of Table 3 show that the main-effects-only model is significant and

that there exist main average positive effects of SOCIAL PRESSURE and MACHIAVELLIANISM

on SLACK CREATION . As can be seen in column 2 of Table 3, introduction of the two-way

interactions column 2 does not improve the predictive ability of the model. However, the intro-duction of the coefficient for the three-way interaction does result in a higher adjusted R2. An

F-test Cohen et al. 2003 confirms that this increase in R2 is significant F 4.543, p 0.05.

The results for the full model are in column 3 of Table 3. The results for this full model confirm

that there is a significant three-way interaction effect between INVOLVEMENT , SOCIAL PRES-

SURE , and MACHIAVELLIANISM p 0.05, as was predicted by H1 and H2. Also notice that

the main effect of SOCIAL PRESSURE is not significant in the models with interaction terms,

7Following recent literature in personality psychology McHoskey et al. 1998; Paulhus and Williams, 2002 we measuredMachiavellianism on a five-point Likert scale. This provides a deviation from the original instrument of Cristie and Geis1970, which used a seven-point scale. Moreover, Cristie and Geis 1970 calculated an individual’s Machiavellianismscore as the sum of the item scores plus a constant of 20. The idea behind this scoring method is that an individual whois perfectly neutral when it comes to Machiavellianism will have a score of exactly 100 20 times the scale mean of 4

plus the constant of 20. Note that if a respondent’s Machiavellianism score is calculated as the mean item score on afive-point scale as in our study, an individual who is perfectly neutral about the Machiavellianism statements will havea score of 3. Wakefield 2008 used Cristie and Geis’ 1970 original measurement and scoring method. Assuming equaldistributions, the mean Machiavellianism score in the Wakefield sample 80.9 corresponds to a mean score of 2.363 ona five-point scale. To calculate this score we first calculated the mean score of the 20 Mach-IV items on the seven-pointLikert scale 80.9 minus 20, divided by 20 3.045. Then we calculated the corresponding score on a hypotheticalfive-point scale, using a linear transformation 3.045 times 2/3 plus 1/3 2.363. The results indicate that in both herand our study, the average respondent tended to somewhat disagree with the statements indicative of a Machiavellianpersonality i.e., has a score that falls slightly below the theoretical mean of the scale.



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providing an indication that the positive effect of SOCIAL PRESSURE on SLACK CREATION is

not equally strong for all combinations of INVOLVEMENT and MACHIAVELLIANISM .

To shed more light on these results and to add some intuition to this three-way interaction, we

analyze our experimental data separately for subgroups of high and low Machiavellian participants

using factorial ANOVA’s and plot the results. The results show that INVOLVEMENT and SOCIAL

PRESSURE interact differently for high Machs and for low Machs. The findings are illustrated in

Figures 2 and 3.

First, considering the high Mach subgroup, H1 predicts an interaction between SOCIALPRESSURE and INVOLVEMENT . The results indicate that this effect is indeed significant at the

0.05 level F 5.955, p 0.018. Figure 2 shows that the findings for high Mach controllers

follow a pattern that is consistent with our H1. While for involved controllers, pressure strongly

increases engagement in slack creation the likelihood score increases from 35.31 percent to 68.44

percent, the increase is insignificant for uninvolved controllers. As is clear from Figure 3, the

results from a factorial ANOVA for the low Mach group on the contrary show that pressure only

TABLE 3

Hierarchical Regression Coefficients

(p-values between brackets)

(1) (2) (3)

Intercept 35.411* 37.049* 36.240*0.035 0.033 0.036

INVOLVEMENT 1.638 2.577 1.606

0.722 0.702 0.810

SOCIAL PRESSURE 12.380** 11.541 11.2460.008 0.080 0.084

MACHIAVELLIANISM 19.205** 23.945* 35.849**0.005 0.032 0.004

INVOLVEMENT PRESSURE 2.142 1.634

0.818 0.858

INVOLVEMENT MACHIAVELLIANISM 7.393 36.866

0.581 0.057

PRESSURE

MACHIAVELLIANISM

3.083

27.5760.815 0.116

PRESSURE INVOLVEMENT MACHIAVELLIANISM 55.096*0.037

Adjusted R2 0.072 0.053 0.079

F 2.477 1.744 2.037

p 0.020 0.078 0.030

* Coefficient is significant at the 0.05 level two-tailed** Coefficient is significant at the 0.01 level two-tailedDependent Variable SLACK CREATION the indicated likelihood, in a percentage between 0 percent and 100 percent,that the controller in the case will create budget slack. In running the regressions we control for participants’ age, tenurein present position, years of experience as assistant controller and university. None of the control variables has asignificant effect on the results.

Variable Definitions INVOLVEMENT experimental manipulation of whether involvement in management is high or low;

SOCIAL PRESSURE experimental manipulation of whether social pressure to create slack is high or low; and MACHIAVELLIANISM score of participants on Mach IV scale measuring the personality trait Machiavellianism.



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increases slack creation for uninvolved controllers from 29.29 percent to 50.95 percent. Involved

low Mach controllers are not affected by pressure. This interaction effect of pressure and involve-ment is marginally significant in this subsample F 3.518, p 0.066.

Overall, the results suggest that while on average Machiavellianism and social pressure in-

crease BU controllers’ engagement in the creation of budget slack, pressure is not equally effective

in all conditions. Involvement in management increases the effectiveness of pressure on high

Mach controllers; however it decreases the effectiveness of pressure on low Mach controllers. We

argued this is because high Machs and low Machs have different decision-making styles and are

FIGURE 2

Results for High Machs

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Pressure low Pressure high

Involvement

high

Involvement

low

S ac creat on

AH

CH

DH

BH




Point D: Pressure = high, Involvement = high

H subscript denotes high Machiavellianism.

Results are consistent with H1 because BH − AHDH − CH (i.e.,the slope of the line AHBH is less positive than

the slope of the line CHDH).




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influenced by different aspects of the situational circumstances. Finally, an important finding is

that involvement in management does not have a main effect on engagement in the creation of

budget slack. This indicates that it is crucial to consider pressure and the personality of thecontroller to understand whether involvement of controllers in strategic and operational decision

making poses a threat to the objective reporting of performance estimates.

Supplemental Analysis

To supplement our statistical analysis, we asked 27 participants in the final session of our

experiment to explain in their own words how they had chosen their likelihood estimates. This

FIGURE 3

Results for Low Machs

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Pressure low Pressure high

Slack creation

AL

CL

BL

DL

Involvement

low

Involvement

high




Point D: Pressure = high, Involvement = high

L subscript denotes low Machiavellianism.

Results are consistent with H2 because BL − ALDL − CL (i.e., the slope of the line ALBL is more positive

than the slope of the line CLDL).




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question was asked in the debriefing that was handed out after the experimental scenario had been

finished. Of these 27 participants, 13 48 percent explicitly mentioned the lack of involvement

of the controller in the BU’s strategic and operational management as an important factor that

influenced their estimate of the controller’s subsequent behavior. In particular, in the experimental

conditions in which involvement in management was manipulated as high, many participants 7out of 12 mentioned this as a factor that influenced their judgment. A typical response for

participants in the high involvement, low-pressure condition was: “Normally, I expect controllers

to make estimates objectively. However, because the controller in this case has been so actively

involved in managing the BU he will feel that reaching the target will also be his responsibility…

he will be more inclined to make a very low estimate.”

Pressure from the BU manager was spontaneously mentioned by nine participants 33 per-

cent, often in combination with involvement in management. One participant in the low involve-

ment, high-pressure condition mentioned for example: “The controller … has no direct interest in

the outcome of the budgeting process and does not care if the target is high or low. … On the other

hand, people in general like to conform to the wishes of their colleagues/superiors and therefore

probably tend to do what they are told to do.”

As regards our third antecedent variable, Machiavellianism, many participants mention that

they believe it is ultimately personal ethics, the controller’s professionalism or the person’s “char-

acter” that determines what controllers do in situations like this. An example of a clear formulation

as given by a participant in the high involvement, high-pressure condition is as follows: “For me,

integrity and trustworthiness are paramount. Whatever the situation, I would not allow this to

happen.”

DISCUSSION AND CONCLUSION

This paper set out to examine how BU controllers respond to the ethical dilemma that arises

if they can spur the interests of their own unit by deliberately biasing budget estimates to create

slack. We were particularly interested in increasing our understanding of how, if at all, involve-

ment of controllers in operational and strategic management decisions affects their ability to resist

pressure to engage in slack creation. We expected and found that the three factors, involvement in

management, pressure from BU managers and personality, should be considered together to un-derstand controllers’ engagement in the creation of budget slack. More specifically, we found that

only high Mach unit controllers become more susceptible to pressure if they are involved in

management. Low Mach unit controllers actually became less willing to give in to slack-inducing

pressure if they had been involved in managerial decision making.

The results of our study are important for management accounting research as well as for

business practice. First, our study contributes to the extensive literature on budgetary participation

and the creation of budget slack by focusing on the, until recently, neglected role of the BU

controller in the budgeting process. Most existing studies have treated budgeting and performance

reporting as a process involving only two parties, a higher-level manager and a lower-level man-

ager see Covaleski et al. 2003. Our study complements recent work by Davis et al. 2006,

Indjejikian and Matf jka 2006, and Maas and Matf jka 2009 and shows that a focus on the

personality of the BU controller can enhance our understanding of management accounting and

budgeting practices cf. Naranjo-Gil et al. 2009 and in particular of “the budgeting games peopleplay” Collins et al. 1987.

Our results also provide an explanation for why prior studies e.g., Sathe 1982 have failed to

find a relationship between controllers’ involvement in management and budget gaming. We show

that the relation between involvement in management and the creation of budget slack can be

either positive or negative and that it depends on the personality of the BU controller and the level

of pressure how involvement changes controllers’ gaming behavior. In addition, a focus on indi-



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vidual differences in Machiavellianism might help explain why some management accountants

consider the creation of slack and other forms of budget gaming more unethical, unfair, and

unacceptable than others Elias 2002; Kaplan 2001; Merchant and Rockness 1994. In particular,

it might also provide an explanation for the finding of Davis et al. 2006 that not all their

participants indicated that the situation of being pressured to engage in the creation of slack provided them with an ethical dilemma which would be a typical reaction for a high Mach

participant.

Finally, our study contributes to the literature by experimentally examining a potential trade-

off between the two different basic functions of management accounting: decision facilitation and

decision influencing i.e., control Sprinkle 2003; Demski and Feltham 1976. BU controller

involvement in management is motivated by expected improvements in controllers’ ability to

perform well in their decision-facilitation role Pierce and O’Dea 2003; Granlund and Lukka

1998. It is generally believed to come at the cost of reduced corporate control however, as

involved BU controllers are supposed to be less independent and objective Indjejikian and Matf-

jka 2006; San Miguel and Govindarajan 1984. Our results, however, show that a trade-off be-

tween decision-facilitation and decision-influencing benefits in designing the organizational con-

troller function is not inevitable. What seems crucial instead, is staffing the controller positions

with individuals with the right characteristics. In this sense, our study also has important practical

implications, as our findings suggest that where an involved “strong” controller is needed,

organizations should seek people who score low on Machiavellianism. For unit controllers who

are not going to be active participants in management decisions however, organizations would do

better to attract relatively Machiavellian controllers, as they are less sensitive to social pressure in

situations where the ethicality of slack creation is more ambiguous and budget gaming not in their

self-interest.

In interpreting this study’s results, some limitations should be considered. First, it should be

recognized that while we find support for our hypotheses, our model only explains a relatively

limited amount of variance in controllers’ engagement in slack creation and other factors likely

play an important role as well. Next, the data for this study were acquired through an experimental

survey in a classroom setting. Although the controlled setting contributes to the internal validity of

the study, it may have come at some costs to external validity. Furthermore, the fact that the studyfollowed the existing literature on accounting ethics and used a case-based experiment with the

manipulations embedded in the case scenario provides typical concerns with respect to construct

validity. For example, it has been argued that cognitive limitations sometimes make it difficult for

participants to determine what their behavior would be in situations described in case scenarios

Grover 1993.

Although much effort was made to ensure a realistic scenario, participants’ answers might still

have been influenced by the artificial setting imposed on them. However, we believe that the fact

that actual management accountants were involved, who also judged the task as realistic, adds to

both the internal and external validity of the study. Moreover, the responses that participants gave

when asked to explain their likelihood estimates do not suggest that the results are driven by the

typical limitations associated with our method.

Finally, considering our participants, it should be noted that although our participants were

employed in a management accounting function, they were also still studying. The findings of ourexperiment might therefore be biased toward relatively inexperienced controllers and moreover,

because all participants were working in The Netherlands, toward the Dutch cultural and institu-

tional setting. Also, the generalizability of our findings is limited by the fact that our participants

were relatively young and predominantly male. This is especially important because some studies

have found that males score higher on Machiavellianism than females and that Machiavellianism

decreases with age e.g., Mudrack 1993; Wilson et al. 1996. Despite these limitations, we believe



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Table A1Splash ROI Target and Realization over the Years 2000–2004

Year ROI Target ROI Realization

2000 10% 9%

2001 12% 12.2%2002 12.5% 13%

2003 13% 13.6%

2004 14% 13.3% expected

In October 2004, the Splash management team has a meeting to decide about the 2005 budget

proposal. Gerard van Dinkel, Splash’s general manager, suggests basing the proposal on

conservative estimates. Both he and BU controller Wouter Simons believe Splash should be able

to make a ROI of 13.5% in 2005. However, Gerard van Dinkel asks Wouter Simons if he can come

up with a proposal of a ROI target of 11%, because he feels it would be bad for the business unit

to miss its targets two times in a row and he therefore does not want to take any risks. He also

mentions that it would be undeserved if Splash’s managers miss their bonus again next year.

BU controller Wouter Simons realizes that the only way to come up with a ROI proposal for

2005 of 11% is by making unrealistically low sales estimates and unrealistically high cost esti-mates. He also knows that Gerard van Dinkel does not have the formal authority to order his

participation in making such estimates. He therefore needs to decide for himself whether or not he

wants to go ahead with it.

We would like to know how likely you think it is that Wouter Simons proceeds to develop a budget

proposal that contains the unrealistically low ROI target of 11%.

In making your assessment of this likelihood please also note the following:

BU controller Wouter Simons is aware that the chance that corporate headquarters will find

out that the ROI proposal of 11% is founded on unrealistically low estimates is negligible.

Conditions with Involvement in Management High

BU controller Wouter Simons has always been very actively involved in the BU’s strategic

and operational management. He has contributed substantially to the initiation, development, andimplementation of Splash’s new strategy.

Conditions with Involvement in Management Low

BU controller Wouter Simons has never been actively involved in the BU’s strategic and

operational management. Neither has he contributed in any way to the initiation, development, and

implementation of Splash’s new strategy.

Conditions with Social Pressure High

Gerard van Dinkel and the other two members of the BU management team put severe

pressure on BU controller Wouter Simons to agree to a ROI proposal of 11%.

Conditions with Social Pressure Low

Gerard van Dinkel and the other two members of the BU management team do not push BU

controller Wouter Simons in any way to agree to a ROI proposal of 11% but instead leave the

decision for him to make by himself.

Please answer the following questions:

1. How likely do you think it is that Wouter Simons chooses to proceed with developing a

budget proposal that is based on a ROI estimate of 11%? (Please indicate a chance




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between 0% and 100%.)

____ %

2. Imagine that you would be in the same situation as Wouter Simons. How likely would it

be that you proceeded with developing a budget proposal that is based on a ROI estimate

of 11%? (Please indicate a chance between 0% and 100%.)

____ %

APPENDIX B

Mach IV Scale Developed by Cristie and Gies (1970)

1. Never tell anyone the real reason you did something unless it is useful to do so.

2. The best way to handle to people is to tell them what they want to hear.

3.* One should take action only when sure it is morally right.4.* Most people are basically good and kind.5. It is safest to assume that all people have a vicious streak.

6.* Honesty is the best policy in all cases.7.* There is no excuse for lying to someone else.

8. Generally speaking, men won’t work hard unless they are forced to do so.9.* All in all, it is better to be humble and honest than to be important and dishonest.10.* When you ask someone to do something for you, it is best to give the real reasons for

wanting it rather than reasons that carry more weight.

11.* Most people who get ahead in the world lead clean, moral lives.12. Anyone who completely trusts anyone else is asking for trouble.

13. The biggest difference between most criminals and other people is that the criminals arestupid enough to get caught.

14.* Most men are brave.15. It is wise to flatter important people.

16.* It is possible to be good in all respects.17.* Barnum was wrong when he said that there’s a sucker born every minute.18. It is hard to get ahead without cutting corners here and there.

19. People suffering from incurable diseases should have the choice of being put painlessly

to death.20. Most men forget more easily the death of their father than the loss of their property.

* Reverse-scored item.

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