CULTURAL INFLUENCES ON BUDGETARY SLACK: THE IMPACT OF EQUITY AND SELF-EFFICACY IN AMERICAN AND BRAZILIAN CONTEXTS

Abstract

This study examines the effects of culture on budgeting practices, specifically the creation of budgetary slack, which is the deliberate overestimation of costs or underestimation of revenues to obtain easier targets for financial incentives. The article argues that budgetary slack has an ethical component as it results in the misallocation of resources, which harms other departments, investors, and stakeholders. The study uses Agency Theory and Ethical Position Theory to explore the motivations for creating budgetary slack and how cultural differences affect an individual's propensity to create it. The article compares American and Brazilian cultures and their perceptions of horizontal equity and self-efficacy. The study found that cultural differences did affect the creation of budgetary slack, with Brazilians exhibiting higher levels of budgetary slack, and self-efficacy and horizontal equity affecting the likelihood of creating it.The study provides insights into the role of culture in budgeting practices and ethical dilemmas that arise in such practices. It raises the question of the universality of budgetary practices and the need to consider cultural differences in designing and implementing budgetary practices. The study also highlights the importance of ethical leadership in ensuring responsible budgeting practices. The findings have significant implications for organizations operating across different cultures, emphasizing the need for increased awareness and understanding of cultural differences in budgeting practices