Cultural and Ethical Effects in Budgeting Systems: A Comparison of U.S. and Chinese Managers

Abstract

This study developed and tested a model of culture's effect on budgeting systems, and hypothesized that system variables and reactions to them are influenced by culture-specific work-related and ethical values. Most organizational and behavioral views of budgeting fail to acknowledge the ethical components of the problem, and have largely ignored the role of culture in shaping organizational and individual values. Cross-cultural differences in reactions to system design variables, and in the behaviors motivated or mitigated by those variables, has implications for the design and effectiveness of budgeting systems. The data largely support our research model, demonstrating the hypothesized national cultural differences in system design variables (e.g., participation, standards tightness, budget emphasis, etc. which we characterized as the opportunity and incentives to create budgetary slack), and the expected relationship between incentives (but not opportunity) to create slack and slack creation behavior. The data demonstrate hypothesized cultural differences in ethical ideology but show ethical ideology related to slack creation behavior only for U.S. managers. A discussion of the results and their implications is included.

East Meets West: A Meta-Analytic Investigation of Cultural Variations in Idealism and Relativism

“…These studies suggest that, in general, idealism is associated with firm moral convictions, whereas relativism suggests ethical leniency. Douglas and Wier (2005), for example, found that idealism was negatively related to questionable budgetary practices (slack creation behavior), but relativism was positively correlated with such practices. Tsai and Shih (2005) report that managers who were more idealistic reported feeling greater role conflict, whereas increases in relativism went hand-in-hand with reduced conflict.…”

Cross-Cultural Effects on the Budgeting Cycle: The Impact of Power Distance on Participation, Voice, and Explanation in the Libyan Oil Sector

“…Hofstede"s four dimensions have scores for Arabic countries in general, and for Libya in particular as well as for Anglo-American countries (USA, UK, Canada, and Australia) which aids the comparisons. Another reason for choosing Hofstede"s model is that many authors have used Hofstede"s model to study the influence of culture on budgeting processes (Douglas et al 2007, Douglas & Wier 2005, Ueno & Wu 1993, Yee et al 2008). …”

“…Douglas and Wier (2005, p. 163) also state that "Hofstede"s Power Distance and Individualism are expected to influence organizational choices in budgetary system design". Douglas and Wier (2005) argue that subordinates in low power distance cultures are involved in planning and decision making (Douglas & Wier 2005, O'Connor 1995. In low power distance cultures, inferiors see their superiors as equal and employees expect their superiors to consult them and vice versa.…”

“…This means that participation between managers and employees will be expected to be less. Budgets will be imposed on employees from top levels without seeking subordinates" participation (Bjerke & Al-Meer 1993, Chong & Chong 2002, Douglas & Wier 2005, Harrison 1992, Hofstede 1968, Hofstede & Hofstede 2005, Lau & Buckland 2000, Lau & Tan 1998, Milani 1975, O'Connor 1995, Shields & Shields 1998, Tsui 2001. On the other hand, Anglo-American countries are classified as low PD.…”

“…Individuals may react differently to explanations due to individual diversity (Horvath, Ryan & Stierwalt 2000). Culture has the role of shaping organizational and individual values, a discipline ignored by much prior research (Douglas & Wier 2005). Horvath, Ryan and Stierwalt (2000) indicate that race and gender might interact in explanation of perceptions.…”