Can capital constraints restrain creativity? The spillover effect of budget constraints on employee creativity ESMT Working Paper, No. 17 All rights reserved. This document may be distributed for free -electronically or in print -in the same formats as it is available on the website of the ESMT (www.esmt.org) for non-commercial purposes. It is not allowed to produce any derivates of it without the written permission of ESMT.Find more ESMT working papers at ESMT faculty publications, SSRN, RePEc, and EconStor.July 10, 2017
ESMT Working Paper 17-03Can capital constraints restrain creativity? The spillover effect of budget constraints on employee creativity The Spillover Effect of Budget Constraints on Employee Creativity
Francis de Vericourt European School of Management and Technology
Jeffrey Hales Georgia Institute of Technology
Gilles Hilary Georgetown University
Jordan Samet Georgia Institute of TechnologyJune 30, 2017We would like to thank workshop participants at Georgia Institute of Technology, INSEAD, and the 2017 AAA/Deloitte Foundation/J. Michael Cook Doctoral Consortium for their helpful comments. In addition, we are grateful to Jeff Hawley for his excellent and attentive programming skills, and we would also like to thank Deborah Abrams and Peter Simasek for their coding assistance.
Can Capital Constraints Restrain Creativity? The Spillover Effect of Budget Constraints on Employee Creativity 1
AbstractWhen setting budgets, managers may place constraints on how resources can be used in an effort to mitigate opportunistic behavior by subordinates. These restrictions can affect the ability of the subordinate to succeed in the budgeted task, but may also have an unintended spillover effect on the ability to innovate. Using an experiment, we find that individuals working under higher budgetary constraints are more efficient in their use of budgeted resources, but are less successful in the budgeted tasks, than their counterparts working under lower budgetary constraints. Importantly, we find that imposing budgetary constraints also causes employees to subsequently generate fewer highly original and creative ideas in an unrelated activity. These findings suggest that budget structures can have unintended consequences on the innovative capabilities of organizations. This paper contributes to the expansive budgeting literature by showing budgetary control design has organizational performance implications beyond the specified budgeted activity.