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  • 2010
  • Article
  • Management Science

Budgeting, Psychological Contracts, and Budgetary Misreporting

By: Susanna Gallani, Ranjani Krishnan, Eric J. Marinich and Michael D. Shields
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Abstract

This study examines the effect of psychological contract breach on budgetary misreporting. Psychological contracts are mental models or schemas that govern how employees understand their exchange relationships with their employers. Psychological contract breach leads to feelings of violation and can occur even when employees’ economic contracts are fulfilled. We study the effects of psychological contract breach on three common types of employee participation in budgeting that differ in the degree of employees’ influence over their approved budgets. These include affirmative budgeting (full influence), consultative budgeting (moderate influence), and authoritative budgeting (low influence). When organizations communicate that employees will be involved in budgeting, employees develop psychological contracts of affirmative budgeting. If employees subsequently experience authoritative or consultative budgeting, their psychological contracts are breached. Employees who experience psychological contract breach seek redress through budgetary misreporting. Experimental results indicate that psychological contract breach partially mediates the relation between budgeting type and budgetary misreporting. Results also indicate asymmetry in the effects of psychological contract breach versus repair. Effects of breach on budgetary misreporting persist even after the breach no longer occurs.

Keywords

Budgeting; Psychological Contracts; Misreporting; Budgets and Budgeting; Employees; Trust

Citation

Gallani, Susanna, Ranjani Krishnan, Eric J. Marinich, and Michael D. Shields. "Budgeting, Psychological Contracts, and Budgetary Misreporting." Management Science 65, no. 6 (June 2019): 2924–2945.
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About The Author

Susanna Gallani

Accounting and Management
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  • Job Design and Workers’ Wellbeing: Evidence from a Hospital Setting By: Susanna Gallani and Jacob Riegler
  • Addressing Social Determinants of Health in the American Landscape By: Susanna Gallani and Jacob Riegler
  • The Effects of Electronic Medical Records on Hospital Utilization Costs By: Susanna Gallani, Luminita Enache, Xue Guo and Eddie Riedl
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