Does budget proposal evaluation intensity curb budgetary slack? Examining the role of myopic loss aversion under experimental in multiperiod setting

Purpose This study use myopic loss aversion theory to investigate the causal relationship between budget proposal evaluation intensity and budgetary slack under agency problems. In particular, this study aims to explore the amount of optimum evaluation intensity to generate slight slack. Design/methodology/approach This research used a 2 × 3 between-subjects laboratory experiment with a multiperiod setting and was conducted on 112 accounting students. Information asymmetry manipulates into two levels (high vs low), whereas the budget proposal evaluation intensity manipulates into three levels (high vs low vs undetermined). Findings High budget proposal evaluation intensity played a more crucial role than low or undetermined ones. The result shows that there was a nonlinear relationship between budget proposal evaluation intensity and slack. The decrease in slack did not always accompany an increase in evaluation intensity. Therefore, it did not need increased evaluation intensity but proportional and optimum evaluation intensity to create slight slack. Originality/value This study provides new empirical evidence regarding the nonlinear relationship in budget evaluation. An excessive evaluation intensity can trigger fear immunity, thereby increasing budgetary slack. This study has also strived to reduce an overlapping concept of increased evaluation intensity and optimum evaluation intensity to create slight slack by applying the right basic concept during the experiment.