What Participative Budgeting Experiments Reveal about Agency Theory : Responsibility, Transparency, and Accountability

We argue that recent participative budgeting experiments designed to extend agency theory reveal the effects of responsibility, transparency, and accountability. We define these three theoretical constructs and present two experiments designed to isolate their main and interactive effects. In Experiment 1, we show that subordinates who score high in responsibility report more honestly in the absence of transparency and accountability as captured by an information system and face-to-face budget reporting. We also show that transparency and accountability increase reporting honesty independently and interactively. In Experiment 2, we maintain face-to-face budget reporting and show that the responsibility effect we document can be crowded out by the superior’s choice to implement the information system. While all subordinates perceive the superior’s choice as a signal of distrust, only high responsibility subordinates report less honestly as a result. We examine alternative theoretical frameworks that could be integrated with agency theory to explain our results