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Research on the Relationship Between Executive Power and Budget Slack When Enterprises are Faced with Envirironmental Uncertainty

Last modified: May 3, 2022
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Project Title: Research on the Relationship Between Executive Power and Budget Slack When Enterprises are Faced with Envirironmental Uncertainty
Author: Miss Xie Linyu
Advisor: Dr. Li Chiao-Ming
Degree: Master of Business Administration (International Program)
Major: International Business Management
Faculty: Graduate Schools
Academic year: 2021


Conference Proceedings
2nd National and International Academic Conference “Innovation and Management for Sustainability” 15-16 December 2020


Xie, Linyu. (2021). Research on the relationship between executive power and budget slack when enterprises are faced with envirironmental uncertainty. (Master’s independent study). Bangkok: Siam University.


With the continuous development of economic globalization, the modern enterprise system has been constantly improved, the scale of enterprises continues to expand, and group listed enterprises continue to emerge. In order to continuously improve the market economic system, promote the development of listed enterprises, and enhance the international competitiveness of group enterprises, it is necessary to further explore the rationality of financial management modes under the centralized management system. Budget management plays an important role in modern enterprise management control theory. Its two basic functions are planning functions and incentive functions. However, there are still some problems in the actual application of budget management in enterprises, especially the opportunistic behavior of slack budget in the budgeting process, which has become a research hotspot. The centralized management mode of enterprises has inherent defects, that is, most parent companies directly appoint general managers, As a result, they form a situation of self-employment and self-policing, making it easier for management to reap the benefits of power. If corporate power is unbalanced, will management show power gains in the case of greater budgetary slack? Will the relationship between the management power and budgetary slack be affected? It is important to understand if and how there is a relationship between the power of management and budgetary slack. It can provide a new perspective for enterprises to establish perfect corporate governance mechanisms.

Based on the special background of Chinese listed companies, this paper choose A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2017 to 2019 as research samples, to study the relationship between management power and budgetary slack from the centralized management of listed companies. First, this paper reviewed the literature on management power and budget slack under centralized management mode by domestic and foreign scholars. Based on principal-agent theory, optimal contract theory and management power theory, this paper put forward two hypotheses, there was a positive relationship between expected management power and budget slack, and product market competition played a role in the relationship between them. Then, the sample data of listed companies were collected for empirical tests. Meanwhile, the robustness of research conclusions was tested by using the explanatory variables and other measurement methods of adjustable variables. Through empirical analysis, this paper explored that there was a positive correlation between management power and budget slack, and the weaker the product market competition, the stronger the positive correlation between management power and budget slack. Finally, this research expound the conclusion and current situation of the management of Listed Companies in China, and offered suggestions that the management power governance from three aspects: the improvement of corporate governance structure, the standardization of performance appraisal standards, and the improvement of managers market. At the same time, it also listed the shortcomings and future prospects of the study.

Keywords: environmental uncertainty, management power, budget slack.

Research on the Relationship Between Executive Power and Budget Slack When Enterprises are Faced with Envirironmental Uncertainty

Master of Business Administration (International Program), Siam University, Bangkok, Thailand