Procedural Justice and Information Sharing During the Budgeting Process

Prior studies in accounting argue that subordinates have private information about their areas of responsibility and that revelation of such information benefits the organization. This study investigates factors that encourage subordinates to share this information with their superiors during the budgeting process. According to the proposed theory, the fairness of the budgeting system, specifically its procedural justice, influences the degree of information sharing. If the subordinate believes that budgeting procedures are fair, the subordinate is more likely to disclose private information during the budgeting process.

We conduct an anonymous survey of supervisors and managers in four companies. Regression model is developed with information sharing as the dependent variable. Independent variables include procedural justice of budgeting system and also budget participation and organizational commitment, variables that prior studies have identified as important in information sharing.

Results support the proposed model in general. The three independent variables (procedural justice, budget participation, commitment) interact in their effect on information sharing.

Results suggest that companies that seek the private information of subordinates should consider the fairness of the budgeting system. Fair procedures encourage information exchange.