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The Relationship Between Psychological Contracts and Budgetary Slack
Sukari Farrington, University of South Carolina
Scott Jackson, University of South Carolina
ABSTRACT. The employee-employer relationship is incapable of being fully captured by explicit contracts, so psychological contracts fill in the gaps regarding the on-going, mutual obligations between these parties. In this study, we formulate and experimentally test hypotheses about the relationship between psychological contract fulfillment/violation and budgetary slack. The results of our experiment suggests that managers (i) include more slack in their operating budgets, (ii) perceive that it is ethically acceptable to include more slack in their operating budgets and, (iii) ascribe less importance to the goal of submitting an accurate operating budget when the employer violates a psychological contract rather than fulfills a psychological contract. Thus, when a psychological contract is violated, our results not only suggest that the budgeting process may be frustrated, but that managers’ behaviors may be revised to include behaviors that would otherwise be viewed as unacceptable.
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