The purpose of this study is to investigate the effect of an agent's ability to provide discretionary information regarding profitability in a budgeting context. The setting I employ captures important elements of many organization’s budgeting systems, such as information asymmetry, limited liability of employees and limitations on commitment by superiors. Through the use of an experiment I investigate whether providing an agent with a cost signaling capability decreases agency costs and increases efficiency, despite the fact that the signal’s use is optional and the principal cannot commit to how the signal will be used.
The remainder of this paper is organized into six sections. In the next section, I provide a brief review of literature to identify the specific research questions which I address. In section three, I outline my laboratory experiment and, in section four, I provide an overview of my hypotheses. The fifth and sixth sections contain the results and conclusions, respectively.
Contents
Section I: Introduction
Section II: Literature Review
Section III: Experimental Setting
Section III (A): Benchmark Setting
Section III (B) Treatments
Section IV: Hypotheses
Section V: Results and Discussion
Section VI: Conclusions
References
Appendix A: Instructions
Appendix B: Post-Hoc Questionnaire
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