Mitigating Budget Gap Behavior: An Experimental Study on the Role of Superiors’ Reputation in Information Asymmetry

Abstract

Background: The objective of this study is to examine the effect of superior reputation in reducing budgetary gaps within the context of information asymmetry in local government budgeting. The budgetary gap is a manifestation of the agency conflict between subordinates and superiors, where subordinates possess superior information due to their in-depth knowledge of the field conditions. Consequently, an information asymmetry arises between subordinates and superiors, leading to the occurrence of budgetary slack. Methods: The study employed an experimental research design, focusing on accounting students from the University of Muhammadiyah Jakarta as subjects. Purposive sampling was used to select accounting students who have completed the government accounting course as participants. The study took place at the University of Muhammadiyah Jakarta. The observation period took place between July and August 2022 at the Faculty of Economics and Business, University of Muhammadiyah Jakarta. The research examines the role of a superior reputation in mitigating budgetary gaps under conditions of information asymmetry. The experiment was conducted online, using a simulated environment. The study hypothesizes that superiors' reputation has a negative effect on budgetary slack, while information asymmetry has a positive effect on budgetary slack. Findings: Firstly, it is anticipated that the superiors' reputation has a negative impact on budgetary slack. Secondly, it is expected that information asymmetry has a positive impact on budgetary slack. Lastly, it is anticipated that the superiors' reputations have a negative impact on budgetary slack under conditions of information asymmetry Conclusion: The objective of this study is to contribute to the understanding of how superior reputation and information asymmetry interact in the context of local government budgeting. The findings from this study may provide insights into improving budgetary processes and reducing budget gaps. Practical Implications: The reputation of superiors who have competence and integrity can improve information asymmetry conditions and can reduce budget gaps.