Agency and Structure in Budgeting, Thesis, Antithesis and Synthesis

Critical Perspectives on Accounting 22 (2011) 183199
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Critical Perspectives on Accounting

journal homepage: www.elsevier.com/locate/cpa
Agency and structure in budgeting: Thesis, antithesis and synthesis

Eksa Kilfoyle a , Alan J. Richardson b,
a
b
Odette School of Business, University of Windsor, Windsor, Ontario, Canada

Schulich School of Business, York University, Toronto, Ontario, Canada
a r t i c l e
i n f o
Article history:
Received 23 March 2009
Received in revised form
27 November 2009
Accepted 22 June 2010
a b s t r a c t
The accounting literature has used agent-centered and structure-centered theories to
explain the design, operation and consequences of budgeting systems. These perspectives have traditionally been presented as alternative and mutually exclusive approaches
to understanding budgeting phenomena as thesis and antithesis. We return to Macintosh
and Scapens (1990) call to reexamine the relationship between agency and structure in
management accounting research and explore the emerging synthesis that could provide
new directions for research on budgeting.
2010 Elsevier Ltd. All rights reserved.
1. Introduction
A central issue in the social sciences has been to understand the relationship between, or relative inuence of, individual
agency and social structures in guiding action. The traditional literature has developed two distinct views of this relationship and spawned a continuing debate about the extent to which people exercise free-will versus having their actions
determined by their social position and social norms. In European social science this issue is reected in the debate between
agency and structure while in North American social science the debate has been cast as the divide between macro- and
micro-approaches to understanding social order and action (Ritzer and Goodman, 2004, Chapter 1011). This debate is also
evident within the accounting literature but rarely have we seen an explicit confrontation of views (Collin et al., 2009).
Instead the accounting literature developed as two solitudes with, at the risk of caricature, a voluntaristic and reductionist
vision (Tinker, 1984) of accounting phenomena based on economics dominating North American journals and a culturally
determined vision of accounting (Burchell et al., 1980; Hopwood and Miller, 1994) drawing on social and political theories
dominating European journals.
In political and social theory attempts have been made to escape from the dichotomy between agency/structure and
micro/macro-approaches. In general there have been two broad strategies. One approach is to regard agency and structure
as mutually constitutive such as in structuration theory (Giddens, 1984) or in Bourdieus (1977) notion of habitus. These
approaches explore the way in which people draw on norms and institutionalized knowledge to skillfully produce social
order while simultaneously reafrming and reasserting the inuence of social structures. Another approach is to refocus
attention away from both agents and structures in favour of situated practices and the act of being (Schatzki, 2001; see
also Archer, 1995, 2000, 2003). Practices are dened as embodied, materially mediated arrays of human activity centrally
organized around shared practical understanding (Schatzki, 2001, p. 2). Practice theory takes these arrays of activities as
the essence of reality; this requires a site ontology (Schatzki, 2003) that discounts the primacy of either agency or social
structures in favour of lived experience.
Corresponding author.
E-mail address: arichardson@schulich.yorku.ca (A.J. Richardson).
1045-2354/$ see front matter 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cpa.2010.06.013
184
E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199
Table 1
Agency and structure in budgeting research.
System design
Budgeting behavior
Agent-centered theory
Contingency theory
Maximizing organizational performance by
ensuring technical congruence between
budgeting systems and environmental and
organizational contingencies
Agency theory
Budgeting systems overcome agency costs in
organizations
Budget behaviors represent negotiations
between principal and agent
Structure-centered theory
Institutional theory
Designing budgeting systems to meet coercive,
normative and mimetic pressures for
isomorphism
Budget design changes as the institutional
context of organizations change
Institutional theory
Loose coupling between operations and
budgeting systems to allow symbolic
compliance with institutional norms
Budgets reect the distribution of power
within organizations
Duality-centered theory
Structuration theory
The distinction between system design and behavior disappears: the budgeting system is reproduced
through practice
Change in budgeting practice is endogenous, reecting skilled agents use of multiple structures and
creativity in addressing practical issues
In this paper we examine the tension between structure and agency as it has been reected in the literature on budgeting
and return to the suggestions of Macintosh and Scapens (1990, 1991) and Macintosh (1995) on the use of structuration
theory in management accounting. Budgeting is one of the most widely studied topics in management accounting (Luft
and Shields, 2003). The literature historically was dominated by agent-centered models of budgeting such as contingency
theory at the level of system design (Daft and MacIntosh, 1978, 1981, 1984; Macintosh, 1981; Macintosh and Daft, 1987;
Williams et al., 1990) and agency theory, and behavioral issues derived from agency theory, at the level of budget related
behaviors (Baiman, 1990; Lambert, 2007; Williams et al., 1990). However, a growing number of budgeting studies adopt an
institutional perspective and explore the inuence of social norms and institutionalized knowledge on budgeting processes
(Abernathy and Chua, 1996; Burns and Scapens, 2000; Covaleski and Dirsmith, 1983, 1986, 1988a, 1988b; Ezzamel et al.,
2007) and the place of budgets and budgeting within broader social systems (Berland and Chiapello, 2009).
In addition to these parallel streams of research emphasizing either the role of agency or social structures in budgeting,
there is work emphasizing the interaction between agency and structure or the synthesis of agency and structure (Covaleski
et al., 2003a, 2003b; Eisenhardt, 1988; Scapens, 1994; Shields and Shields, 1998). The attempt to nd a synthesis between
agency and structure in the budgeting literature has drawn particularly on the structuration model developed by Giddens
and advocated for use in management accounting research by Macintosh and Scapens (1990, 1991). Current work in this area
is addressing some of the empirical limitations of structuration theory (Parker, 2006; Stones, 2005) and gaining renewed
momentum in exploring management accounting and budgeting issues (Coad and Herbert, 2009; Englund and Gerdin, 2008;
Jack and Kholeifa, 2007).
We proceed as follows. First, we examine the budgeting studies that have adopted either an agent-centered perspective
or structure-centered (classic institutional) perspective. Our goal is to identify the ways in which each stream of research
has recognized the need for some form of rapprochement with the other and the strategies used to incorporate structural concerns into agent-centered work on budgeting and, conversely, the strategies used to incorporate agency into
structure-focused work on budgeting. Second, we identify approaches to integrating agency and institutional perspectives
that maintain each as a distinct category for analysis (i.e. an ontology of dualism). Finally, we examine frameworks that
attempt to dissolve the separation of agency and structure in the budgeting literature (i.e. an ontology of duality), focusing
particularly on Giddens structuration theory, and comment on areas for future development. We do not provide a comprehensive review of budgeting studies, but discuss studies that illustrate the issues highlighted in our analysis. The basic
distinctions we make throughout the paper are summarized in Table 1.
2. Budgeting studies: agent-centered theory
The rst set of literature we consider emphasizes the role of the agent in budgeting. We begin with agency theory and
its emphasis on the resource allocation and performance evaluation roles of budgeting within organizations. We then turn
to consider contingency theory. We focus on the role of agents in contingency theory who use the t between management
control systems and contextual contingencies in order to pursue their self-interest. In both of these literatures, the priority
is on the role of agents acting independently of their social identity or history.
2.1. Agency theory and budgeting
One way of conceptualizing the budgeting process is to focus on the allocation of resources and responsibility in organizations. Drawing on contracting models, the person delegating authority and authorizing the use of resources can be
considered as a principal while the person to whom authority is delegated and resources entrusted is the agent. The
185
budgeting process within this perspective allows principals and agents to negotiate contracts and establish mechanisms for
monitoring/reporting results and compensating the agents for their efforts. The budget is thus conceptualized as a contract
that species the rights and responsibilities of the parties involved. Agency theory assumes that individuals are motivated
by self-interest and that the agent has information that the principal can only access at a cost. The challenge is to ensure
that the self-interested individuals do not act against the principals well being in an organizational setting. A well-designed
contract, i.e. budget and budget-based compensation scheme, would serve the purpose of aligning the interest of the agent
with that of the principal.
Following Baiman (1990), we recognize three branches of agency theory that could be applied to budgeting issues:
transaction cost economics theory, positive accounting theory and principalagent theory. All three branches are interested
in the agency problem that results from the divergence between the interests of the agents and the principals and in the
contracts that govern the agentprincipal relationship to mitigate the potential inefciencies resulting from this agency
problem. But the three branches differ in their focus and their underlying assumptions as discussed below.
The transaction cost economics branch assumes that individuals are characterized by bounded rationality and opportunism and as a result the contracts that govern the principalagent relationship are incomplete (i.e. because of bounded
rationality they cannot take into consideration all the possible contingencies) (Williamson, 1979). In addition, these contracts need to be self-enforcing because transaction cost economics assumes that third parties cannot enforce these contracts
without cost. The focus of management accounting research that draws on transaction cost economics has been the identication of governance systems (i.e. management control systems including budgeting systems) that minimize transaction
costs. The incomplete nature of the ex ante contract results in a need to have governance structures that can minimize
ex post bargaining that might occur due to unforeseen contingencies (Baiman, 1990). Spekle (2001), for example, drawing
on transaction cost economics, developed nine management accounting control archetypes for organizational transactions
characterized by different levels of uncertainty, asset specicity and information asymmetry. Transaction cost economics
has not been widely used in budgeting related research studies (although it has been used in political science with regard
to public sector budgets, e.g. Patashnik, 1996).
The positive accounting or Rochester model of agency theory also assumes that individuals have bounded rationality
and that observed contracts are optimal given transaction costs (Baiman, 1990, p. 349). This branch of the agency literature
tries to understand the emergence of the agency problem and the contracts and organizational structures that can mitigate
it while allocating a much more central role to efcient labor and capital markets in resolving agency problems (Baiman,
1990). This branch of the agency theory has contributed to both the nancial accounting and management control literatures
(cf. Zimmerman, 2003). But, again, it has not been widely used in budgeting research (Collin et al., 2009).
The third branch of the agency theory literature developed from the principalagent model developed by Jensen and
Meckling (1976). This has been the most widely used agency perspective in the budgeting literature (Brown et al., 2009;
Covaleski et al., 2003a, 2003b). Unlike transaction cost economics and the Rochester model, the principalagent model
assumes that individuals are rational and that they can take into consideration all contingencies in an ex ante contract that
governs the principalagent relationship. So, the contract is complete and is assumed to be enforced by third parties (i.e.
courts) at no cost and as a result self-enforcement is not required (Baiman, 1990). In this model, the individuals actions
result from personal preferences and beliefs. The risk-averse, work-averse agent holds information that can be purchased
by the principal through the design of risk-sharing and incentive contracts (Baiman, 1990). We discuss the use of this version
of agency theory in budgeting research in the following sections.
2.2. Budgeting from a principal/agent perspective
Budgeting studies that have used the principalagent model can be classied as either analytical or empirical. Analytical
studies are sometimes tested in experimental work where the purpose of the analytical work is to devise incentive systems
to promote information disclosure during budget negotiations or to prevent the use of operational or accounting means to
manage the reported results (Chow et al., 1988, 1994).
2.2.1. Analytical studies
The aim of analytic studies is to develop models that are simple representations of the context in which the principalagent
interaction takes place and to determine the economically efcient contractual agreement between the principal and agent
given certain environmental conditions. Operating under the assumption of information asymmetry and rationality, these
studies address questions such as the efciency of budget-based compensation schemes compared with other types of
contracts (Demski and Feltham, 1978) or how to use budget-based compensation schemes to motivate the risk-averse, effortaverse agent to be truthful when he is communicating his knowledge to the principal (Kirby et al., 1991; Weitzman, 1976).
Another question of interest has been the effect of ratcheting budget targets on motivation and performance (Anderson et
al., 2010; Weitzman, 1980). Ratcheting refers to adjusting the future periods budget based on the performance in the last
period. These analytical studies have also focused on the benets of communication of the agents private information to
both the principal and the agent (Christensen, 1982; Christensen and Feltham, 2005).
These studies provide simple representations of complex organizational realities and in doing so suffer from limitations
that result from leaving out variables such as the effect of contracting over multiple periods (Weitzman, 1980), the social
costs and benets of production independently of the costs and benets to the principal and agent (Weitzman, 1976), and
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the costs of operating various contracting systems (Baiman, 1990). In addition, the contractual schemes that emerge from
these studies have limited applicability in practice due to the over simplication of the context (Baiman, 1990). In spite of
the limitations of analytic models they do anticipate the key problems addressed in empirical studies, specically the role of
participation of subordinates in setting budget targets and the potential that participation will result in suboptimal budgets
in terms of both resource allocation and motivation.
2.2.2. Participatory budgeting
The studies on participation in budgeting have tried to understand how the principal can benet from the private information of a self-interested agent without suffering from the agents propensity to bias the budget in order to minimize effort
and risk, and maximize wealth (e.g. Brown et al., 2009; Young, 1985). The ndings of this body of research on budgeting have
been inconclusive partly due to an inconsistent use of moderators, mediators, independent and dependent variables from
study to study (Shields and Shields, 1998; Webb, 2002). In their review of the participatory budgeting literature, Shields and
Shields (1998) and Brown et al. (2009) argue that combining psychological and economic theories could provide a means
to overcome the conicting results of previous work. The need to integrate psychological variables into empirical work
recognizes that agents do not behave in the economically rational way anticipated by analytic models. We return to the
modications in the budgeting literature that this concern has engendered in the next section.
Selto and Widener (2001, p. 14) examined the relationship between practice and research in management accounting
and found that participative budgeting . . .appears to be of little current, practical interest, but continues to attract research
efforts, perhaps because of the interesting theoretical issues it presents. While the theoretical issues alluded to refer primarily to the puzzle of contract design arising from agency theory, the gap between the literature and practice concerns may
have more to do with how participation is being conceptualized than with the lack of human agency in budget processes.
Specically, the focus on budgeting as an adversarial negotiation rather than as a performative1 act (i.e. a skilled practice)
allows hypotheses to be developed and tested but removes the topic of research from the lived experience of managers and
accountants (Tomkins and Groves, 1983).
A performative view of budgets moves away from an evaluation of the expected outcomes of budgeting (e.g. the planning and control functions of budgets, Hansen et al., 2003) to focus instead on what happens while budgeting is being done.
Hansen et al. (2003) note that the failure of traditional budgeting in practice has encouraged two markedly different proposals: one to eliminate budgeting (the beyond budgeting literature) and the other to improve budgeting (the activity based
budgeting literature). Interestingly the common theme in both of these approaches is to remove budgeting from hierarchical processes (the principal/agent relationship) either to focus on operational processes (activity based budgeting) or to
focus on empowerment and self-control (beyond budgeting). Both of these suggestions recognize the performative role of
budgets and focus on budgets as a means of activating local knowledge. Both suggestions also advocate using benchmarks
to guide operations and evaluate performance. The use of benchmarks formalizes the role of norms (structures) beyond the
principal/agent relationship.
2.2.3. Budgetary slack and budgetary bias
The literature on budgetary slack looks at the effect of variables such as budget emphasis, budgetary participation and
information asymmetry on the creation of budgetary slack (dened as the difference between the budgeted resources and
the resources required to efciently achieve goals). The empirical studies based on simplied agency theoretical frameworks
have resulted in contradictory ndings (Brown et al., 2009; Webb, 2002). For example while some agency theory studies
have found a positive relationship between slack and budget-based compensation schemes (Young, 1985) others have
found this to hold true only under certain goal characteristics (Yuen, 2004). Webb (2002) found that contradictory ndings
of agency theory studies can be reconciled if additional factors such as the rms variance investigation policy and the agents
concern for their reputation are taken into consideration. He also notes that agents preoccupation with reputation identied
in empirical work could not always be explained within the principalagent paradigm, establishing a need for additional
explanatory variables that might emerge from other theoretical perspectives. This trend to add explanatory variables that are
not consistent with the principalagent paradigm is also present in more recent budgeting studies. For example, Schatzberg
and Stevens (2008), in an attempt to understand a decrease in opportunistic behavior that is inconsistent with agency theory
predictions, examine the effects of fairness and ethics concerns on public and private forms of opportunism. They nd that
fairness concerns reduce both budgetary slack and low effort whereas ethical concerns only reduce low effort.
There is also continuing evidence that budgetary slack may have positive organizational consequences contrary to the
basic agency theory model. For example, slack resources may be used to handle uncertain environments or to allow subunits
to deal with non-nancial goals such as increased demands for service quality (Davila and Wouters, 2005; Marginson and
Ogden, 2005). These types of studies require a more nuanced understanding of the relationship between the principal and
agent than is usually seen in agency theory based studies. The need for a broader perspective to understanding budgetary
slack has also been expressed by Lukka (1988). Lukka (1988) develops a model including the principalagent dyad, the
1
The term performative comes from linguistic theory where a speech act is the intended outcome and not a reference to something else. In sociological
literature, it refers to acts that create a social reality and hence cannot be referred to as existing separately from that reality: the act of describing/referring
to something is also the act that brings the thing described into being.
187
organizational context, and the factors that impact the planning stage and implementation stage of budgets to understand
budgetary bias. Blanchard et al. (1986) further expand consideration of the context in which budgeting occurs by looking
at the effect of regulatory incentives coming from the external environment on budgetary bias in hospitals. The context
in which budgeting occurs, both the organizational context and the broader social context, is recognized as an important
variable but the agency perspective limits conceptualization of the environment as affecting the information set and
incentives of agents (Brown et al., 2009).
One of the interesting developments in this literature is to relax the assumption of purely self-interested and opportunistic
agents, for example, by adding honesty to the preference function of agents (e.g. Mittendorf, 2006; Rankin et al., 2008,
compared with earlier work such as Chow et al., 1988). This change reects the empirical observation that agents do not
always take advantage of the opportunities to maximize self-interest in negotiations. In addition there is evidence that
subordinates may value participation in the budgeting process in its own right (Dunk, 1993). While modifying the agents
preference function to include honesty and/or utility from participation may address the empirical inconsistencies in the
literature, it may be more productive theoretically to allow managers to be affected by social structures (thus making their
preference functions endogenous) rather than introducing ad hoc changes to the principal/agent model (Zizzo, 2008). We
will return to this issue below.
The majority of studies of budget participation focus on a single period and a single agent. Both of these characteristics of
the budget setting are being extended in recent work. Fisher et al. (2000, 2002, 2006) have examined multi-period settings
and concluded that some of the multi-period ndings have greater relevance to organizational settings than previous single
period results. Others have examined situations where there are multiple agents and hence there is potential for whistleblowing or the enforcement of social norms with regard to the creation of budgetary slack, or where the reputation of the
agent may be affected (Sprinkle, 2003; Stevens, 2002; Webb, 2002). These studies recognize the need to bring in structural
elements as either social constraints or the transfer of information through time but do so in an atheoretical manner, i.e.
without explicitly theorizing the existence of structures and their relationship to agents, these additions to empirical models
of agents behavior have no formal theoretical status.
2.3. Contingency theory and budgeting
Contingency theory in accounting is concerned with the t between the design of management accounting and control
systems (MACS) and various environmental and organizational variables such as environmental uncertainty and the size of
the organization (Chenall, 2003). Recent work has emphasized the need for the design of the MACS to t the strategy of the
organization. The assumption is made that the degree of t affects the overall performance of the organization, i.e. a mist
between the design of MACS and these contingencies will result in a performance decit.2 The role of agents within this theory
is to monitor the environment and to modify organizational processes to allow the organization to implement its strategy.
It is important to distinguish the environment envisioned by contingency theorists and that envisioned by institutional theorists discussed below. The contingency environment consists of technical characteristics, such as environmental
dynamism and uncertainty, which affect the information set needed to make management decisions, such as budget allocations, and the distribution of information over the management hierarchy. The institutional environment, by contrast,
consists of norms and social rationalities that provide a context for the social evaluation of the organizations performance.
Contingency theory thus conceptualizes the failure of agents to manage the alignment between budgeting and contingencies
as a technical (information) failure while institutional theory would regard this as a moral failure, i.e. a failure to comply
with social values.
Although contingency theory does not consider process issues, implicit in the model is the idea that self-interested
managers constantly monitor the t between organizational processes and contingencies and revise organizational processes
to maintain t as these contingencies change (what Orlikowski, 1996, refers to as the planned change model, see also Kaplan
and Norton, 2006, on the importance of alignment in organizations). The model is thus based on a rational agent acting
to maximize their self-interest. Ittner and Larcker (2001, p. 376), for example, identify contingency theory as part of the set
of rational agent models: . . .economic and contingency theories in managerial accounting emphasize both the decisionmaking process and the development of performance measures and compensation plans that encourage employees to take
the actions desired by the owners of the rm. By contrast, institutional theory motivates the agents role in managing
institutional demands either as a concern over legitimacy or as a preconscious acting out of habit and socialized values. The
connection between contingency theory and rational choice has been reinforced in recent models that emphasize the role
of strategy as a key variable. Since corporate strategy is regarded as subject to managerial discretion, this variable allows
the agent to be explicitly asserted within contingency theory (Chapman, 2005; Chenall, 2003; Langeld-Smith, 1997).
The contingency model has been used to predict both broad dimensions of MACS design such as the relative emphasis
on organic versus mechanical control mechanisms (Chenall, 2003, p. 133) and more specic features such as the use
of formal budgeting processes. Within the contingency framework however [b]udgeting is approached at a broad system
2
Note that t is a necessary but not sufcient condition for organizational success so all contingency theory predictions apply to populations of
organizations, i.e. even though a rm has aligned its management accounting system with environmental contingencies, this does not guarantee that the
rm will generate optimum performance.
188
level, rather than focusing on one or a few specic variables, such as participation (Merchant, 1984, p. 291). The purpose is
thus to establish, in general terms, under what conditions a rational agent would include a formal budgeting system within
MACS and how the emphasis on the budget might vary under various conditions.
In spite of its emphasis on rational design choices, contingency theory has incorporated some structural elements (i.e.
normative elements beyond rational self-interest); notably to allow for the effect of national cultures on the design of
control systems. Culture in contingency studies is usually operationalized through Hofstedes model of cultural values so
that culture enters the equation through the attributes of agents rather than as a variable that can directly change and interact
with MACS as is suggested by institutional theory. Chenall (2003, p. 139) has also noted the importance of understanding
how the environmental characteristics that are central to contingency theory are channeled into organizations. This he notes,
citing Granlund and Lukka (1998), is the domain of institutional theory.
Chenalls (2003) review of the contingency literature ends by considering the potential connection between contingency
theory and other literatures. He sees, for example, clear connections between agency theory concerns with incentive effects
and contingency theory but also considers the integration of institutional theory and contingency theory:
Many of the insights concerning the role of institutions within society on the adoption of MCS can be combined
readily with contingency concepts . . . Also, the way in which power is implicated in the adoption and use of MCS to
effect resource distribution or induce change can be examined within contingency-based approaches (Chenall, 2003,
p. 160).
However he also cautions:
Some commentators claim that different theories offer fundamentally different insights into the nature of MCS and
should not be blended but kept separate providing alternative ways of understanding the multiple roles of MCS in
organizations. Any attempt at amalgamation is unlikely to attain a true synthesis as one theory inevitable subsumes
others. . . (Chenall, 2003, p. 160).
3. Budgeting studies: institutional theory framework
Another way to conceptualize budgeting is as an organizational level process that contributes to the management of
the internal power dynamics and institutional evaluations of an organization. That is, the budgeting process helps the
organization to comply with the social norms that are used to determine the legitimacy of the organization (or subunit)
within its specic context. In 1978, Hopwood appealed for a more dynamic appreciation of accounting in its organizational
context (Miller, 1994, p. 5). This call stimulated research studies on accounting in organizational contexts as well as studies
that went beyond the organizational boundaries to analyze the interaction between organizations and wider social and
economic environments. From this perspective both the consequences of the budgeting process and the form of the budgeting
process are signicant as signals of the organizations social position. In this section, we will provide an overview of classic
institutional theory as it has been applied in the management accounting literature and then review budgeting studies
adopting an institutional perspective.
3.1. Classic institutional theory
Organizations operate within a legal, political and regulatory environment that imposes certain demands on these organizations. Classic organization institutional theory focuses on the effect of institutional requirements on organizational
processes and power relations (Collier, 2001). Institutional theory states that organizational survival will depend as much
on conformity with the norms/rules that structure an organizational eld as on the efciency of its production activities
(DiMaggio and Powell, 1983). The requirements of the socio-political and regulatory environment become rules through
the process of institutionalization and organizations gain legitimacy by accepting and following these institutionalized rules
(Meyer and Rowan, 1977). Within organizations, coalitions and power structures dene the organizational frame of reference.
When the intra-organizational institutions are inconsistent with the demands of external norms and values, decoupling may
occur (Meyer and Rowan, 1977), that is the organizations structures and formal processes are followed as rituals to provide
symbolic compliance while actual practices follow a different logic. This allows the organization to displace internal conict
and continue its day-to-day technical operations while maintaining its legitimacy in the eyes of external observers. Budgeting
studies drawing on institutional theory argue that, in part, budgeting practices provide means through which this decoupling
process occurs (Collier, 2001; Covaleski and Dirsmith, 1988a, 1988b; Nyland and Pettersen, 2004; Perez and Robson, 1999).
Institutional theory is also concerned with similarities, or isomorphism, of organizational practices (i.e. budgeting) in
organizations with different characteristics (DiMaggio and Powell, 1983). Four types of isomorphism are identied: competitive, mimetic, coercive and normative. Competitive isomorphism arises when organizations adopt the most efcient
procedures in the face of market competition. This form of isomorphism is anticipated in economic models of markets
and organizations. The remaining three forms of isomorphism arise from institutional sources rather than competition.
Mimetic isomorphism results from organizations operating under conditions of uncertainty imitating other organizations
to gain legitimacy and acceptance; coercive isomorphism refers to organizations being forced to adopt certain practices from
external entities such as regulators or key resource providers; and normative isomorphism involves the use of professional
189
knowledge as a sanctioned model for organizational action (DiMaggio and Powell, 1983). Budgeting processes thus may
become similar across organizations within an organizational eld due to common regulatory processes, shared exemplars
in the face of uncertainty, or shared reliance on the same professional expertise.
Classic institutional theory thus looks at how organizations gain legitimacy and survive by conforming to expectations that
have been institutionalized. It did not explain how these expectations came to exist and the choice that organizations/agents
may have in deciding to conform or not to conform to these expectations. The role of agency in the institutionalization
process was largely ignored in early institutional literature (Covaleski and Dirsmith, 1988a, 1988b). Another point on which
institutional theory has been questioned has been to what extent and how can the internal operations remain decoupled
from these external pressures (Covaleski and Dirsmith, 1988a, 1988b). The process of decoupling suggests that there is active
agency operating within the organization out of reach of institutional pressures but such agency is not consistent with the
ontology of classic institutionalism.
3.2. Budgeting from a classic institutional perspective
Budgeting studies adopting a classic institutional theory framework focus on the role of the budget in the interactions
between the organization and the institutional environment. These studies look at the use of budgeting as a means of
communicating organizational values to external agencies and as a means of conforming to societal expectations. Wildavsky
(1975: cited in Covaleski et al., 2003a, 2003b) summarizes the question of interest in budgets from a sociological perspective:
The reasons for studying budgets. . . are many. It exists. The people in it care about what they do. Their actions are
important to many others. Budgeting systems achieve many purposes beyond control, that they are at once forms and
sources of power. . . The bonds between budgeting and politicking are intimate. Realistic budgets are an expression
of practical politics.
3.2.1. Budgeting and the macro-institutional environment
A small number of studies have considered the effect of changes in broad social values or institutional logics on the
budgeting process. This approach stems from a general appreciation for the connection between broad philosophies (also
referred to as rationalities or institutional logics) in society and the development of specic technologies of governance
(Macintosh and Scapens, 1991; Miller and Rose, 1990). Institutional logics are dened as: the socially constructed, historical
patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their
material subsistence, organize time and space, and provide meaning to their social reality (Thornton and Ocasio, 1999, p.
804). There are multiple institutional logics in society hence the logic that informs action in a particular place and time
must be explained. For example, universities can be conceived as public service providers who should be independent of
short-term economic interests or as commercial entities through which knowledge is commoditized and knowledge workers
produced. Which of these institutional logics is applied to universities will have profound implications for what is valued
within the university and how budget processes and performance evaluations will be conducted.
Barley and Kunda (1992) provide a general framework for this concern in the context of organizational control systems
with their examination of the cycles of emphasis on normative versus rational controls that have occurred over the history
of US capitalism. They attribute these cycles to the dualism embedded in US society of self-interest versus communality.
Associated with the antinomies poles are opposing solutions to the problem of control: normative control and
regimes of trust versus rational control and regimes of self-interest. For those who run corporations, this dualism often
evinces itself in the practical issue of how to prevent anomie, construed as lack of commitment, while reaping the
benets of the very rationalization that exacerbates anomie. It should therefore come as no surprise that managerial
ideologies trafc in notions of both normative and rational control. However, as structural anthropologists note,
because cultural dualisms are ontologically incompatible, they can never be resolved even by the most cunning theory.
All one can expect is to cope with the incommensurates (Barley and Kunda, 1992, p. 386).
Regimes of trust are built on social structures that reduce uncertainty in social interaction and provide norms for anticipating others actions; rational control is built on a voluntaristic version of agency. The switch from a focus on agency to
a focus on structure in control systems is attributed by Barley and Kunda (1992) to changes in the power of labor versus
capital in the context of the business cycle.
More specically with regard to accounting systems, Covaleski et al. (2003a, 2003b) examine how the deregulation of the
California energy market affected the set of accounting techniques used in energy rms. The move from regulated markets to
deregulated markets changes the relative emphasis of organizational behavior from compliance with institutional structures
to agent-focused behaviors in reaction to other agents in the marketplace. Accounting procedures mirror, facilitate and enact
these changes. Narrowing even further to consider the development of budgeting, Berland and Chiapello (2009) trace the
link between the adoption of budgetary control in France during the 1930s and 1950s and the social reform movements
active at that time. They demonstrate that the critiques of capitalism by social reformers are picked up by the avant garde
of management and reected in changes in budgeting processes.
The form and content of budgeting is seen in these studies to reect broader social values or institutional logics. A basic
idea is that there are multiple structures/logics/rationalities at a social level so that the specic institutional values that
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will impinge on budgeting processes in a given time period are variable. To reect back on the contingency theory of management accounting systems, this is to suggest that any contingent relationships found empirically will reect temporally
and culturally specic norms of operation rather than universal and stable causal mechanisms (cf. Gergen, 1973). Agency
enters these models through the role of managers in responding strategically to institutional pressures or choosing between
structural alternatives in the environment, each of which could serve as a basis for legitimacy claims. These roles for agents
within classical institutional theory are poorly specied and current work in that area is seeking ways to bring agency into
institutional theory (Lawrence et al., 2009; Lounsbury, 2008).
3.2.2. Budgeting and the micro-institutional environment
Budgeting research adopting an institutional perspective is also interested in the role of budgets, and of the budgeting
process, in interactions between politically diverse interest groups within the organization. It explores how budgets are used
to manage different institutional requirements and to protect the interests of certain coalitions within the organization. For
example, when institutional requirements are contradictory to what the organizational players nd to be desirable behavior,
budgets can be used to decouple the legitimizing behaviors from day-to-day operations (Abernathy and Chua, 1996; Nyland
and Pettersen, 2004; Siti-Nabiha and Scapens, 2005).
Budgeting studies have also shown that power and self-interest can be expressed through the budgeting process (Collier,
2001; Covaleski and Dirsmith, 1988a, 1988b). Collier (2001), for example, shows how a coalition of interests within a police
force was able to use the introduction of decentralized budgeting both to provide symbolic reassurance of compliance
with social norms while directing resources into areas consistent with the coalitions view of operational policing needs.
The institutional perspective on budgeting also looks at how strategic and self-interested behavior from the part of key
organizational players are reected in adopting budgets that are legitimizing and not necessarily rational from an economic
perspective (Nyland and Pettersen, 2004). The role of power and politics within institutional frameworks provides scope
for agency but at the cost of under specifying the interests that agents hold, how power is created and exercised, and the
relationship between broader institutional logics and the formation of interest groups within organizations (Levy and Scully,
2007).
4. Combining agency and institutional theories
[I]nstitutions are not only constraints on human agency; they are rst and foremost products of human actions.
Indeed, rules are typically constructed by a process of conict and contestation. Thus, although we stress that rules
and routines bring order and minimize uncertainty, we must add that the creation and implementation of institutional
arrangements are rife with conict, contradiction, and ambiguity (DiMaggio and Powell, 1991, p. 28).
Several studies have recognized the need to combine the insights of agency theory and institutional theory. Scapens
(1994), for example, argued that organizational practices cannot be understood by studying isolated individual choices and
behaviors and by ignoring the socio-cultural context. He developed an institutional economics framework to be used in
managerial accounting studies. Subsequently, Burns and Scapens (2000) expanded this framework to develop a conceptual
model for management accounting change. Scapens (1994) states that one of the major weaknesses of the agency perspective
adopted in management accounting studies is the lack of consideration for the complex social fabric in which management
accounting practices are embedded. In this framework the institutions become the unit of analysis. He denes institutions
as imposing form and social coherence upon human activity, partly through the continuing production and reproduction
of habits of thought and action (Scapens, 1994, p. 306) and he argues that understanding accounting practices as institutionalized routines is likely to be a more fruitful starting point for management accounting research than the view that
accounting practices do or should represent optimally rational procedures for the maximization of, say, owners wealth
(Scapens, 1994, p. 306).
Organizational players do not always make economically rational choices. In some circumstances, they engage in routines
and act on heuristics based on past knowledge. Routines may be seen as organizational knowledge that affects organizational
actors choices. According to Scapens (1994) assuming that this behavior is the outcome of an economic model is not valid.
He differentiates between prot seeking practices of managers and prot maximizing practices of managers. Accounting
practices are institutionalized in prot seeking organizations. They do not always represent the optimum, economically
rational choices (Scapens, 1994). They can be legitimizing practices (Meyer and Rowan, 1977) or outcomes of institutional
isomorphism (DiMaggio and Powell, 1983).
Eisenhardt (1988), in search for a theoretical framework for understanding compensation practices, uses both agency and
institutional perspectives to generate hypothesis on salary versus commission based compensation in retail sales. Eisenhardt
(1988) argues that these two theoretical frameworks focus on different aspects of organizational practices and therefore
show promise for providing a holistic approach to compensation. Agency theory focuses on the efciency seeking practices
of organizational players. These are self-interested, rational, risk-averse individuals that are governed by contracts that try
to nd a balance between efcient low cost production and low risk. Institutional theory tries to understand organizational
practices by looking at traditions, norms followed by legitimacy-seeking organizational actors that are satiscers. Unlike
Scapens (1994), Eisenhardt (1988) does not challenge the underlying assumptions of the two theoretical models. She formulates hypotheses that emerge from the different theoretical approaches taking into consideration both agency factors and
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institutional factors. She nds that both institutional and agency models contribute to the understanding of compensation
practices in the retail setting.
Seal (2006) challenges the economic agency theory of corporate governance. He develops an institutional theory of
agency (ITA) that he uses to study the role of management accounting practices in the interaction between the organizational institutions and the external institutional players. The ITA may be dened as the analysis of managerial behavior
in giant, widely owned corporations where managerial action is inuenced by institutionalized practices that affect share
valuation, corporate reporting and, as an integral feature of internal governance, management accounting. The ITA accepts
that managers are agents with delegated decision-making powers but rejects the realist ontologies that underpin economic
agency theory (Seal, 2006, p. 390). The study shows that Board governance can be improved by adapting practices that are
commonly associated with strategic management accounting. These practices will enable the CEO to make rational decisions through the institutionalization of management accounting practices. The role of narrative is emphasized as a way of
reconciling conicting plots that can be interpreted through institutional and agency perspectives.
Covaleski et al. (2003a, 2003b) looks at both institutional theory and agency theory in budgeting. The authors analyzed
the contribution of psychology, social, and economic theories to budgeting studies and developed a framework for integrating theories. The study developed a generic framework that can be used in comparing studies from different theoretical
perspectives. The criteria developed by the authors consist of comparisons of the level of analysis, operationalization of
constructs, assumed causality and constraints on causal models in the budgeting studies of interest. This paper focuses more
on methodological issues and does not address the synergies between agency and institutional theories. In particular, they
limit their review to approaches that share positivist assumptions that would include the ontological separation of agency
and structure.
These studies show that there is a need for broadening the perspective on organizational actors. Organizational actors
cannot simply be dened as rational, self-interested individuals that are motivated by economic rewards and governed by
contracts. There are different roles that an organizational player can assume and that requires a more open approach to
analyzing his/her behavior. The studies also emphasize the fact that organizational actors are part of a social, regulatory
historical context that affects their behavior and, depending on the ontology adopted, might impact the way they construct
their organizational reality.
These studies attempt to allow both structure and agency to play a role in organizational behaviors. In essence they
suggest that agency operates within a frame provided by institutional constraints but they do not really address the core
problem in the social science debate, i.e. the paradox of embedded agency3 : if social structures are so powerful an inuence
on behavior how can they change and if agents have free-will why is their behavior constrained by social structures at
all? In these models change in institutional norms relies on exogenous shocks; agents are not provided with a role as
institutional entrepreneurs. In sum, two important points emerge from the analysis of studies that attempt to combine
agency and structure: rst, the agency or institutional perspectives alone do not explain organizational phenomena such as
budgeting. Secondly, perspectives that combine agency and structure, without relaxing some of the underlying theoretical
assumptions that are fundamentally opposite, are not able to address the paradox of embedded agency. The emphasis of the
work reviewed below has been to take into consideration this paradox and to explore more directly the interaction between
agents and social structures.
5. Structuration theory and budgeting processes
The institutional, agency or combined approaches to budgeting that we review above treat agency and structure as a
dualism, i.e. as two opposed constructs that one must choose between. None of these perspectives however seems to
capture the dynamic reality of budgeting processes. The view of budgeting as simply a reection of the decision process
of rational agents ignores the constraints on decisions and the cognitively available set of alternatives that arise out of the
social and historical context of agents in the budgeting process. The view of budgeting as a local reection of institutional
norms and pressures, however, seems to treat individual actors as cultural dopes (Scott, 1991, p. 170) who are incapable of
anything more than following hard-wired institutional patterns. The attempts to combine structure and agency described
above, while maintaining this dualist approach, suggest that structure is incomplete providing a space within which agency
may be expressed. This approach however leaves the source of structure unexplained and does not deal with why agents
would choose to accept these limits. This paradox of embedded agency challenges theoretical and empirical development
in this area (Garud et al., 2007; Holm, 1995).
Covaleski et al. (2003a, 2003b) draw on John Commons institutionalism as a way of expanding the social context of
transaction cost economics and hence recognize that both agency and structure are important.
Our basic message is that researchers should attend to both the efciency seeking and legitimacy seeking facets of
management control systems in examining the control structure choice problematic. These two facets of management
3
The paradox of embedded agency consists in having institutionally embedded agents introducing institutional change. Seo and Creed (2002) adopts a
dialectical approach to explore this paradox stating that agents introduce change because they are embedded in contradictory institutions and proposes
various sources of contradictions in organizational elds. This concept of embedded agency is consistent with the structuration perspective as it implies a
mutually constitutive interaction between agents and structures.
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control systems are inexorably intertwined and cannot be easily separated from one another (Covaleski et al., 2003a,
2003b, p. 438).
If agency and structure are inexorably intertwined, then the treatment of them as a dualism limits how far the analysis
can capture their relationship (cf. Macintosh and Scapens, 1990, reanalysis of Covaleski and Dirsmith, 1988a, 1988b).
An alternative to this dualism is to treat structure and agency as a duality structure and agency being mutually
constitutive, neither being capable of existing without the other. This is the basic premise behind Giddens (1984) structuration theory and Bourdieus (1977) social praxeology among other theoretical approaches. Bourdieu (1977) brings structure
into agency by theorizing that agents act within the context of a set of habits (habitus) built up through prior socialization processes (see also Hodgson, 2007). Social structures are thus represented as lying within agents and are part of the
agents decision process. In the budgeting literature, Giddens structuration theory has been most widely used as a means
of exploring the relationship between agency and structure while maintaining an ontology of duality.
Structuration theory argues for the consideration of agency and structure as being mutually constitutive, that is, agents are
empowered by structures and structures exist only through the behavior of agents which reafrm those structures. Giddens
(1984) argued that structures provide meaning, power and legitimacy to actions. Roberts and Scapens (1985) have introduced
Giddens structuration to accounting focusing on the intended and actual impact that the use of accounting information has
in shaping and maintaining particular patterns of accountability within organizations (Roberts and Scapens, 1985, p. 448).
Scapens and Macintosh (1996, p. 677) focused the structuration framework on management accounting arguing that:
. . .Giddens analysis of the duality of structure allows us to conceptualize management accounting systems as
modalities of structuration which mediate between action and structure. Furthermore, we argue that Giddens three
dimensions of structure signication, legitimation and domination are useful analytic devices for studying the
nature of management accounting practice and its role in the organizational life world.
So when an actor engages in a budgeting process he/she draws upon common understandings of what this means within
a community, what consequences will arise from it and what it is considered appropriate to do within such a process.
The skillful production of the budget both as a document and as a process of social interaction recreates budgeting as a
meaningful organizational activity and reafrms the ability of the budget to empower and constrain future actions. The
budgeting process legitimates the organizational hierarchy and the delegation of resources and responsibility throughout
that hierarchy (e.g. Conrad, 2005, demonstrates these processes in the UK gas industry; Gurd, 2008, uses this perspective to
analyze the Australian electricity market). Structuration has proven useful as a sensitizing device (Macintosh and Scapens,
1990, p. 469) and descriptive framework for budgeting studies but criticisms of structuration theory suggest some useful
avenues for further development of the budgeting literature and the use of structuration theory in empirical work generally.
Giddens theory of structuration has been criticized on numerous grounds from using obscure terminology4 to reinventing
the wheel.5 Archer (1982) is concerned that structuration theory does not allow for emergent properties of social systems
and ignores the arrow of history which makes action dependent on what went before. Her solution to combining structure
and agency is to take a morphogenetic approach: an approach which allows future possibilities to emerge from the building
blocks of the past. The morphogenetic argument that structure and action operate over different time periods is based
on two simple propositions: that structure logically predates the action(s) which transform it, that structural elaboration
logically postdates those actions. . . (Archer, 1982, p. 468).
Archers (1982) issue with structuration theory is primarily methodological. If structuration is taken seriously as an
empirical construct, it is impossible to separate agency from structure and equally impossible to speak of the effect of one
on the other. Giddens, for example, has been criticized for placing too much emphasis on agency as structures within this
framework are ephemeral and unstable since they rely on their constant recreation by actors (see Stones, 2005, for a review
of the critical literature). Giddens work has been criticized as abstract theorizing and Giddens (1984, p. 326) explicitly
acknowledges that the concepts of structuration theory . . . should for many research purposes be regarded as sensitizing
devices, nothing more. That is to say, they may be useful for thinking about research problems and the interpretation of
research results. Understandably then, empirical work based on the structuration framework has developed a variety of
approaches to make the mutually constitutive relationship between agency and structure tractable.
In general the solution is to employ some form of methodological bracketing (Scapens and Macintosh, 1996, p. 683)
that allows part of this duality to be held constant for analytic purposes while focusing on the other part of the duality.
The danger, however, is that this methodological bracketing will reproduce the dualism that structuration theory seeks to
undermine.
One approach relies on a distinction between the ostensive and performative roles of structure (e.g. Feldman and Pentland,
2003; Latour, 1986). The ostensive role refers to the ability of structure to direct action and to create formal expectations.
The performative role reects the co-production of structure and agency and the interpretation of the ostensive structures
4
Archer (1982), for example, is concerned with the sterile exercise of terminological redescription which is apparent in some empirical work based
on structuration where a case is presented in structuration terms but there is no real effort to use structuration theory to provide a deep analysis of the
setting or to use the setting to elaborate structuration theory.
5
Wendt (1987), for example, points out (in footnote 2), that structuration concepts were already evident in the work of Bourdieu, Bhashkar and Thrift
among others prior to Giddens treatment.
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Fig. 1. Jessop (2002, p. 124): beyond structuration.
in action. This distinction is picked up in the accounting literature by Burns and Scapens (2000) in their distinction between
routine and practice. A routine is the standard form of an action such as may be coded in standard operating procedures or
budget schedules. A practice is the situated acting out of a routine. The distinction allows for random and strategic variation in
practices regardless of the content of the routines. Routines then reect how practices should work in principle and provide
normative bases for critique and sanction but do not absolutely constrain agents. This approach combines structuration
with a variationselectionretention model of change (Burgelman, 1991), i.e. variations in practice may be selected within
a eld and be retained as part of the structures/routines of that eld. The variationselectionretention model has recently
been suggested by Johansson and Siverbo (2009) as an expansion of Burns and Scapens (2000) framework for studying
management accounting change.
Sewell (1992) has argued that the role of the knowledgeable agent in Giddens structuration theory requires the existence
of alternative structures or multiple institutional logics. The agents ability to bring about change represents the ability to
choose between different sets of structures. The existence of multiple structures has been recognized in empirical work (e.g.
Barley and Kunda, 1992) but the key is to focus on knowledgeable agents who can bridge between different structures and
specic workplaces (e.g. Berland and Chiapellos, 2009, avant garde managers). It is also reected in Boltanski and Thevenots
(2006) empirical identication of different orders of worth as bases for social order (c.f. Annisette and Richardson, 2010, for
a discussion of this perspective related to management accounting; Le Matre, 2006, applies Boltanskis work to budgeting).
This insight provides a crucial building block for most current research on change in institutions (Lawrence et al., 2009;
Thornton et al., 2005).
Sewell (1992, p. 20) also renes the notion of agency to mean: . . . the actors control of resources, which means the
capacity to reinterpret or mobilize an array of resources in terms of schemas other than those that constituted the array.
In other words, the role of resources in social action depends on the meaning attributed to those resources. Every object,
whether physical or virtual, embodies polysemy (Sewell, 1992, p. 19), i.e. multiple meanings. The key to agency is to be
able to draw on structures to attribute meaning to resources thus providing the actor with power to bring about change in
a social setting. In practical terms, the budgeting process in organizations is about contests among agents to establish the
meaning/potentialities of resources and hence to develop and exercise power within that context. This insight has yet to be
exploited in empirical work on budgeting; i.e. we need to understand how budgeting processes give meaning to resources
and the rhetorical and strategic processes that are used in such contests for control over the use of such resources.
Jessop (2002) argues for the idea that structures and action are dialectically related rather than a duality in Giddens
sense.6 As shown in Fig. 1, dialectical structuration holds that structures are related to specic agents and strategies, and
actions are strategically composed through a reexive consideration of the structures that are applicable/accessible to the
agent given the strategy that has been adopted. In a budgeting context, this implies that the same set of budget procedures
and outcomes can be seen as a constraint by one group of agents and as a source of empowerment by another set of agents,
or indeed by the same agents in different strategic contexts.
The dialectical view of structuration theory is further developed in Stones (1991, 2005). First, Stones (1991) suggests that
knowledgeable action requires an understanding of the strategic context of that action. The strategic context serves to put
bounds around the range of actions open to any agent by establishing the conditions of possibility inherent in the knowledge
the agent possesses and dening constraints on those actions in terms of the likely reactions of others and their power to
resist. Second, Stones (2005) distinguishes between local (internal) and global (external) structures. Internal structures
(roughly equivalent to Bordieus habitus) are subject to agents conscious reafrmation in their daily practices; external
structures (in parallel with more traditional uses of the term structure in sociology) are the macro-level constraints on
agency. This is intended to give empirical meaning to Giddens concept of positionpractice, i.e. the idea that possibilities
for action are embedded in social identities and positions. Thus agents are both empowered within their strategic context
but also limited in the degree to which they can change that context.
Jessop draws on Stones (1991) analysis of the relevance of strategic context for developing an empirically tractable version of structuration theory.
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Stones (2005) reformulation of structuration theory parallels Englund and Gerdin (2008) discussion of two approaches to
structuration theory found in the accounting literature which treat institutions as modalities (external structures drawn
on in interaction) versus practices (local structures reproduced in interaction). While Stones work has been criticized for
bringing in the dualisms that Giddens was trying to overcome, it has been used constructively in the accounting literature
(e.g. Coad and Herbert, 2009; Jack, 2005; Jack and Kholeifa, 2007, 2008). The strong structuration theory represented in
Stones work provides a method for empirical analysis which begins with the general schema/habitus used by an agent,
extends to the structures embedded in the position occupied by the agent and outwards to external structures (subject to
the dialectic of control), and nally to the actions and consequences of those actions (Coad and Herbert, 2009; Jack and
Kholeifa, 2007; Stones, 2005, pp. 117126, identify some empirical limitations of this approach).
The potential existence of multiple sets of structures in which agents are embedded and on which they draw in interaction opens the opportunity to understand processes of resistance in budgeting systems (Ahrens and Chapman, 2002) and
provides a more nuanced way of understanding the dialectic of control embedded in Giddens (1979, p. 6) work. Giddens
recognized that structures are implicated in the creation and use of power in society but the duality of structure implies
that those involved in relations of domination are still agents and can resist such inuence attempts and must acquiesce
in order to recreate patterns of domination. The dialectic of control recognizes that agents have access to authoritative and
allocative resources that can be used to resist inuence. The budgeting process, for example, allows subordinates to affect
the distribution of resources in the organization and the creation of slack or manipulation of reported results become part
of the resistance strategies adopted by agents (Macintosh, 1995; Nandan, 1998). Macintosh et al. (2009), however, illustrate
the limits/costs of resistance, i.e. expressing opposition to the exercise of power does not come with job security.
Structuration privileges local practice over social structures since the emphasis is on the reproduction of social structures
in everyday practice. In other words, the theoretical abstraction that researchers call social structure is empirically manifest
in various ways. [I]t is important to recognize that, while reproduced practices may exhibit a degree of consistency to
allow them to be conceived as institutionalized regularities, the more subtle aspects of reproduction manifest themselves
in idiosyncratic ways (Scapens and Macintosh, 1996, p. 681). This view of social order is developed in practice theory
(e.g. Ahrens and Chapman, 2007) based on the site ontology provided by Schatzki (2003). The focus of practice theory is
the interaction of human practices and material arrangements in specic contexts. From this perspective social structures
disappear from sight into the skills that agents bring into a particular setting and the artifacts in those settings. The focus
empirically then becomes the skilled production of social order out of the material artifacts in a setting and the repertoire of
skilled actions agents can bring to bear. This radical privileging of the local site over broader modalities that agents import
into sites may underplay the commonalities between sites and does not provide an obvious means for theorizing such
commonalities.
Structuration theory is still being actively debated and developed both in social sciences generally and within the accounting literature. In the accounting literature it is used primarily to understand processes of change in budgeting processes as
social modalities change (e.g. Conrad, 2005; Edwards et al., 2005; Ezzamel et al., 2007; Gurd, 2008), in particular the effect
on accounting and budgeting systems of change from a logic of public ownership to a logic of private ownership and/or
change from a stewardship perspective to a market perspective has been a focus of budgeting studies from a structuration
perspective.
The focus of accounting studies on external shocks which causes change in budgeting systems and processes needs to
be supplemented by a focus on institutional entrepreneurs (Battilana et al., 2009). Change in accounting and accountability
systems also occurs at the level of practice through the actions of knowledgeable and creative agents. This is reected in
the concept of institutional work (Lawrence and Suddaby, 2006; Lawrence et al., 2009).7 Institutional entrepreneurs are
thought to escape from the demands of structure because of either (1) the inherent contradictions in structures (Seo and
Creed, 2002), (2) the existence of multiple structures allowing a skilled agent to navigate between alternatives (Boltanski
and Thvenot, 2006), and/or (3) entrepreneurs who are marginally positioned within a social system so that their deviance
is not censured (Battilana et al., 2009). These possibilities need to be further explored and expanded.
6. Discussion
The traditional literature on budgeting has primarily been built around the dualism of agency and structure. By focusing
on agency, we highlight the role of budgeting as a resource allocation and performance monitoring device between a subordinate and superior in the face of information asymmetry. In the sections on analytical budgeting, participatory budgeting,
budgetary slack and budgetary bias, we have shown that the thrust of research has been to understand how organizational
performance (efciency) is affected by alternate budget formats/emphases chosen by senior managers given the nature of
the information asymmetries (and the environmental contingencies that affect those information asymmetries).
While the focus of this set of studies has been on rational agents acting to advance their self-interest, increasingly
structural elements have been introduced to improve the explanatory power of models. In some cases these structural
elements have been introduced through artices that retain the basic ontology of action between atomistic agents. For
example, introducing multi-period models and reputation costs, and modifying preference functions to include honesty,
This perspective is also reected in actor network (ANT) based work.
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allows social consequences and social norms to be introduced without explicit reference to the social groups within which
the actors are embedded or the norms on which action within these groups is organized (Mittendorf, 2006; Rankin et al.,
2008). In other cases, social structure is brought in as constraints that bound the range of action alternatives open to agents.
For example, the use of culture as a variable simply rules out possible actions without engaging with the broader effects of
culture on the meaning and dynamics of budget processes (Lukka, 1988).
By contrast, by focusing on structures we highlight the role of budgetary processes in managing the relationship between
the organization and the broader social environment, and as a mechanism that translates broader social values into local
behaviors or shields local behaviors from institutional scrutiny. Research in this tradition has focused on the role of broad
institutional logics on the evaluation of organizational legitimacy and the use of budgets to reect these logics and hence
to manage institutional evaluation. At the same time, however, this literature has identied a disconnect between the local
actions and institutional logics leading to an emphasis on symbolic compliance to maintain legitimacy while engaging in
actions predicated on micro-institutional norms and practices (Nyland and Pettersen, 2004).
This set of studies provides a rationale for isomorphism in budgeting practices among organizations within institutional
elds, captures the power of professional knowledge and institutional logics on organizational practices, and provides a
framework for understanding the paradox of elaborate budgeting processes that are disconnected from day-to-day operations. At the extreme, however, this perspective on budgeting attributes too much power to the external environment and
fails to provide a mechanism for change and local variation. Classic institutional theorists typically brought change into their
models through exogenous shocks, which, by denition, are not theorized. Alternatively, attention is directed to institutional
entrepreneurs who are assumed to have a marginal attachment to the current system so that their deviance does not need
to be explained; they are simply the agents through which an exogenous shock or alternative set of structures is transmitted
into the organization (Battilana et al., 2009).
Attempting to combine agency and structure, while maintaining their dualism, creates an ontological paradox that does
not lead to effective theorizing. It is possible, for example, to create empirical models that include variables reecting both
agency and structure as explanations for budgeting processes. The results, at best, must be considered as idiographic knowledge. The pattern observed may reect a time and space specic relationship between these variables but the theoretical
relationship between them must remain moot. Our theoretical knowledge of budgeting processes is unlikely to be advanced
much by a series of studies of this nature.
Alternatively, such theorizing may provide a typology of environments in which different reactions by agents to institutional pressures are available ranging from the rejection of institutions, that agency theory would predict, to the compliance
with institutions predicted by institutional theory (e.g. Etherington and Richardson, 1994; Modell, 2001; Oliver, 1991). Such
empirical models cannot answer questions such as how the social structures affecting budgeting evolve and to what extent
is agency activated, constrained and/or sustained by social structures?
It may be more productive for budgeting research to nd a true theoretical synthesis of agency and structure. This
requires an ontological shift from dualism to duality. There are several approaches to this problem including: Archers
(1982) morphogenetic approach which argues for considering agency and structure as a never-ending series of conditioned
possibilities with prior period structure drawn upon in current period actions that include the potential to modify the
structures that will affect future periods; Giddens (1984) structuration theory that dissolves space and time, focusing on the
reproduction of social order through agency; and Actor Network Theory or practice theory (Schatzki, 2003) which focuses
on the skill use of material resources in specic sites of action. The budgeting literature has increasingly drawn on Giddens
structuration theory. In doing so, however, the literature has also brought in extensions and critiques of Giddens in order to
provide a more nuanced sense of budgeting phenomena.
Three areas of development are particularly noteworthy and our analysis suggests the potential for further research in
these areas. First, structuration theory highlights the dialectic of control in social action: . . .all forms of dependence offer
some resources whereby those who are subordinate can inuence the activities of their superiors. This is what I call the
dialectic of control in social systems (Giddens, 1984, p. 16). Macintosh (1995), for example, uses this concept to argue
that an ethical analysis of prot manipulation in organizations must be grounded in managers resistance to systems of
exploitation. Because structure is reproduced through action, every agent has the ability to resist structural imperatives and,
through resistance, to change structures (cf. Granlund, 2001). This metaphor of resistance unfortunately draws on a dual
construction; the resistance of the agent is not directed against a pre-existing structure but played out in the process of
reproducing structures and the agents experience of values conict (Dolfsma and Verburg, 2008). We need to gain a better
understanding of how agents exposure to multiple institutional logics affects their experience of values conict within
budget processes and how this affects the institutional logics that are embedded within budgets.
Second, the knowledgeable agent in structuration theory must understand multiple structures and the polysemy of
objects/resources that could be applied in practice and draws on these alternatives in the skilled production of practice.
The existence of multiple structures or institutional logics provides a way of empowering agents to act as institutional
entrepreneurs without theoretical refuge in exogenous shocks or by requiring that the change agent be socially marginal,
i.e. under-socialized, as a prerequisite to participating in structural change. This form of analysis is aided if the number
of possible alternative structures can be reduced empirically or theoretically. The work of Boltanski and Thvenot (2006)
provides one basis for reducing the set of alternative structures that can be drawn on in particular circumstances (in regimes
of justication). In the context of budgeting, the major institutional logics currently being explored are primarily the distinctions between private/public ownership and regulated/unregulated markets. Studying the polysemy of resources and
196
the rhetorical strategies to privilege specic meanings within the budget process may provide additional insights into how
budget contests are resolved within organizations.
Third, the active reproduction of structure in budgeting represents a skilled production by knowledgeable agents. This
perspective allows change in budgeting practice to be endogenous. The local variations in budgeting practice that emerge
from the interaction of unique sets of agents may become proto-institutions8 (Lawrence et al., 2002) that have the potential
to expand into the broader institutional environment. Several recent studies of innovation in management accounting
drawing on Actor Network Theory capture this dynamic9 (e.g. Alcouffe et al., 2008). These studies may be developed by
considering the effect of these innovations on the signication, legitimation and domination dimensions of structures and
vice versa.
A lack of synthetic approaches to the study of budgeting has hindered our understanding of the budgeting phenomena
in organizational settings. Macintosh and Scapens (1990) have initiated a wave of synthetic approaches by introducing Giddens structuration perspective to the management accounting literature. These synthetic approaches have the potential of
illuminating empirical studies in budgeting by drawing attention to, for example, the role of multiple rationalities in shaping
the budgeting processes in organizations; to the analysis of budgeting practices at different organizational levels subject to
various institutional logics; to the role of actors in multinational corporations that are embedded in multiple institutional
logics underlying national, international and organizational institutions; or to the role of organizational history, personal
knowledge and experience in shaping the meanings and actions associated with budgets and budgeting in organizations.
Ultimately, the aim is to gain insights into the interaction of agents and structures within organizations by looking at how it
manifests itself in budgeting, an important and one of the most widely studied organizational phenomena in management
accounting (Luft and Shields, 2003).
7. Conclusion
We have discussed two streams within the literature on budgeting, one focused on the role of self-interested, strategic
actors in the design and use of budgets and a second focused on the connection between budgets and broad social structures/rationalities/logics. The agent-centered literature has recognized the need to better model the social embeddedness
of actors including the inuence of peers within organizations, the effect of continuing relationships with superiors, and the
effect of external institutions on preferences and the opportunity set that actors consider. The structure-centered literature,
meanwhile, has recognized the need to theorize change processes and to allow for institutional entrepreneurship by skilled
actors. Both literatures are struggling to accommodate the needed changes while maintaining their traditional ontologies.
This may be an impossible task.
In an attempt to overcome the limitations of the extant research studies, the accounting literature has explored alternative ways of enriching our understanding of budgeting processes by building on the insights of structuration theory
(Giddens, 1984) introduced into the management accounting literature by Macintosh and Scapens (1990) and practice theory (Schatzki, 2001) as elaborated in accounting by Ahrens and Chapman (2007). With some critical development, these
approaches have great potential to move the budgeting literature forward. In particular, we identify three areas in which
further work would be benecial: (1) how does agents embeddedness in multiple institutional logics affect their experience of values conict in budgeting and how does this affect the way these logics are embedded in budgeting processes;
(2) how do agents make strategic use of the polysemy of resources in budget contests within organizations; and, (3) how
do institutional entrepreneurs interact with the modalities of structuration to generate institutional change? As Scapens
and Macintosh (1996, p. 686) note, social theory, such as Giddens structuration theory and other works (cf. Macintosh,
1994, 2002), . . .permits the researcher to develop substantive and empirically grounded theories to study specic social
contexts. One of Macintoshs legacies is a body of work that exemplies and encourages this type of research.
Acknowledgements
This work has been supported by a research grant from CMA Ontario. The second author would like to acknowledge the
personal support and encouragement of N.B. Macintosh as a teacher and colleague over many years and to recognize his role
in developing a social and behavioral perspective on accounting both in the literature and among a world-wide network of
colleagues.
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Critical Perspectives on Accounting

Agency and structure in budgeting: Thesis, antithesis and synthesis

Odette School of Business, University of Windsor, Windsor, Ontario, Canada

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

Fig. 1. Jessop (2002, p. 124): beyond structuration.

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

This perspective is also reected in actor network (ANT) based work.

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

E. Kilfoyle, A.J. Richardson / Critical Perspectives on Accounting 22 (2011) 183199

Oliver C. Strategic responses to institutional processes. Academy of Management Review 1991;16:14579.

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