ABSTRACT:- This study investigates whether a superior change in budgets from tight to loose budgets will demotivate subordinates’ effort, yet this issue has not been explored in a budgeting context. The experiment consisted of two treatments: (1) loose-to-tight treatment and (2) tight-to-loose treatment. Results indicate when a superior change in budgets from loose to tight budgets, subordinates’ effort is significantly higher than their earlier effort in a loose budget condition. However, when a superior change in budgets from tight to loose budgets, subordinates’ effort is not significantly lower than their earlier effort in a tight budget condition. The findings are useful to management in understanding that superiors set budgets from tight to loose budgets, which may not undermine subordinates’ motivation and suggest if superiors believe that subordinates will be motivated by reciprocity, then superiors may change budgets from tight to loose budgets to achieve win/win results for both superiors and subordinates.

Keywords: Budget Targets, Changes, Tight to Loose, Effort, Reciprocity.