Managers often use current budget variances when setting subordinates' subsequent budgetary targets. However, this type of target setting practice generates "ratchet effect" problems. In order to mitigate the ratchet effect, managers intentionally conduct "commitment": they increase achievability of subordinates' targets by making them less challenging. The purpose of this study is to examine the impact of the firm-specific factors on commitment. Based on the argument of "budget culture" and its four constructs: budget firmness, target difficulty, management attention, and reward link, we use them as firm-specific factors and empirically investigate their effect on commitment. Our findings indicate that the three constructs other than "reward link" affect commitment, suggesting that the managers deal with the ratchet effect by setting subordinates' targets in consideration of characteristics of budgetary culture.

This paper examines the impact of future sales forecasts on current selling, general and administrative expenses (SG＆A) after controlling for prior and current sales changes. We extend the empirical model developed by Banker et al. (2014). Our results show that future sales forecasts explain a certain amount of current cost changes. First, conditional on a prior sales increase, SG＆A in the current period are sticky regardless of managers' expectation for future sales. Second, conditional on a prior sales decrease, SG＆A are anti-sticky only when managers are pessimistic about future sales. Third, the extent of stickiness of current SG＆A conditional on a prior sales increase is related to future sales forecast. Finally, the extent of anti-stickiness of current SG＆A conditional on a prior sales decrease is related to future sales forecast.

The Stock Exchange in Japan requires Japanese firms listed on the exchange to report management earnings forecasts in their annual press releases. Recent questionnaire surveys on management forecasts have revealed that they are closely linked with internal budgets. This finding calls for the management accounting perspective when studying management earnings forecasts. The purpose of this study is to explain the management earnings forecasts and forecast errors based on the idea of budget ratcheting. The empirical analysis indicates that budget ratcheting has an impact on management earnings forecasts and forecast errors, suggesting that management accounting approach enriches our understanding of management earnings forecasts.

When companies are unlikely to achieve an earnings benchmark, it is said that managers are likely to do earnings management by cutting discretionary expenditure during an accounting period to achieve the benchmark. This paper focuses on the earnings forecasts issued by managers as a proxy for the earnings benchmark and examines a hypothesis that managers under pressure to attain the earnings benchmark reduce the discretionary expenditure during an accounting period to achieve it. Focusing on the R&D expenditure as typical discretionary expenditure, this paper provides empirical evidence that, only when the proportion of a R&D budget is over 5% of sales, managers who are faced with the pressure to attain the earnings benchmark are likely to cut the R&D expenditure.

Recent management accounting research has revealed that costs increase in response to the increase in sales, but costs do not decline proportionately with decrease in sales. This phenomenon is named "sticky costs". Costs stickiness is considered to be a result of deliberate decision by managers. When managers facing decline in sales consider that sales temporally decrease and expect that sales increase in near future, they would deliberately retain organizational resources. According to this hypothesis, it can be considered that sales forecasts affect profits through the cost of retaining extra resources. This paper examines the hypothetical relationship among sales forecasts, the change of cost level under the certain sales forecasts and profit. When managers have optimistic sales forecasts, that is, forecasted sales are larger than reported sales, companies cannot earn enough profit from the future sales recovery because of the cost of retaining too much resources. This paper provides an empirical evidence of the importance of sales forecasts that affect the profit via change of cost.

It has been considered that firms' major objective is value creation and management's major role is managing activities to create value. Performance measures relevant for value creation are indispensable because management can use them to set measurable goals of value creation, to monitor the value creating activities and to evaluate the performance in terms of the value creation. Much attention has been paid to an economic profit as a performance measure relevant for value creation. Usefulness of the economic profit has been often explained in terms of the consistency with theoretical model of the firms' value, which is the sum of discounted future free cash flow. It is still unclear, however, what the economic profit itself measures, what kind of information the economic profit generates. The purpose of this paper is to clarify the role of economic profit in the context of management for value creation by providing clear understanding of what is measured by the economic profit.

Much attention has been paid to the performance measures for the value-based management. Advocates of value-based management insist that firms use the performance measures relevant for the value creation. This paper focuses the role of cash flow, residual earnings, residual income for instance, and accounting profit in the value-based management. The purpose of this paper is to clarify the relevant performance measure by reviewing the empirical studies which approach the relationship between the firms' value and the performance measures. Based on the previous works, the performance measures relevant for the value-creating-activities of the firm are examined.