Does budget target setting lead managers to engage in unethical behavior for the organization?

Recent accounting and management research findings suggest that unethical behavior in organizations can be normalized as a result of management control processes, such as performance evaluations and incentive compensation, and as a result of actions that attempt to serve the organization, such as unethical pro-organizational behavior. We investigate the relationship between budget target setting, which is widely used as a management control practice, and managers' willingness to engage in unethical pro-organizational behavior (WUPB). For our analysis, we used data from a web-based survey of 450 managers in the marketing and sales departments of Japanese firms. We find that (1) there is an inverted U-shaped relationship between budget target difficulty and WUPB, (2) a positive correlation exists between budget target difficulty and flexibility, and budget target difficulty also affects WUPB through budget target flexibility, and (3) differences in managers' influence on budget target setting change the path of influence of budget target difficulty on WUPB. The results suggest that unethical behavior for the organization may result from budget targets set to maximize performance or set flexibly to suit the business environment and the process of achieving them.