Working Paper 06-44 Departamento de Economía de la Empresa Business Economics Series 15 Universidad Carlos III de Madrid July 2006 Calle Madrid, 126 28903 Getafe (Spain) Fax (34-91) 6249607 DO INTERNAL AUDITORS OBSERVE HOW TRUST BEHAVIOR REDUCES BUDGETARY SLACK? Waymond Rodgers 1 , Susana Gago Rodríguez 2 and Mercedes Barrachina Palanca 3 Abstract Trust among executives and managers may reduce budgetary slack due to decreased inefficiencies. Trust relationships are studied as a prerequisite to influence budget setting. One hundred and twenty internal auditors observed different relations between the executive and managers. Results demonstrated that trust environments can reduce budgetary slack. Internal auditors are able to provide better services when “trust issues” between middle and top managers are recognized and incorporated as part of their investigated procedures. Keywords: Budgetary slack, trust, no trust, distrust, internal auditor. 1 University of California, Riverside US. Graduate School of Management. CA 92521 US. Tel. (909) 787-4786. Fax: (951) 827-3970. E-mail: Waymond.Rodgers@ucr.edu 2 University Carlos III of Madrid, Spain. School of Social Sciences and Law. Getafe, Madrid, C:P: 28903 (Spain). Tel. +34 91 624 58 34. Fax: +34 91 624 96 07. E-mail: susana.gago@uc3m.es 3 University of Valencia, Spain. School of Economy and Business Studies. Avda dels Tarongers. Valencia. C.P. 46022 (Spain). Tel.: +34 963 82 82 80. Fax: +34 963 82 82 87. E-mail: Mercedes.Barrachina@uv.es