Abstract/Summary

As management accounting has undergone a renaissance In the past decade, there is a need to understand more about the emerging role of activity-based costing in modern organisations. The evolution (Bromwich and Bhimani, 1989) versus revolution (Johnson and Kaplan, 1987) debate has enriched management accounting literature and practice without addressing if a clear and measurable benefit exists following on the adoption of an activity-based costing system. This study focuses on that question. Its main purpose is to empirically investigate if the adoption of the activity-based costing set of techniques impacts a firm's relative performance. Previous research has tended to concentrate on either assessing the integrity of the ABC assumptions or on examining its application in a single case study situation. The study was undertaken in the context of developments in market based accounting research. It incorporates a synthesise of the attributes/characteristics of the activity-based costing techniques with the shareholder value analysis framework. The research model adopts a positivist quasi-experimental research approach. It was operationalised by way of an association study with control exercised through a rigorous matching process. Data was gathered using a questionnaire from the top 1,000 publicly quoted firms in the UK. The analyses involved compiling three different data sets and assessing their performance using a range of market and accounting based measures. The results indicate strong support for a positive causal link between the adoption of the activity-based costing techniques and firm performance. The activity-based costing techniques were seen as the driving force behind the superior performance of the firms that adopted them. Their contribution is interpreted in terms of enhanced product cost accuracy, more comprehensive cost data and information for managerial decision-making. The results are remarkably robust across all data sets and measurements methods used.