Investigating the Empirical Effect of ABC Stages on the Performance of Companies

IntroductionActivity-based costing (ABC) was promoted by Cooper (1987), Cooper and Kaplan (1998), among others, to eliminate the deficiencies of the out-dated volume-based costing systems and provide more accurate information regarding a firm's cost of production, profitability, and management decision-making by focusing on the cost of each activity (Namazi, 2016a; 2106b). Subsequently, some studies (Shields, 1995; Ittner et al., 2002; Zhang et al., 2015; Pokorna, 2016; Kim, 2017) by concentrating on the various characteristics of ABC, have found that its implementation could provide ample benefits to various users.As a result, a number of researchers have been motivated to conduct studies to examine the impact of ABC application on companies' financial performance such as obtaining superior Return On Investment (ROI), increasing shareholders' value (Kennedy & Affleck-Graves, 2001; Cagwin et al., 2002; Al-Hroot et al., 2015), and manufacturing performance such as decreasing manufacturing costs, reducing manufacturing process, and improvement in quality (Swenson, 1995; Banker et al., 2008; Sajid et al., 2015; Jafarnejad et al., 2016).Most of these studies, however, posit at least three shortcomings. First, they reported the indirect impact of ABC. For instance, Kennedy and Affleck-Graves's (2001) study found no direct effect between ABC adoption and shareholders' values among the public listed firms in the UK. Their conclusion is also supported by Cagwin and Bouwman's (2002) research. The finding of their research also indicates an indirect effect of the ABC application on a firm's ROI. The findings of both studies unequivocally reveal that the impact of ABC application success on a firm's performance was not direct and occurred through variables such as tight cost control, total quality control, and asset utilization. Second, the studies are based on incomplete performance measures that, at best, ascertain some financial aspects of the firms' performance (Zhang, et al., 2011), whereas a thorough evaluation of the effect of ABC on the firm's performance should be based on all aspects of the firm's financial and non-financial attributes. Third, the empirical literature in this sphere has not studied the effect of the various stages of ABC application and the ABC stage developments on the firm's performance. Hence, the role of different stages of the ABC on the firm's performance is totally unexplored.Based on the prior arguments, the main aim of the current study is to empirically deal with the preceding issues. More precisely, the main incentives of this research are: a) to examine whether there is a significant effect between the ABC application features and firms' performance, that is, the achievement of productivity targets, costs targets, quality targets, service targets, profit targets, sales volume targets, as well as market share targets, and b) to empirically examine whether ABC application stages would play a moderating role in the process of investigating the effect of ABC application success on firms' performance. In order to provide empirical evidence with regard to the designated objectives, research samples from Chinese manufacturing firms are collected in this research.The significance of the current study is that it: a) empirically provides evidence regarding the effect of ABC on the firm's operations in a non-Western country, that is China, b) explicitly considers contingent variables, financial and non-financial, affecting this relationship, c) considers the role of the ABC stages as a moderating variable, hence providing a more accurate and real research design in this sphere, and d) extends the knowledge and domain of the ABC literature by reporting more contemporary and complete theories and findings in this area.The remaining parts of the study are structured as follows: The formulation of the theoretical framework for the study and the description of the main research variable under investigation, are presented in the next section. …