Activity-based costing usage and financial performance: The contingent role of competition

Abstract

This study examines whether market competition strengthens the relationship between activity-based costing (ABC) usage and financial performance in UK non-manufacturing companies. Survey data from 204 UK service-sector companies with at least 50 employees and annual sales of at least £25 million were analysed using three-step hierarchical moderated ordinary least squares regression. Firm size and cost structure were included as controls, and supplementary checks addressed non-response bias, common method bias, sector composition, and a median-split specification of competition. ABC usage (β = .176, p = .022) and competition (β = .427, p < .001) were positively and independently associated with financial performance in the final model. However, the ABC usage × competition interaction was not significant (β = .055, p = .346; ΔR² = .003), so the hypothesised moderating effect of competition was not supported. The evidence is more consistent with an additive or selection form of contingency fit than with an interaction form: competition is associated with ABC usage and financial performance but does not significantly alter the marginal performance contribution of ABC usage. Management accountants and finance managers should base decisions to extend ABC usage on its decision-support contribution to pricing, service mix, resource allocation, and cost control rather than on an expectation that its financial payoff necessarily increases with competitive intensity.