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Abstract
This paper contributes to the earlier small business literature by investigating the lagging effects of the use of activity‐based costing (ABC) on small firms' performance. Moreover, we examine if the small firms' past financial performance drives the adoption of ABC and explore whether the extent of ABC use leads, in turn, to improvements in firms' financial performance in the immediate future. In sum, the survey results indicate that small firms with adequate financial resources as well as firms experiencing declining growth tend to use ABC and such use facilitates their subsequent growth and profitability. Small firms seem to benefit from using ABC.
* We are grateful for the constructive comments and suggestions of Alnoor Bhimani, Robert H. Chenhall, Erkki K. Laitinen, Hélène Löning, Sally Widener, and the anonymous reviewers. We also gratefully acknowledge the comments provided by the participants at the 6th Conference on New Directions in Management Accounting 2008, Brussels, Belgium and the Annual Congress of the European Accounting Association 2007, Lisbon, Portugal.
* We are grateful for the constructive comments and suggestions of Alnoor Bhimani, Robert H. Chenhall, Erkki K. Laitinen, Hélène Löning, Sally Widener, and the anonymous reviewers. We also gratefully acknowledge the comments provided by the participants at the 6th Conference on New Directions in Management Accounting 2008, Brussels, Belgium and the Annual Congress of the European Accounting Association 2007, Lisbon, Portugal.
Notes
* We are grateful for the constructive comments and suggestions of Alnoor Bhimani, Robert H. Chenhall, Erkki K. Laitinen, Hélène Löning, Sally Widener, and the anonymous reviewers. We also gratefully acknowledge the comments provided by the participants at the 6th Conference on New Directions in Management Accounting 2008, Brussels, Belgium and the Annual Congress of the European Accounting Association 2007, Lisbon, Portugal.
1 The adoption rates of ABC have typically been varying from around 10 percent to around 60 percent (see, e.g., Al‐Omiri and Drury Citation2007; Baird, Harrison, and Reeve Citation2004; Bjornenak and Mitchell Citation2002; Bhimani et al. Citation2007; Chenhall and Langfield‐Smith Citation1998; Kallunki and Silvola Citation2008; also Gosselin Citation2007).
2 Our data consists of small firms for which company mergers and acquisitions are common. Therefore, the number of original small firms in our financial data decreases year by year. As a result, too small sample size would not have allowed us to run statistical analyses over a longer time period than two subsequent years.
3 According to the Finnish legislation, all limited companies have to deliver their statutory financial statements to the National Board of Patents and Registration of Finland (PRH) within eight months after a financial year has ended. This information is publicly available. The “Voitto+” database bases its financial statement information on Finnish firms on the public information of PRH and thus the information is regarded as extremely reliable.
4 The range of employees follows the definition of a small firm given by the European Commission (2003/361/EC).
5 On life cycle perspectives, the sample firms may well be in the growth or revival phase of their organizational life cycle (see, e.g., Moores and Yuen Citation2001).
6 In total, for 28 firms, the database did not contain financial information on the second year after the survey. This kind of ex post information is required for the examination of possible lagging effects of the use of ABC on subsequent financial performance of the firms. The screening of the data also revealed that one firm was a clear outlier having an extremely high past three‐year growth, and the case was finally excluded from the analyses to improve the multivariate normality of the data set.
7 Even though the 154 small firms in the study seem to have slightly larger net sales and total assets than the firms in the sample of 183 firms, the nonparametric tests confirm that the means and frequencies do not differ significantly from those in the larger sample (see ).
8 Correlation analyses revealed no significant relationships between industry (measured by two dummies) and the measures of change in subsequent performance over two immediate years in terms of growth in net sales and ROI. Results support the view that industry‐specific features are not crucial to the findings.
9 The statistical packages SPSS 15.0 and AMOS 8 (Graphics) are utilized for all the statistical procedures.
10 The number of subsamples requested is 500, and the bias‐corrected confidence intervals for evaluation of parameter estimates are set at 90 percent.
Additional information
Notes on contributors
Sinikka Jänkälä
Sinikka Jänkälä is a principal lecturer of accounting at Kemi‐Tornio University of Applied Sciences, Finland.
Hanna Silvola
Hanna Silvola is an assistant professor at Aalto University School of Economics, Finland.
