Management Accounting Research 19 (2008) 62–79
Juha-Pekka Kallunki∗, Hanna Silvola Department of Accounting and Finance, University of Oulu, PO Box 4600, FIN-90014 Oulu, Finland Abstract
This paper investigates if the use of an activity-based cost-accounting system differs among rms in different organizational life cycle stages. We apply the Miller and Friesen [Miller, D., Friesen, P.H., 1983. Successful and unsuccessful phases of the corporate life cycle. Organ. Stud. 4 (3), 339–356; Miller, D., Friesen, P.H., 1984. A longitudinal study of the corporate life cycle. Manage. Sci. 30 (10), 1161–1183] life cycle model according to which the internal characteristics of rms and the external contexts in which the rms operate differ across rms depending on their stages of development. Based on the organizational life cycle theories we hypothesize that the use of the activity-based costing is more common among rms in maturity and revival phases than amongrms in a growth phase. Our empirical analyses based on a questionnaire to 105 Finnish rms operating in various industries and in different life cycle stages support our hypothesis. We conduct various robustness checks of the results using several control variables and checking the effect of potential non-response bias. Our results remain essentially the same. ©2007 Elsevier Ltd. All rights reserved. JEL classification: M41 Keywords: Activity-based costing system; Organizational life cycle; Management accounting 1. Introduction In a growthstage, rms are characterized by a rapid sales growth and an expansion of activities and products (Miller and Friesen, 1984). In a maturity stage, the sales of the rm level off, more formal and bureaucratic organization structures are established and innovation declines. In the revival stage, rms adopt divisionalized structures for the rst time to cope with more complex and heterogeneous markets (Miller and Friesen, 1984). These life cycle stages of therm are described in organizational life cycle theories according to which the internal characteristics of rms and the external contexts in which the rms operate differ across rms depending on the stage of development (e.g. Greiner, 1972; Miller and Friesen, 1983, 1984; Merchant, 1997). A rm’s life cycle stage is a contingency to which organizational responses have to be matched (e.g. Miller and Friesen, 1983, 1984). This implies that the use of management accounting systems differs across the stages of organizational life cycle as different systems are needed in different stages. Firms’ need for formal management accounting and control systems is notably greater in the later life cycle stages than it is in the early stages. However, as Md. Auzair and Langeld-Smith (2005) point out, organizational life cycle is a fairly recent variable in the empirical management ∗ Corresponding author. Tel.: +358 8 553 2956; fax: +358 8 553 2906. E-mail address: juha-pekka.kallunki@oulu.(J.-P. Kallunki). 1044-5005/$ –see front matter © 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.mar.2007.08.002
J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 63 accounting system literature, and life cycle stage has not been linked to most of the management control dimensions. In a few existing empirical studies, it has been reported that the life cycle stage is an important driver of the emergence of management control systems (Miller and Friesen, 1984; Moores and Yuen, 2001; Davila, 2005; Md. Auzair and Langeld-Smith, 2005; Granlund and Taipaleenm¨aki, 2005). For instance, Miller and Friesen (1984) report that rms in the maturity and revival phases put signicantly more emphasis on formal cost controls than do rms in the growth stage. Md. Auzair and Langeld-Smith (2005) use a self-categorization measure based on the rm’s own assessment of its life cycle stage and report that organizational life cycle, among other contingent variables, has a signicant effect on the design of a rm’s management control systems. In this paper, we investigate if the use of the activity-based cost-accounting system differs across life cycle stages of the rm.1 The life cycle literature (e.g. Miller and Friesen, 1983, 1984) reports that increased competition and diversication in products and marketscause rmsinthematurityandrevivalphasestoputsignicantlymoreemphasis on formal cost controls and performance as opposed to rms in the growth phase. In addition, mature and revivalrms have greater resources for experimenting with advanced management accounting systems and they have more complex, more formal and more bureaucratic organizational structures creating a need for these systems compared to growth rms. These differences in the internal characteristics of the rm and the environments in which the rms operate lead to more widespread use of advanced costing systems, such as activity-based costing, among mature and revival rms than among growth rms. The paper contributes to the management accounting literature by exploring if the life cycle of the rm has a role of its own apart from that of the size of the rm in the use of activity-based costing. Although rms in the maturity and revival phases are often larger than rms in a growth phase, not all mature or revival rms are necessarily large in size. In other words, even small rms are likely to use activity-based costing if they have a managerial need for an advanced cost-accounting system due to their life cycle stage. We therefore expand the earlier studies investigating the effect of the size of the rm on the use of activity-based costing without considering the life cycle stage of the rm. Such earlier studies include Drury and Tayles (1994), Innes and Mitchell (1995), Bjornenak (1997), Chenhall and Langeld-Smith (1998), Malmi (1999) and Al-Omir and Drury (in press). Wefeelthat this study has important implications for the practice of management accounting research; it sheds light on whether the actual underlying organizational need indicated by the life cycle stage of the rm rather than simply the size of the rm drives the rms’ use of an activity-based costing. In addition, although activity-based costing has been scrutinised for almost two decades, it continues to be actively investigated (e.g. Al-Omir and Drury, in press). One reason for this is that implementations of ERP (enterprise resource planning) systems allowing rms to integrate advanced cost accounting such as activity-based costing software with ERP systems, have increased remarkably in recent years (e.g. Dechow and Mouritsen, 2004; Granlund and Malmi, 2002; Granlund, 2007). Our empirical analyses based on the cross-sectional survey data of 105 rms operating in several industries and in different life cycle stages, support our hypothesis. The results indicate that the characteristics of the rm reported in the life cycle literature to affect the use of advanced cost-accounting systems differ across life cycle phases, i.e. rms in the maturity and revival phases have a greater organizational size, lower protability, a more diversied product/service range and have more often gained a stock market listing as opposed to rms in the growth phase. More importantly, we ndthat the use of activity-based costing is signicantly more common among rms in maturity and revival phases than it is among rms in a growth phase. In addition, we nd that it is the life cycle stage rather than the size or age of the rm which is decisive in explaining the use of the activity-based costing among rms. These results remain essentially the same after several control variables and checking the effect of potential non-response bias have been applied. Wedivide the remainder of the body of this paper into four sections. In Section 2 we review the relevant literature and develop our hypothesis. We describe the survey data and research method in Section 3 and report the results of preliminary data analyses. In Section 4, we report the empirical results including the corresponding robustness tests and present concluding remarks in Section 5. 1 Hilton (2005, p. 786) describes activity-based cost accounting system as ‘a two-stage procedure used to assign overhead costs to products and services produced. In the rst stage, signicant activities are identied, and overhead costs are assigned to activity cost pools in accordance with the way the resources are consumed by the activities. In the second stage, the overhead costs are allocated from each activity cost pool to each product line in proportion to the amount of the cost driver consumed by the product line’. In addition, Bjornenak and Mitchell (2002) provide an excellent review of the activity-based costing journal literature and Lukka and Granlund (2002) that of activity-based costing research genres.
4 J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 2. Theory and hypothesis development 2.1. Characteristics of firms in different organizational life cycles stages Organizational life cycle theories suggest that the characteristics of organizations change according to the life cycle stages (e.g. Greiner, 1972; Churchill and Lewis, 1983; Miller and Friesen, 1983, 1984; Merchant, 1997; Moores and Yuen, 2001). In the birth stage, the prime distinguishing feature of the rms is that they are young, dominated by their owners, and have simple and informal organizational structures (Miller and Friesen, 1984). For this reason, the birth stage is also referred to as an ‘entrepreneurial stage’. The founders of these rms are technically or entrepreneurially oriented, preferring to keep management activities to a minimum. They prefer to devote their efforts to developing and selling new products, and they rely on a minimal amount of information in decision-making. The growth stage occurs once the rm has established its distinctive competences and has achieved some initial product-market success (Miller and Friesen, 1984). In the growth stage, rms are characterized by rapid sales growth. Growth rms rely more on formal rules and procedures to ensure organizational and administrative ef ciency. This is due to the expansion of activities and products and increasingly centralized structures. Some authority is delegated to middle-managers who devote greater effort to collecting and processing information needed in decision-making. Growth rms extend their product ranges, but this results in a more complex array of products for a given market rather than positions on widely differing markets (Miller and Friesen, 1984). Thematurity stage follows the growth stage as the sales levels stabilize and the level of innovations falls (Miller and Friesen, 1984). In the maturity stage, the administrative task of the rm becomes more complex, which in turn leads to formal and bureaucratic structures. In fact, Quinn and Cameron (1983) dene this stage as the ‘formalization and control stage’. Mature rmsplacemoreemphasisonef ciencyandprotabilityandonstrategiesreplacinginnovations. Decision-making is dominated by a few key managers and structures remain centralized. In the revival stage, rms adopt divisionalized structures for the rst time to cope with the more complex and heterogeneous markets (Miller and Friesen, 1984). Revival rms focus their strategies on diversication and expansion of product-market scope to achieve turnaround and attain new growth (e.g. Miller and Friesen, 1984; Gupta and Chin, 1990; Merchant, 1997). They also emphasise more sophisticated control and planning systems. Table 1 summarises the characteristics of therms in different life cycle stages. Afew recent studies have applied the Miller and Friesen typology to the life cycle stages of the rm in connection with management accounting. Md. Auzair and Langeld-Smith (2005) measure the life cycle stage of the rm using a self-categorization measure proposed by Kazanjian and Drazin (1990), and report that organizational life cycle, among other contingent variables, has a signicant effect on the design of a rm’s management control systems. Davila (2005) Table 1 Characteristics describing rms in different life cycle stages Growth Maturity Revival Environment Organization Strategy More competitive and heterogeneous Some formalization of structure Functional basis of organization Increasing differentiation Somewhat less centralized Broadening of product market scope into closely related areas Incremental innovation in product lines Rapid growth Still more competitive and heterogeneous Formal, bureaucratic structure Functional basis of organization Moderate differentiation Moderate centralization Consolidation of product market strategy Focus on ef ciently supplying a well-dened market Very heterogeneous, competitive and dynamic environment Divisional basis of organization High differentiation Sophisticated controls, more formal analysis in decision-making Strategy of product market diversication, movement into some unrelated markets High level of risk taking and planning Substantial innovation Notes: The table is based on Miller and Friesen (1983, 1984).
J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 65 reports that the size and age of the rm, the replacement of the founder as CEO and the existence of outside investors are drivers of the emergence of management control systems. Finally, Moores and Yuen (2001) explore the use of managementaccounting systems at different life cycle stages and nd that the formality of the management accounting systems varies across life cycle stages. 2.2. The use of activity-based costing in different organizational life cycle stages The life cycle literature implies that there are several reasons why the use of advanced management accounting systems such as activity-based costing is greater among rms in the maturity and revival phases than amongrms in the growth phase. These reasons are due to differences in the administrative task, business environment, strategies and organization structures between rms in different life cycle phases. First, as a result of a more complex, more challenging and more competitive business environment, the administrative task of mature and revivalrms is more complex than that of growth rms (Miller and Friesen, 1983; Chandler, 1962). This creates a need for a more sophisticated decision-making approach utilizing sophisticated management accounting systems such as activity-based costing. Second, rms in the growth phase put emphasis on growth and on expanding their market shares, whereas rms in the maturity and revival phases put clearly more emphasis on minimizing production costs in mature, highly competitive markets rather than on growth. This is because increased competition decreases the profitability of the rms in the maturity and revival stages. Therefore, cost-effectiveness and protability are more important in the maturity and revival phases than they are in the growth phase. Consequently, rms in the maturity and revival phases put more emphasis on formal controls, such as formal cost controls, as they need to produce products ef ciently and earn adequate prot margins on a more competitive market (Miller and Friesen, 1984). Third, maturity and revival rms experience increased diversification in their products and markets (Miller and Friesen, 1984). Increased diversication in products and markets together with increased competition cause rms in the maturity and revival phases to put more emphasis on reducing, controlling and understanding factors driving their costs as opposed to rms in a growth phase (e.g. Miller and Friesen, 1984; Gupta and Chin, 1990; Merchant, 1997; MooresandYuen,2001;Md.AuzairandLangeld-Smith,2005).Therefore,matureandrevival rmsespeciallycanbe expected to use activity-based costing, as activity-based costing should help managers to understand cost hierarchies, to identify relevant revenues and costs (e.g. Jones and Dugdale, 2002), and to achieve a better nancial performance (e.g. Kennedy and Af eck-Graves, 2001). Fourth, the life cycle literature suggests that the organizational size of the rms is greater in maturity and revival phases than it is in the growth phase. As Chenhall and Langeld-Smith (1998) point out, greater organizational size leads to greater complexity of tasks, which requires more division of labour. The specialization of tasks leads to more extensive differentiation, i.e. similar tasks are grouped within common units (Chenhall and Langeld-Smith, 1998; Blau et al., 1976). As a result, it becomes more dif cult to ensure that organizational subunits are acting towards the achievement of a common purpose (Lawrence and Lorsch, 1967). More sophisticated integrative mechanisms such as information systems are then developed to coordinate the activities of subunits (Chandler, 1962). Management accounting innovations such as activity-based costing are examples of such information systems (Chenhall and Langeld-Smith, 1998). In addition, rms in the maturity and revival stages as result of greater organizational size have greater resources to experiment with administrative innovations such as advanced management accounting systems. In sum, greater organizational size and greater resources can be expected to lead to more widespread use of activity-based costing among rms in the maturity and revival stages as opposed to rms in the growth stage. Fifth, the life cycle literature suggests that rms in the mature and revival stages have more centralized, more formal and more bureaucratic organization structures as opposed to rms in the growth stage (e.g. Miller and Friesen, 1984; Quinn and Cameron, 1983; Moores and Yuen, 2001). Gosselin (1997) reports that among organizations that adopt activity-based costing more centralized and more formal organizations are more associated with the implementation of activity-based costing in comparison to decentralized and less formal organizations. He also nds that organizations that adopt and implement activity-based costing are bureaucracies. It follows from these results that the use of the activity-based costing should also be more common among rms in the maturity and revival phase than among rms in a growth phase due to the more centralized, more formal and more bureaucratic organization structures of the mature and revival rms.
6 J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 The literature discussed above leads us to the following hypothesis on the use of activity-based costing in different life cycle stages of the rm2: Hypothesis 1. The use of activity-based costing is greater among rms in maturity and revival phases than amongrms in a growth phase. While rms may use activity-based costing for different reasons (see Section 2.3), the life cycle theories imply that the life cycle stage of the rm should affect the reasons for using activity-based costing in the same way as it affects the actual use of activity-based costing. In other words, the reasons for using activity-based costing in different life cycle phases should reect the differences in the managerial need for using it in each life cycle phase, as suggested by life cycle theories. As noted earlier, the life cycle theories suggest that the use of activity-based costing should be more widespread among mature andrevival rms, because these rms are less protable and they have to put more emphasis onreducing, controlling and understanding the factors driving their costs as opposed to rms in a growth phase. Hence, the need to reduce, control and understand factors driving the costs should also be a more important reason for using activity-based costing among the rms in the maturity and revival phases than among rms a growth phase. Similarly, life cycle theories imply that the administrative task of mature and revival rms is more complex than that of growthrms, necessitating more sophisticated management accounting system such as activity-based costing. Therefore, a need to improve and modernize decision-making by using activity-based costing should be a more important reason for using activity-based costing among mature and revival rms than among growth rms. In sum, we propose the following hypothesis on the reasons for using of activity-based costing at different life cycle stages of the rm: Hypothesis 2. Aneed to reduce and control the costs, a need to understand the factors driving the costs and a need to improve and modernize decision-making should be more important reasons for using an activity-based costing amongrms in maturity and revival phases than among rms in a growth phase. 2.3. Other characteristics of the firm affecting the use of activity-based costing There are also other characteristics of the rm that need to be controlled for when investigating the use of the activity-based costing at different organizational life cycle stages. Some of these characteristics and those describing the life cycle stage of the rm are partly inter-related (e.g. the size, age, product/service diversity and stock market listing of the rm). Earlier studies (e.g. Davila, 2005) have used the size and age of the rm as measures of the life cycle stage. However, our aim is to isolate the role of the life cycle of the rm from that of the other characteristics of the rm by using the self-categorization measure proposed by Md. Auzair and Langeld-Smith (2005) and Kazanjian and Drazin (1990). Therefore, in our analyses we control for the effect of the other characteristics of the rm on the use of activity-based cost accounting. First, the earlier literature reports that the use of activity-based costing increases as the size of the rm increases (e.g. Drury and Tayles, 1994; Moores and Chenhall, 1994; Innes and Mitchell, 1995; Bjornenak, 1997; Chenhall and Langeld-Smith, 1998; Baird et al., 2004). Second, the earlier literature reports that the use of formal management control systems increases as the rm grows older (e.g. Davila, 2005). Third, the use of activity-based costing has been reported to be more common among rms having high product/service diversity (e.g. Bjornenak, 1997; Malmi, 1999). Fourth, as Cooper and Kaplan (1988) points out, rms having a complex production process tend to use more sophisticated cost-accounting systems compared to other rms. Fifth, the educational level of the CEO of the rm has been reported to be positively related the use of formal management accounting systems (e.g. Graham and Harvey, 2001; Davila, 2005). Sixth, as Davila (2005) and Granlund and Taipaleenm¨aki (2005) report, rms have to meet the expectations ofventurecapitalinvestorswhendevelopingtheirmanagementcontrolsystems.Therefore,venturecapital investors may require rms to use advanced management accounting systems such as activity-based costing. Seventh,rms listed on a stock exchange have been reported to use advanced management accounting systems (Granlund and Taipaleenm¨aki, 2005; O’Connor et al., 2004). Finally, earlier studies report that the use of activity-based costing differs 2 We emphasize that we propose a hypothesis on how widespread the use of activity-based costing is in different life cycle stages. We do not hypothesize when rms begin to use activity-based costing in their life cycle.
J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 67 between manufacturing and service rms, because service rms may have fewer activities for cost allocation (Lukka andGranlund,1996;Hussainetal.,1998).Intheempiricalanalyses,wecontrolfortheeffectofalltheabove-mentioned factors on the use of activity-based costing of rms. Section 3 describes the empirical measures of these factors. 3. Research method 3.1. Sample and survey procedure The data used in the study were collected by a survey questionnaire (Dillman, 1999; Van der Stede et al., 2005). The nal questionnaire was mailed to 500 Finnish rms randomly selected from a database of rms located in the Helsinki area. The database is maintained by Statistics Finland. The rms are of different sizes and they operate in various industries, because we want to test our hypotheses on the effect of the life cycle stage of the rm on the use of activity-based costing such that the results can be generalized to rms with different sizes and operating in different industries. Pilot tests were undertaken with groups of chief accountants, nancial directors and academics to rene the design and focus the content. We received some advice on survey design and formulation to make the survey more explicit and easier to answer. A respondent who wastypically a nancial director, chief accountant, senior management accountant or chief executive, was themosteligible personwithineach rmtocompletethesurvey.Thesurveypackage included a covering letter explaining the purpose of the research and a link to the web site where respondents could also complete the questionnaire. Respondents answered anonymously using the Internet questionnaire or by mail. A reminder was mailed 3 weeks later which gave us 16 further responses. All in all, we received 105 responses out of the 500 recipients giving a response rate of 21%. In addition, ve respondents phoned us to indicate that they did not have enough time to participate. We received 15 responses via the Internet and 90 responses via mail. Table 2 reports the summary statistics of the sample rms. As Van der Stede et al. (2005) suggest, non-response bias tests are needed to ensure the representativeness of the sample. We test the potential effect of non-response bias on our results by comparing the mean values of the survey items of the earliest 20% of responses received to the mean values of variables of the latest 20% of responses received. In addition, we also compare the mean values of the variables of the postal and Internet responses. There were no signicant differences, which provides some evidence for absence of response bias. In addition, a chi-square test indicates that the respondents appeared to represent the broader sample frame with no signicant differences in industry between responding and non-responding rms. 3.2. Measures The wording of items in the questionnaire is provided in Appendix A. The questionnaire includes items measuring the organizational life cycle stage, the use of activity-based costing, reasons for using activity-based costing and other characteristics of the rm that are likely to affect the use of activity-based costing. The questionnaire was designed to use survey items used in earlier studies to reduce response error, if respondents do not fully understand questions (e.g. Dillman, 1999; Van der Stede et al., 2005). In this section, we describe the survey items in details. 3.2.1. Measure of the organizational life cycle stage of the firm Our measure for the organizational life cycle stage is based on a well-known life cycle model proposed by Miller and Friesen (1983, 1984) in which rms go through different phases in which the strategies, organizational structures and decision-making styles of the rm vary across life cycles. Since the Miller and Friesen life cycle model is based on common life cycle indicators, it can be applied to rms of different sizes operating in different industries. In addition, the Miller–Friesen model has been tested in many empirical studies (e.g. Miller and Friesen, 1984; Moores and Yuen, 2001; Davila, 2005). Following Kazanjian and Drazin (1990) and Md. Auzair and Langeld-Smith (2005) we use a self-categorization measure to identify the life cycle stage of the rm, i.e. we asked rms to dene their current life cycle stage (survey item 13 in Appendix A).3 Life cycle stages are dened as in Miller and Friesen (1983), i.e. rms 3 Weemphasizethat this methodology for analysing the use of a specic management accounting system is not ours, but it is used in the life cycle literature cited in this paper. We also recognise that any research methodology has its limitations. As we have discussed earlier, we empirically test a hypothesis on how widespread the use of activity-based costing is in different life cycle stages.
J.-P. Kallunki, H. Silvola / Management Accounting Research 19 (2008) 62–79 69 Table 3 Characteristics of the sample rms across life cycle stages Growth Maturity Revival Number of rms proportion of which listed on a stock exchange (survey item 2) Net sales (MD ) (survey item 3) Growth in net sales (%) (survey item 6) Number of employees (survey item 4) Net income margin (%) (survey item 7) Age of the rm (in years) (survey item 1) Number of products/services (survey item 12) 22 (9%) 95  27.6 [10.0] 409  8.5 [6.0] 13.1 [10.0] 2.68 Proportion of different cost items as a percentage of total costs (survey item 14) Material 28.8 [20.0] Direct labour Other variable manufacturing costs Fixed manufacturing cost Other xed costs 37.0 [32.5] 8.7 [5.5] 8.7 [5.5] 15.9 [12.5] 54 (13%) 3230  4.0 [3.5] 1177  6.3 [5.0] 48.7 [45.0] 2.89 37.3 [40.0] 27.3 [20.0] 9.6 [5.0] 7.9 [4.0] 12.1 [10.0] 29 (28%) 3910  5.7 [5.0] 4259  5.1 [3.0] 68.4 [64.0] 3.00 29.6 [24.0] 35.4 [35.6] 11.6 [5.0] 7.0 [6.5] 15.9 [10.5] Notes: The table presents the mean [median] values of each variable at different life cycle stages. 2001), this result provides some evidence that maturity and revival rms have more complex administrative tasks and moreformalorganizational structures compared to rms in the growthphase. Finally, Table 3 reports the cost structures of the sample rms across life cycle stages (survey item 14), because differences in the cost structures of rms may explain their use of activity-based costing (e.g. Lukka and Granlund, 1996). This measure is based on Lukka and Granlund (1996). However, the results indicate no differences in the cost structures of rms in the growth phase versus the maturity and revival phases. 3.2.2. Measure of the use activity-based costing and measures of the reasons for using activity-based costing Followingearliersurveysontheuseofactivity-basedcosting(e.g.ChenhallandLangeld-Smith,1998),respondents were asked to respond ‘Yes’ or ‘No’ to the question of whether their rm was using an activity-based costing system4 (survey item 15). In our sample, 28% of the respondents answered that they were currently using activity-based costing method, whichis areasonably high rate if compared to that reported in earlier studies. It also indicates that the extent of the use of activity-based costing among Finnish rms has increased. Earlier studies report that 6% of respondents used activity-based costing in 1992 (Lukka and Granlund, 1996), 11% in 1993 (Laitinen, 1995) and 27% in 1999 (Hyv¨onen, 2003). The measures of the specic reasons for using activity-based costing described in Section 2.2 were based on earlier surveys on the benets of activity-based costing (e.g. Shields, 1995; Hussain et al., 1998). These measures reect the following reasons for using activity-based costing mentioned in Hypothesis 2: a need to reduce and control the costs (survey items 16b and 16h), a need to understand factors driving the costs (survey items 16f and 16g) and a need to improve and modernize decision-making (survey items 16a, 16c, 16e and 16d). For these measures, we used ave-point Likert scale ranging from (1) ‘Not important’ to (5) ‘Very important’. The respondents were asked to choose the alternative that best described the benets of activity-based costing in their rm. Table 4 reports the mean values of the rms’ responses to the questions on their use of an activity-based costing system and the reasons for using it across life cycle stages. Table 4 also reports the p-values for testing whether the 4 Although activity-based costing has been well known among practitioners for almost two decades, it is possible that different respondents may have different views regarding the concept of activity-based costing. For instance, earlier studies report that employees may have different views on the denition of activity-based costing (e.g. Cobb et al., 1992; Innes and Mitchell, 1993, 1998; Malmi, 1997; Major and Hopper, 2005). We have mitigated the inuence of this potential bias in two ways. First, we have chosen the same measure of the use of the activity-based costing that has been used in earlier studies (e.g. Chenhall and Langeld-Smith, 1998; Gosselin, 1997; Bjornenak, 1997; Malmi, 1999) to reduce potential response error described by Dillman (1999). Activity-based costing has been actively discussed in the Finnish business literature and the media since it was originally suggested, and it is as commonly known in Finland as it is in other countries, where this measure has been used. Second, our questionnaire includes several questions on the reasons for using activity-based costing (survey item 16). These questions also serve the purpose of validating ourndings on the role of the life cycle of the rm in the use of activity-based costing, In other words, if respondents have understood the question on the use of activity-based costing correctly, the life cycle stage of the rm should affect the reasons for using activity-based costing in the same way as it affects the use of activity-based costing.