The Effect of Organizational Life Cycle Stage on the Use of Activity-Based Costing

Abstract

This paper investigates if the use of an activity-based cost accounting system differs among firms in different organizational life cycle stages. We apply the Miller and Friesen (1983, 1984) life cycle model according to which the internal characteristics of firms and the external contexts in which the firms operate differ across firms 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 firms in maturity and revival phases than among firms in a growth phase. Our empirical analyses based on a questionnaire to 105 Finnish firms 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.

Keywords: Activity-based costing system, organizational life cycle, management accounting

JEL Classification: M40, M46, M47