The Role of Manufacturing Practices in Mediating the Impact of Activity-Based Costing on Plant Performance

39 Pages Posted: 19 Sep 2007

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Tai-Yuan CHEN

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology

Indranil Bardhan

University of Texas at Dallas

Abstract

We study the impact of activity-based costing (ABC) on adoption of world-class manufacturing (WCM) practices and plant performance. In contrast to earlier research that estimates the direct impact of ABC on plant performance, we develop an alternative research model to study the role of world-class manufacturing practices as a mediator of the impact of ABC. Analysis of data from a large cross-sectional sample of U.S. manufacturing plants indicates that ABC has no significant direct impact on plant performance, as measured by improvements in unit manufacturing costs, cycle time, and product quality. We find, however, that WCM practices completely mediate the positive impact of ABC on plant performance, and thus advanced manufacturing capabilities represent a critical missing link in understanding the overall impact of ABC. Our results provide a different conceptual lens to evaluate the relationship between ABC adoption and plant performance, and suggest that ABC adoption by itself does not improve plant performance.

Keywords: Activity-based costing, World-class manufacturing, Plant performance, Mediation

JEL Classification: M40, M46

Suggested Citation

Banker, Rajiv D. and Chen, Tai-Yuan and Bardhan, Indranil, The Role of Manufacturing Practices in Mediating the Impact of Activity-Based Costing on Plant Performance. Accounting, Organizations and Society, Forthcoming . Available at SSRN: https://ssrn.com/abstract=1014889

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Tai-Yuan Chen

Department of Accounting, HKUST Business School, Hong Kong University of Science & Technology ( email )

Clear Water Bay
Kowloon
Hong Kong

Indranil Bardhan (Contact Author)

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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