When Does Cost System Sophistication Improve Financial Performance? The Moderating Role of Service Diversity
DOI:
https://doi.org/10.59992/IJFAES.2026.v5n9p15Keywords:
Cost System Sophistication, Financial Performance, Service Diversity, Moderation, Contingency Theory, Interaction Fit, Non-Manufacturing FirmsAbstract
The paper deals with the role of service diversity in shaping the financial performance benefits of cost system sophistication (CSS) among non-manufacturing firms. Prior research has treated service diversity mainly as a direct antecedent of costing system design, generally with inconsistent, non-significant results, leaving unclear whether diversity instead functions as a boundary condition of CSS's financial consequences. Survey data from 204 UK non-manufacturing firms are analyzed using hierarchical moderated regression, supported by heteroskedasticity-consistent standard errors, a 5,000-resample bootstrap, simple slopes, and Johnson-Neyman analysis. CSS is found to be positively associated with financial performance overall, and this association is significantly strengthened by service diversity (b = 0.023, p = 0.032). Simple slopes analysis shows that the CSS-performance association is not distinguishable from zero at low service diversity but becomes significant and substantially larger at mean and high diversity levels. The Johnson-Neyman technique identifies a threshold of service diversity of approximately 2.69 on a five-point scale, above which CSS's association with performance becomes statistically significant; approximately 60 percent of the sample exceeds this threshold. These findings reposition service diversity as a boundary condition of CSS's performance consequences rather than a determinant of its adoption, extending contingency-based costing research toward an interaction-fit perspective, and offer a plausible explanation for the inconsistent direct-effect findings reported in prior studies.
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