The Effect of Activity-Based Costing on Companies Financial Performance: A Study among Jordanian Industrial Shareholding Companies

Abstract

The costs play important role in the growth of corporations’ especially industrial sector. In the low-income country like Jordan, the article aims to analyze the effect of adopting Activity Based Costing (ABC) on the financial performance of Jordanian industrial shareholding companies. The population of this study consists of (13) public shareholding industrial companies in Jordan out of (70) from the period of 2000-2014. Four years average before and after applying ABC system is taken for all variables and significance is tested with the help of paired sample t-test statistics. Dependent variable in this study is the implementing of ABC system, and independent variables are gross profit margin (GPM), margin before interest and tax ratio (MBIT), net profit margin ratio (ROS), return on assets (ROA), return on equity (ROE) and return on investment ratio (ROI) have been computed. The results show that 78 Performance variables shows that the direction for the improved ratios after implementing ABC system is 37 Performance variables (37/78, 47%), and remaining 41 (41/78, 53%) Performance variables direction shows deterioration in the after implementing ABC system period. Out of 37 improved ratios 4 Performance variables are statistically significant. In the other hand out of 41 deteriorated ratios 7 Performance variables are statistically significant.

Keywords: Activity Based Costing (ABC), financial performance, industrial companies, Jordan.