When Does Cost System Sophistication Improve Financial Performance? The Moderating Role of Service Diversity

Abstract

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.