The Impact of Competition and Uncertainty on the Adoption of Target Costing

Abstract

In recent years factors which may influence firms´ decisions to adopt target costing have been presented in the literature. These studies generally argue that target costing adoption rates positively correlate with the intensity of competition and perceived environmental un-certainty. However, empirical support for this view is limited. This study argues that the adoption of target costing positively correlates with the intensity of competition, but nega-tively correlates with perceived environmental uncertainty. In addition, perceived environ-mental uncertainty moderates the adoption of target costing when the intensity of competition intensifies. Hypotheses are generated and tested using data provided by a web-based survey of Swedish manufacturing firms. The findings indicate that the adoption of target costing and the intensity of competition positively relate, although the effect reduces with an increase in perceived environmental uncertainty. There is no evidence of a direct relationship between perceived environmental uncertainty and the adoption of target costing. As a result, the find-ings partly conflict with the outcomes of earlier work. The article also discusses the implica-tions for research and firm managers considering the adoption of target costing.