The effect of activity-based costing and product innovation on financial performance : The Moderating Role of Firm Size

Abstract

This study investigates the influence of Activity-Based Costing (ABC) and product innovation on the financial performance of manufacturing firms, while examining the moderating role of firm size. The research focuses on manufacturing companies operating in Tangerang, Indonesia, where increasing market competition requires both effective cost management and continuous innovation to improve organizational performance. A quantitative research design was adopted, and data were collected through questionnaires distributed to managerial-level employees. Out of 64 questionnaires, 62 valid responses were analyzed using the Partial Least Squares–Structural Equation Modeling (PLS-SEM) approach. The findings indicate that both Activity-Based Costing and product innovation have a positive and significant effect on financial performance. The analysis also reveals that firm size strengthens these relationships, suggesting that larger companies are better positioned to maximize the benefits of ABC implementation and innovation initiatives due to their greater financial, technological, and organizational resources. These findings highlight the importance of integrating accurate cost management practices with innovation strategies to achieve stronger financial performance and maintain long-term competitiveness.