A Study of Management Accounting Practices and Financial
Performance in Industrial Companies in Jordan
MAHMOUD FAWZI ZAKI ISMAIL, ANAS MAJED SULEIMAN AL-MARAYAT,
HADI SALEH ATIAT
AL Khawarizmi University Technical College, JORDAN
Abstract: With advancement in technology and changing business environment, it is important to
assess the effect of adoption of management accounting practices on the financial performance in
companies. Hence, the purpose of the study was to assess the effect of Management Accounting
Practices (MAPs) on the financial performance in industrial companies of Jordan. The study
considered MAPs (costing practices, budgeting practices, decision-making practices, performance
evaluation practices and strategic analysis) as the independent variables and financial performance
(Return on Assets - ROA) as the dependent variable. Data collection was done through primary
sources where 142 responses were collected using structured questionnaire. Multiple regression test
was used to test the hypothesis which found that there is a statistically significant effect of adoption
of management accounting practices on the financial performance in Jordanian industrial companies.
Keywords: Budgeting Practices, Costing Practices, Decision-Making Practices, Financial
Performance, Management Accounting Practices, Performance Evaluation Practices, Return on
Assets and Strategic Analysis.
Received: May 18, 2022. Revised: May 19, 2023. Accepted: June 21, 2023. Published: July 17, 2023.
1. Introduction
Operations are analyzed by organizations
based on management accounting techniques.
The role of management accounting is
increasing with respect to the changing
business environment. The management needs
to perform better in order to retain the trust
with investors, stakeholders and prospective
investors (Rewan Kumar Dahal, et al., 2020).
Hence, management accounting can be termed
as management-oriented accounting.
Management accounting is an integral part of
management process as strategic decision-
making is dependent on information held and
analyzed by the management accountants.
Mahfar and Omar (2004) opined that in an
organization, management accountants
facilitate important information for the
purposes of planning, evaluating, controlling
and decision-making process. Managers are
facilitated by management accounting for
doing their functions and perform their roles in
an efficient manner (Rewan Kumar Dahal, et
al., 2020).
A measure of how effectively an organization
utilizes its assets to generate revenue is the
main aim of financial performance (Mills,
2008). Financial performance also ensures and
provides information about overall financial
health of the organization over a given period
of time. The financial health of the
organizations can be compared across same
industry or sectors. The concept of
performance measurement signifies that the
value of the organization can be increased
through cash flows and investment by
assessing risk management accordingly
(Cadbury, 1992). Various ways to measure
financial performance exist which help
organizations in achieving their strategic
goals. Some of the financial performance
indicators are liquidity ratios, Return on
Equity (ROE), Return on Assets (ROA)
profitability ratios, asset management ratios,
market value ratios and leverage ratios.
Financial performance also reflects on the
performance of the managers in the
organizations and predicts the financial health
of the organization (Carreta and Farina, 2010).
2. Review of Literature
It was stated by Waweru, Hoque and Uliana
(2005) in their study that with the
advancement in technology, economic
downturn and highly environment of
International Journal of Applied Sciences & Development
DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
78
Volume 2, 2023
competition, the environment in which
practices of management accounting are
conducted has eventually changed. There is a
transition from traditional MAPs to new
management accounting techniques in
organizations such include Activity Based
Costing (ABC), target costing, balance
scorecard, kaizen approach costing, etc.
However, the most remarkable management
accounting techniques useful for the
organizations with innovation and
dependability is activity based techniques,
balance scorecard and strategic management
accounting (Abdel-Kader and Luther, 2006).
A study by Chan (2002), in Mahfar and Omar
(2004) considering Singapore coal companies
stated that they were not effective in utilizing
costing and management accounting tools as
they were hesitant to optimally use advanced
techniques such as Activity Based Costing
(ABC) and Total Quality Management
(TQM). Usage of MAPs was important for
companies as they enabled management to
acquire applicable information for
consequential decision making (Alleyne and
Weekes-Marshall, 2011). The supposed
significance of cost accounting is determined
by declining profitability, escalating costs and
competition, along with crisis, recession and
downturn in the economy. The study found
that companies were inclined to traditional
techniques of management accounting and did
not give much importance to new MAPs.
Three MAPs used by the companies were
found in the study: planning and control,
budgeting and cost-volume-profit analysis
(Uyar, 2010).
A survey by Halbouni (1999) showed that the
Jordanian companies were persistently shifting
their accounting practices towards new
techniques which affected the degree of
consistency over time. The compliance level
between Jordanian accounting practices and
the needs of International Accounting
Standards (IAS) was moderate which needed
improvement. Al-Hroot, Saadat, and Amireh
(2015) assessed the effect of adopting
Activity-Based Costing (ABC) on the
financial performance of Jordanian industrial
shareholding companies. The usage of the
ABC system in the company was the
dependent variable, and Margin before Interest
and Tax Ratio (MBIT), Gross Profit Margin
(GPM), Return on Assets (ROA), Net Profit
Margin (ROS), Return on Investment (ROI)
and Return on Equity (ROE) were independent
variables. The results displayed that variables
of performance showed statistically significant
direction for the improvement of ratios after
implementing the ABC system.
2.1 .Objectives of the Study
To assess the management accounting
practices and financial performance in
industrial companies of Jordan.
2.2 Hypothesis of the Study
H01: There is no significant effect of
management accounting practices on financial
performance of selected industrial companies
in Jordan
H1: There is a significant effect of
management accounting practices on financial
performance of selected industrial companies
in Jordan
3. Research Methodology
This research is based on a quantitative
research method where the chosen respondents
were 142 based on random sampling method.
Primary data was collected using the
questionnaire method. A structured
questionnaire using 5 points Likert Scale
measurement was developed in order to
enhance the validity and reliability of the
measures. 210 questionnaires were distributed
to Chief Financial Officers (CFO),
Accountants and Accounting Managers of
Jordanian industrial companies out of which
only 142 were found suitable for the study.
During data entry, 68 questionnaires were
rejected as they were incomplete. Hence, the
total number of respondents considered for the
study was 142. Analytical tests were used to
achieve research objectives, for which the data
International Journal of Applied Sciences & Development
DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
79
Volume 2, 2023
was fed into SPSS software and the data were
analyzed. The data analysis consists of various
statistical methods such as descriptive
statistics and multiple regression test. The
hypothesis was tested using Multiple
Regression Models.
3.1 Variables Measurement
For the purposes of the study, the study
variables were categorized as independent and
dependent variables. Based on the literature
reviews studied, the variables were determined
in order to assess the effect of MAPs on the
financial performance of Jordanian industrial
companies.
Independent Variables: MAPs (costing
practices, budgeting practices, decision-
making practices, performance evaluation
practices and strategic analysis)
Dependent Variable: Financial Performance
(ROA)
3.2 Data Analysis and Interpretation
Table 1: Number of Respondents chosen for the Study
Companies
Number of respondents
Percentage
Chemical industries
34
23.9
Mining and Extraction Industries
26
18.4
Pharmaceutical Industries
20
14.08
Textile
30
21.12
Food and beverages
32
22.5
Total
142
100
Source: Compiled by the Researcher
142 responses were collected from selected
industrial companies of Jordan out of which
23.9% of the respondents belonged to
chemical industries, 18.4% of the respondents
belonged to mining and extraction industries,
14.08% of the respondents belonged to
pharmaceutical industries, 21.2% of the
respondents belonged to textile industries and
22.5% of the respondents belonged to food
and beverages industries.
International Journal of Applied Sciences & Development
DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
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Usage of Costing Management Accounting Practices
Table 2: Usage of Costing Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
F
1
21
37
69
14
%
0.7
14.8
26.1
48.6
9.9
F
0
24
44
61
13
%
0
16.9
31.0
43.0
9.2
F
11
27
45
46
13
%
7.7
19.0
31.7
32.4
9.2
F
4
16
40
64
18
%
2.8
11.3
28.2
45.1
12.7
F
5
0
20
40
77
%
3.5
0
14.1
28.2
54.2
F
0
5
65
50
22
%
0
3.5
45.7
35.2
15.4
F
2
21
32
68
19
%
1.4
14.8
22.5
47.9
13.4
The usage of cost management accounting
practices in industrial corporations is shown in
the table above. 48.6% of the respondents
stated that Activity-Based Costing was used in
their respective companies. 43% of the
respondents opined that Target Costing was
used in their respective companies. 32.4% of
the respondents stated that cost of quality
reporting was used in their respective
companies. 45.1% of the respondents opined
that Process Costing was used in their
respective companies. 28.2% of the
respondents stated that respective companies
used cost management practices of segregation
of incremental costs, variable cost and fixed
costs. 47.9% of the respondents opined that
Kaizen Approach Costing was used in their
respective companies.
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Hadi Saleh Atiat
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Usage of Budgeting Management Accounting Practices
Table 3: Usage of Budgeting Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
F
4
12
47
72
7
%
2.8
8.5
33.1
50.7
4.9
F
2
19
29
58
34
%
1.4
13.4
20.4
40.8
23.9
F
7
11
36
78
10
%
4.9
7.7
25.4
54.9
7.0
F
8
19
36
61
18
%
5.6
13.4
25.4
43.0
12.7
F
5
23
36
53
25
%
3.5
16.2
25.4
37.3
17.6
F
0
20
18
94
10
%
0
14.1
12.7
66.2
7.0
F
2
23
20
77
20
%
1.4
16.2
14.1
54.2
14.1
The usage of budgeting management
accounting practices in industrial corporations
is shown in the table above. 50.7% of the
respondents stated that budgeting for long-
term (strategic) plans was used in their
respective companies. 40.8% of the
respondents opined that zero-based budgeting
was used in their respective companies. 54.9%
of the respondents stated that budgeting for
controlling costs was used in their respective
companies. 43% of the respondents opined
that flexible budgeting was used in their
respective companies. 37.3% of the
respondents stated that respective companies
used cost budgeting for planning. 54.2% of the
respondents opined that budgeting with ‘what
if analysis’ was used in their respective
companies.
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Usage of Performance Evaluation Management Accounting Practices
Table 4: Usage of Performance Evaluation Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
Non-financial measure with respect to
customers
F
6
7
27
70
32
%
4.2
4.9
19.0
49.3
22.5
Non-financial measures with respect to
operation and innovation
F
0
15
21
64
42
%
0
10.6
14.8
45.1
29.6
Non-financial measures with respect to
operation and innovation
F
1
20
23
58
40
%
.7
14.1
16.2
40.8
28.2
Financial measures
F
8
10
34
135
56
%
5.6
7.0
24.0
45.0
18.7
Economic value added or residual
income
F
3
18
26
67
28
%
2.1
12.7
18.3
47.2
19.7
The usage of performance evaluation
management accounting practices in industrial
corporations is shown in the table above.
49.3% of the respondents stated that non-
financial measures with respect to customers
were used in their respective companies.
45.1% of the respondents opined that non-
financial measures with respect to operation
and innovation were used in their respective
companies. 45% of the respondents stated that
financial measures were used in their
respective companies. 40.8% of the
respondents opined that non-financial
measures with respect to operation and
innovation were used in their respective
companies. 47.2% of the respondents stated
that respective companies used economic
value added or residual income.
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Usage of Decision Making Management Accounting Practices
Table 5: Usage of Decision Making Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
Profitability analysis about the product
F
3
6
25
85
23
%
2.1
4.2
17.6
59.9
16.2
Profitability analysis about the
customer
F
2
9
17
71
43
%
1.4
6.3
12.0
50.0
30.3
Break even analysis or cost volume
profit analysis
F
4
10
16
73
39
%
2.8
7.0
11.3
51.4
27.5
Time value of money and payback
period
F
7
9
14
95
17
%
4.9
6.3
9.9
66.9
12.0
The usage of decision-making management
accounting practices in industrial corporations
is shown in the table above. 59.9% of the
respondents stated that profitability analysis
about the product was used in their respective
companies. 50% of the respondents opined
that non profitability analysis about the
customer was used in their respective
companies. 51.4% of the respondents stated
that break even analysis or cost volume profit
analysis were used in their respective
companies. 66.9% of the respondents opined
that time value of money and payback period
was used in their respective companies.
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Usage of Strategic Analysis Management Accounting Practices
Table 6: Usage of Strategic Analysis Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
Value chain analysis
F
1
24
68
36
13
%
0.7
16.9
47.9
25.4
9.2
Shareholder value
F
4
19
57
49
13
%
2.8
13.4
40.1
34.5
9.2
Analysis of competitors‟ strengths and
weaknesses
F
1
7
21
97
16
%
0.7
4.9
14.8
68.3
11.3
Industry analysis
F
7
12
25
82
16
%
4.9
8.5
17.6
57.7
11.3
Analysis of competitive position
F
7
10
21
82
22
%
4.9
7.0
14.8
57.7
15.5
The usage of strategic analysis management
accounting practices in industrial corporations
is shown in the table above. 25.4% of the
respondents stated that value chain analysis
was used in their respective companies. 34.5%
of the respondents opined that shareholder
value was used in their respective companies.
68.3% of the respondents stated that analysis
of competitors‟ strengths and weaknesses
were used in their respective companies.
57.7% of the respondents opined that industry
analysis was used in their respective
companies. 57.7% of the respondents stated
that analysis of competitive position was used
in their respective companies.
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DOI: 10.37394/232029.2023.2.9
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Hadi Saleh Atiat
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Analysis of Importance of Management Accounting Practices
Table 7: Analysis of Importance of Management Accounting Practices
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
The MAP helps the companies to
compete strategically
F
2
7
42
58
33
%
1.4
4.9
29.6
40.8
23.2
MAP is dependable as the procedure
makes the data provided to
management precise and reliable
F
9
20
20
82
11
%
6.3
14.1
14.1
57.7
7.7
Application of MAP ensures
maximum sales and asset value
F
7
43
23
42
27
%
4.9
30.3
16.2
29.6
19.0
MAP application regulates activities
of business through effective
planning, coordination,
organization and motivation
F
4
32
19
45
42
%
2.8
22.5
13.4
31.7
29.6
Companies adopt MAP as it ensures
integrating perspective to business
decision-making
F
17
29
25
42
29
%
12.0
20.4
17.6
29.6
20.4
The main motive of MAP is to
maintain a sustainable long-term
competitive advantage
F
9
12
26
59
36
%
6.3
8.5
18.3
41.5
25.4
Market Capitalization increases with
use of MAP in industrial companies
F
11
29
16
55
31
%
7.7
20.4
11.3
38.7
21.8
The table shows the importance of
Management Accounting practices in
industrial companies in Jordan. 64.8% of the
respondents opined that the MAP helps the
companies to compete strategically. 57.7% of
the respondents stated that management
accounting system is dependable as the
procedure makes the data provided to
management precise and reliable. 61.3% of the
respondents mentioned that MAP application
regulates activities of business through
effective planning, coordination,
organization and motivation. 50% of the
respondents stated that companies adopted
MAP as it ensures integrating perspective to
business decision-making. 41.5% of the
respondents mentioned that the main motive of
MAP is to maintain a sustainable long-term
competitive advantage. 60.5% of the
respondents stated that market capitalization
increases with use of MAP in industrial
companies.
3.3 Testing of Hypothesis
H01: There is no significant effect of
management accounting practices on financial
performance of selected industrial companies
in Jordan
H1: There is a significant effect of
management accounting practices on financial
performance of selected industrial companies
in Jordan
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Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
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Table 8(a): Results of Regression
Model
R
R Square
Adjusted R
Square
Std. Error of the
Estimate
1
.794
.630
.322
.1357
Source: Output from SPSS
From the above regression analysis, the value
of R obtained was 0.794 and R Square value
was 0.630. Further the adjusted R square value
was found to be 0.322 which indicated
significance of explanatory variables. The
value obtained for standard error of estimate is
0.1357.
Table 8(b): Results of ANOVA
Model
Sum of
Squares
df
Mean Square
F
Sig.
Regression
.301
1
.301
5.28
.001
Residual
100.811
141
.327
Total
101.112
142
Source: Output from SPSS
The Regressional ANOVA table revealed
significant mean differences in components of
management accounting practices (costing
practices, budgeting practices, decision-
making practices, performance evaluation
practices and strategic analysis) and financial
performance (ROA). F test revealed a
significant mean difference with F value of
5.28 and significance level of 0.001 which is
less than p (0.05) showing statistical
significance.
International Journal of Applied Sciences & Development
DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
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Table 8(c): Unstandardized and Standardized Coefficients with t values and significance
Model
Unstandardized Coefficients
Standardized
Coefficients
t
Sig.
B
Std. Error
Beta
(Constant)
3.478
.235
16.614
.000
Costing Practices
2.172
.048
.045
1.847
.001
Budgeting Practices
3.097
.074
.084
-1.214
.003
Decision-Making
Practices
3.460
.067
.065
-1.239
.003
Performance
Evaluation Practices
3.124
.068
.042
-1.742
.000
Strategic Analysis
3.248
.063
.047
-1.54
.002
Source: Primary Source, Output from SPSS
The regression coefficient of MAPs is 2.172
indicating a positive effect of MAPs on
Financial Performance (ROA) which is
statistically significant as the significance
value is lesser than 0.05 (5%).
4. Conclusion
The management accounting practices
provides opportunities to the companies to
facilitate quality products and services at
reasonable prices to the consumers. With
advancement in technology and changing
business environment, it is important to assess
the effect of adoption of management
accounting practices on the financial
performance in companies. Hence, the purpose
of the study was to assess the effect of
management accounting practices on the
financial performance in industrial companies
of Jordan. The study considered management
accounting practices (costing practices,
budgeting practices, decision-making
practices, performance evaluation practices
and strategic analysis) as the independent
variables and financial performance (ROA) as
the dependent variable. Data collection was
done through primary sources where 142
responses were collected using structured
questionnaire. Multiple regression test was
used to test the hypothesis which found that
there is a statistically significant effect of
adoption of management accounting practices
on the financial performance in Jordanian
industrial companies. The companies were
suggested to focus more on developing the
management accounting practices as they were
key in strategic decision making and
improvement of financial performance.
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DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
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Volume 2, 2023
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors have no conflicts of interest to declare
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International Journal of Applied Sciences & Development
DOI: 10.37394/232029.2023.2.9
Mahmoud Fawzi Zaki Ismail,
Anas Majed Suleiman Al-Marayat,
Hadi Saleh Atiat
E-ISSN: 2945-0454
89
Volume 2, 2023