




































AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes 

ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 19, No. 1 (2025), pp. 357-370 

 

357 
 

IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE 

PERCEIVED FINANCIAL PERFORMANCE OF MANUFACTURING 

COMPANIES IN SRI LANKA 
 

N.I. YAPA, N. RAJAKARUNA, H. DISSANAYAKE 

 

Navodani Indunil Yapa¹, Niluka Rajakaruna², Hiranya Dissanayake³ 

¹ ² ³ Department of Accountancy, Faculty of Business Studied and Finance, Wayamba 

University of Sri Lanka, Sri Lanka 

¹ https://orcid.org/0009-0009-8148-0934, E-mail: navodani.yapa123@gmail.com  

² https://orcid.org/0009-0003-7338-0817, E-mail: niluka@wyb.ac.lk  

³ https://orcid.org/0000-0002-4963-5125, E-mail: hiranya@wyb.ac.lk  

 

Abstract: In manufacturing companies, management accounting plays a vital role of 

the company. This research examines the role of management accounting practices in the 

financial performance of listed manufacturing companies in Sri Lanka. This study undertook a 

quantitative study of data collected using a structured questionnaire from 59 companies listed 

on the Colombo Stock Exchange. The companies were selected using the census sampling 

technique. Analytical tools used as descriptive statistics, correlation analysis, and the Partial 

Least Squares Structural Equation Modeling (PLS-SEM) method, were used to analyse the 

data. Major findings suggest that a greater extent of budgeting systems and costing systems 

enhances financial performance. Information for decision-making can occasionally lower an 

organization’s financial performance in the short term. Performance evaluation systems 

increase the extent of improved financial performance of organizations, while the analysis of 

strategic management accounting has the most positive impact on financial performance, 

supporting its status as a key driver of financial performance in organizations.  

Keywords: Financial performance, costing system, Budgeting system, Strategic 

management accounting analysis system 

 

1. INTRODUCTION 

Management Accounting Practices are crucial in cascading effects on operational 

improvements and market competition, especially in developing countries such as Sri Lanka, 

due to resource constraints or lack of infrastructure, among others. An essential part of 

management accounting for manufacturers is the system of concepts and methods that develops 

knowledge of how companies communicate economically, helping to dispose of what costs 

things have in actuality and therefore shaping how plans are best made for future operations 

(Gichaaga, 2014). Management Accounting Practices, such as cost management, budgeting, 

performance evaluation, and strategic analysis, are of particular importance to enterprises 

aiming to raise profits and respond effectively to competition. Research questions of the study, 

 What is the impact of costing systems on the financial performance of listed companies 

in Sri Lanka? 

 Is there an impact of budgeting systems on the financial performance of listed 

companies in Sri Lanka? 

 What is the impact of performance evaluation systems on the financial performance of 

listed companies in Sri Lanka? 

 What is the impact of strategic management accounting analysis systems on the 

financial performance of listed companies in Sri Lanka? 

 

https://orcid.org/0009-0009-8148-0934
mailto:navodani.yapa123@gmail.com
https://orcid.org/0009-0003-7338-0817
mailto:niluka@wyb.ac.lk
https://orcid.org/0000-0002-4963-5125
mailto:hiranya@wyb.ac.lk


IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

358 
 

 Is there an impact of information for decision-making on the financial performance of 

listed companies in Sri Lanka? 

According to Horngren, (2008), companies that used the Activity Based Costing (ABC) 

system determined the increases in profitability and cost control. Similarly, Almatarneh et al., 

(2022) conclude that traditional costing systems, despite their lack of accuracy, continued to 

provide important data for improving operational effectiveness and cost-reduction processes. 

According to Alleyne and Weekes-Marshall, (2011), budgeting is a helpful strategy for 

forecasting, controlling internal operations, and allocating resources to accomplish business 

objectives and goals and also there are two types of budgeting: Activity-Based Budgeting 

(ABB) is a technique for allocating funds to sources in line with the intended activities.  

The best technique for cost system optimization is the activity-based costing method, 

or ABC, according to (Richard et al., 2009). According to Alleyne and Weekes-Marshall, 

(2011), Performance evaluation systems that only focused on financial aspects, such as profit 

maximization and return on capital investment projects, were criticized.  These standards do 

not account for workforce turnover or the cost of generating capital. The Economic Value 

Added (EVA) mechanism was developed by organizations in response to these limitations in 

performance evaluation and these EVA mechanism looks at the company's cost of capital as 

well as the actual value that has been provided to the organization Alleyne and Weekes-

Marshall (2011). 

 According to Roslender and Hart (2003), strategic management accounting is an 

external approach to accounting that focuses on how actions and cost structures made by 

competitors will affect the business's future operations. According to Alleyne and Weekes-

Marshall (2011), there is a lack of a robust theoretical framework in strategic management 

accounting. This point of view has been supported by numerous other academics who contend 

that because internal factors receive more attention than exterior factors, the external 

environment is typically ignored. According to Nurullah and Kengatharan (2015), states that 

the management accounting information systems is important to making timely and accurate 

information to managerial decision-making processes.  

Previous studies indicate that the companies used strong management accounting 

information systems (MAIS) are more knowledgeable about investment prospects, inventory 

control, and production scheduling. Richard et al. (2009), state that firm performance can be 

divided into simply three different types: These assessing results include market performance 

(such as sales, market share, etc.), shareholder return (total shareholder return, economic 

values-added, etc.), and financial performance (profits, rate of return of assets, rate of return of 

investment, etc.). We found that organizations at the business-function level that adopt such 

strategies related to product differentiation were better placed when they adopted higher levels 

of sophisticated management accounting techniques such as activity-based management, 

benchmarking and quality improvement activities(Almatarneh et al., 2022). 

However, Sri Lankan businesses and others in developing countries face problems 

getting these into practice as efficiently because they lack the resources or infrastructure 

(Kariyawasam, 2018). The present research attempts to contribute to filling this gap in the 

management accounting theory regarding its practical application in a Sri Lankan context by 

investigating how MAPs impact the financial performance of listed manufacturing companies 

in the country (Hapuarachchi, 2019). This is a study “Analyzing Role of Management 

Accounting Practices on the Financial Performance of the Manufactured Companies listed in 

the CSE, Sri Lanka” which examines the positive effect of the practice of management 

accounting (MAPs) on the performance of the Sri Lankan manufacturing firms operating at the 

CSE.  

 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

359 
 

Current economic conditions, market competition, regulatory framework and corporate 

governance impact the financial performance of companies but This research study will focus 

on Management accounting practices only. However, there are many companies that operate 

in the Colombo Stock Exchange but this research has selected only Manufacturing Sector listed 

Companies. On this premise, the study aims to identify the relationship that exists between 

those management accounting practices and the financial performance of such manufacturing 

companies, which are listed in Sri Lanka.  

In a highly competitive corporate world today, corporate entities are using cut throat 

strategies to maximize profits and attain competitive advantage and management accounting 

has been seen to be playing a central role in this process (Gichaaga, 2014). The competitiveness 

of industries due to consumers’ demand, technology, and changes in the business environment 

exert pressure on companies to pay attention to activities that increase their sales volume and, 

at the same time, reduce costs of production (Adu-Gyamfi, 2020). Current management 

accounting practices especially in manufacturing industries create a much-needed competitive 

advantage in the organization by enhancing profitability and controlling for waste (Gichaaga, 

2014). However, research on the link between MAP and FP in the manufacturing firms of Sri 

Lanka is scarce, although it is significant (Perera, 2015; Kariyawasam, 2018; Mohomed, 2021). 

This study aims at filling this gap by assessing the effects of MAPs including costing, 

budgeting, performance evaluation, and strategic decision-making on the financial 

performance in terms of profitability, Return on Equity (ROE) and Return on Asset (ROA). 

 

2. METHODOLOGY 

2.1 Introduction 

The following study, identifies the relationship between management accounting 

practices and financial performance concerning Sri Lankan-listed manufacturing companies, 

based on a conceptual framework, hypothesis development, and operationalization of variables 

concerning key practices such as costing systems, budgeting systems, performance evaluation, 

strategic management accounting, and decision-making information.  

The target population of 59 listed companies in the Colombo Stock Exchange presents 

a better representative sampling across various industries. In the mono-method research 

strategy, the quantitative data collection methodology will be a structured questionnaire survey. 

There is a basis for appropriate consideration of perception by senior managers and 

management accountants in the manufacturing industry through a positivist philosophy and a 

deductive approach.  Data collection and data analysis in this research go hand in glove. A self-

administered structured questionnaire on a 5-point Likert scale was used to collect views from 

senior managers and management accountants of selected companies. Afterward, the data from 

this will be analyzed rigorously with the help of SPSS and SMART PLS.  

The independent variable of costing system was measured using five questions (items) 

as “How often does your firm divide costs with a plant-wide overhead allocation?”; the 

budgeting systems was measured using another five items as “How frequently does your 

company use budgeting as a tool for planning future operations and activities?”; the 

performance evaluation system was measured from five questions as “What is the frequency 

with which your business uses financial standards to analyze overall performance and its 

financial health?”; strategic accounting analysis system measured from another five questions 

as “How frequently does your company utilize long-range forecasting to support strategic 

decision-making and planning?”; information for decision making also measured from five 

questions as “How often does your company use the discounted cash flow method to evaluate 

major capital investment projects?”; the dependent variable of perceived financial performance 

was measured from five items as “To what extent has the gross profit margin of your company 

improved due to the application of management accounting practices?”  (Gichaaga, 2014).  



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

360 
 

 

 
2.2 Analytical method 

Partial Least Squares Structural Equation Modeling (PLS-SEM) is a variance-based 

approach to structural equation modeling that focuses on maximizing the explained variance 

of the dependent constructs. Unlike covariance-based SEM, which prioritizes model fit, PLS-

SEM is more appropriate for exploratory research and predictive analysis. It is particularly 

well-suited for studies that involve complex models, small sample sizes, or non-normally 

distributed data. 

The decision to use PLS-SEM in this study was driven by several methodological 

considerations. This research investigates the relationships between management accounting 

practices and financial performance, an area where theory is still evolving. PLS-SEM is 

suitable for testing and refining such predictive models. Secondly, the primary goal of the study 

is to predict the impact of management accounting practices (costing system, budgetary system, 

performance evaluation systems, strategic accounting information analysis systems and 

information for decision making) on firm performance. PLS-SEM prioritizes predictive 

accuracy over model fit, making it ideal for this objective. 

Thirdly, preliminary analysis revealed that some variables deviate from normal 

distribution. PLS-SEM does not require strict normality assumptions, making it robust in 

handling real-world data. PLS-SEM provides reliable estimates even with a relatively small 

sample size, unlike covariance-based SEM, which requires larger samples to achieve stable 

estimates. 

The following steps were undertaken in the PLS-SEM analysis: 

 Model Specification: The structural model was specified to include relationships among 

latent constructs based on theoretical foundations. 

 Measurement Model Assessment: The reliability and validity of the constructs were 

assessed using Cronbach’s Alpha, Composite Reliability, and Average Variance 

Extracted (AVE). 

 Structural Model Evaluation: Path coefficients were estimated, and their significance 

was tested to examine the hypothesized relationships. 

 Goodness-of-Fit: Explained variance (R²) were evaluated to determine the model’s 

predictive capability. 

The analysis was conducted using SmartPLS 4, a widely recognized software for PLS-

SEM. SmartPLS offers user-friendly functionalities for estimating both measurement and 

structural models, ensuring rigorous assessment of reliability, validity, and hypothesized 

relationships. 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

361 
 

3. RESULTS – DATA ANALYSIS 

3.1 Descriptive Statistics  

From Table 1, demonstrated descriptive statistics include mean, standard deviation of 

both independency and dependent variables. 

 

Table 1: Descriptive statistic of Independent and Dependent Variables 
Dimension Mean Standard 

Deviation 

Skewness Kurtosis Decision 

CS_M 4.0000 .69835 -1.439 1.185 High level 

BS_M 3.7774 .79582 -.871 -.354 High level 

PES_M 3.8981 .74691 -1.355 .568 High level 

SMAAS_M 3.9283 .81815 -1.515 1.034 High level 

ID_M 3.7019 .86079 -.702 -.419 High level 

FP_M 3.9585 .76093 -1.312 .690 High level 

(Source: Survey Data, 2024) 

Since the descriptive analysis result shown in Table 1, the obtained mean value for the 

Costing System was 4.00 and the SD was 0.69835. The analysis in the SD reveals that the 

individual responses is approximately 0.69 point away from the mean. These mean values are 

pins down into male interval of 3.5<X≤5. Last of all, the researcher can assert that the costing 

system has supported a high level among the selected listed companies in Sri Lankan. 

The budgeting system was determined from the analysis result of the mean and standard 

deviation as indicated in Table 1. Testing on the Budgeting System, the mean was 3.7774 and 

the standard deviation was 0.79582. Thus, the analysis of variance indicates that, on average, 

individual responses deviate from the mean by 0.79 of a point. These mean values are between 

3.5 of relative importance X and 5 of large relative importance. Last of all, the researcher can 

state that the budgeting system has a high level among the selected and the listed companies in 

Sri Lanka. Besides, based on the descriptive analysis of the above Table 1, the mean and SD 

of the Performance Evaluation System were presented as follows. The mean value of the 

Performance Evaluation System was 3.8981 and SD was 0.74691. The SD assigns 

approximately a 0.74-point deviation to an individual response from the mean. These mean 

values are of the order, 3.5<X≤5. CONSEQUENTLY, the researcher can conclude that the 

Performance Evaluation System is at a highly-rated level among the selected listed companies 

in Sri Lanka.  

Descriptive analysis in finding the mean and SD of the SMAAS was presented. For the 

strategic management accounting analysis system, the mean value was 3.9283 with SD that 

was 0.81815. The SD reveals that the individual responses fluctuate about the mean points by 

0.81 of a point. These mean values range within 3.5 <X ≤ 5. In conclusion, the researcher can 

conclude that the level of SMAA System is high among select listed companies in Sri Lanka. 

Based on the results of descriptive analysis of the above Table 1, the indices of mean 

and SD in Information for Decision-making were presented. The overall AM of Information 

for Decision-making was 3.7019, and the SD was 0.86079. Looking at the individual responses, 

the SD proves that they vary by .86 points from the mean on average. These mean values range 

between 3.5<X≤5. Last, the researcher can assert that the level of Information for Decision 

Making among the selected listed companies in Sri Lanka is high. 

As indicated in Table 1, descriptive results indicated mean and SD of the dependent 

variable of this study. The mean value of Financial Performance was 3.9585 and SD was 

0.76093. It is also shown by the SD that on an average basis, each of the individual responses 

deviate 0.76 point from the mean response. These mean values are within range of 3.5 less than 

5. Last of all, the researcher can conclude that the level of Financial Performance is high among 

selected listed companies in Sri Lanka. 



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

362 
 

3.2 Bivariate Analysis 

Pearson’s Correlation Analysis 

According to Anderson (2014) Pearson correlation coefficient reflects the direction of 

the strength together with the level of significance of the bivariate relationships among all the 

variables that were measured using interval level of measurement. As well as in the opinion of 

Bolboaca and Jantschi (2006) Pearson correlation checks not only for the presence (indicated 

by the p-value) but also the direction (indicated by the coefficient r) and the magnitude (ranging 

between -1 and +1) between the two variables. 

 

Correlation Analysis Between Management Accounting Practices and Financial Performance 

Table 2: Pearson’s Correlation Analysis 

 Financial Performance 

Costing System Pearson Correlation .960** 

Sig. (2-tailed) .000 

N 53 

Budgeting System Pearson Correlation .843** 

Sig. (2-tailed) .000 

N 53 

Performance Evaluation System Pearson Correlation .929** 

Sig. (2-tailed) .000 

N 53 

Strategic Management Accounting 

Analysis System 

Pearson Correlation .956** 

Sig. (2-tailed) .000 

N 53 

Information for Decisions Making Pearson Correlation .778** 

Sig. (2-tailed) .000 

N 53 

(Source: Survey Data, 2024) 

 

The Pearson correlation coefficients of this study (Table 2) were 1.000 for the Costing 

System construct and 0.960 for the Financial Performance construct, for the respondents. 

Furthermore, the attained correlation coefficient lies in the coefficient range between 0.5 and 

1. Value of the p is 0.000 which is less than alpha value of 0.05. This provides evidence that 

there is a positive significant association between Costing System and Financial Performance 

of those selected listed firms in Sri Lanka. 

The regression coefficient of Budgeting System against Financial Performance was 

0.843 among the respondents. Furthermore, the value of the coefficient of correlation also lies 

in the coefficient interval of 0.5 to 1. The value of p is 0.000 and this is less that alpha value. 

They all affirm that there is a good positive correlation between Budgeting System and 

Financial Performance of selected listed companies in Sri Lanka. 

With regards to Performance Evaluation System and Financial Performance the 

correlation coefficient (r) value obtained was 0.929. Furthermore, the value of the correlation 

coefficient also belongs to a coefficient range of 0.5-1.0. Once again p-value is equal to 0.000 

and less than alpha value of 0.05. Thus, the study finds a strong positive significant correlation 

exists between Performance Evaluation System and Financial Performance of the selected 

listed companies in Sri Lanka. 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

363 
 

From the analysis result of this study (Table 2), the correlation coefficient (r) was 0.956 

for Strategic Management Accounting Analysis System and Financial Performance among the 

respondents. Furthermore, it means that the obtained value of the coefficient is in the range of 

a coefficient from 0.5 to 1. The p-value is equal to equal to 0.000 and less than the alpha value. 

This confirms that there is a positive correlation between the SMMA System and Financial 

Performance amongst selected listed companies in Sri Lanka. 

The respondents got an r-value of between Information for Decisions Making and 

Financial Performance 0.778. Also, the correlation coefficient value is within the coefficient 

range of 0.5-1.0 as shown in the figure above. Here they show that p-value = 0.000 which is 

less than the alpha value. This proves that IM also has a great positive interaction on FDIR and 

Financial Performance among the selected Listed Companies in Sri Lanka. 

From these descriptions above, the result witnesses show that most of the management 

accounting practices have a positive significant correlation between MA practice and the 

financial performance of selected listed 

 

Table 3: Summary of Correlation Analysis Result 
Relationship Strength 

Cost system and financial performance Strong positive relationship 

Budgeting system and financial performance Strong positive relationship 

Performance evaluation and financial performance Strong positive relationship 

Strategic management accounting analysis system and 

financial performance 

Strong positive relationship 

Information for decision-making and financial performance Strong positive relationship 

(Source: Survey Data, 2024) 

 

Structural Equation Modeling 

Reliability Analysis 

Reliability refers to the consistency of a set of indicators used to measure a construct. 

In this study, reliability is assessed using Cronbach's Alpha and Composite Reliability (rho_c 

and rho_a). Cronbach's Alpha assesses the internal consistency of the constructs. Values above 

0.7 are generally acceptable, indicating that the indicators reliably measure their respective 

constructs. Composite Reliability (rho_a and rho_c) metrics provide an alternative to 

Cronbach's Alpha, particularly suited for confirmatory research. Values greater than 0.7 are 

indicative of adequate reliability. 

Table 4: Summary of Reliability Analysis 
Construct Cronbach’s 

Alpha 

Composite Reliability (rho_a) Composite Reliability (rho_c) 

BS 0.851 0.864 0.893 

CS 0.903 0.908 0.928 

FP 0.892 0.900 0.921 

ID 0.898 0.924 0.925 

PES 0.890 0.899 0.921 

SMAAS 0.895 0.901 0.923 

(Source: Survey Data, 2024) 

All constructs show high reliability, with Cronbach's Alpha and Composite Reliability 

exceeding the threshold of 0.7. 

Convergent Validity Analysis 

Convergent validity examines whether a set of indicators correlates well with their 

corresponding construct. It is assessed using the Average Variance Extracted (AVE). Average 

Variance Extracted (AVE measures the proportion of variance captured by the construct in 



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

364 
 

relation to the variance due to measurement error. AVE values above 0.5 indicate adequate 

convergent validity. 

Table 5: Summary of Convergent Validity Analysis 
Construct AVE 

BS 0.628 

CS 0.720 

FP 0.702 

ID 0.713 

PES 0.702 

SMAAS 0.708 

(Source: Survey Data, 2024) 

All constructs have AVE values greater than 0.5, confirming adequate convergent 

validity. 

Structural Model Analysis 

In Partial Least Squares Structural Equation Modeling (PLS-SEM), the structural 

model analysis involves evaluating the R-square (R²) values and the f-square (f²) effect sizes. 

The R² value assesses the explanatory power of the model, while the f² values assess the effect 

size of each predictor variable on the dependent construct, Financial Performance (FP), in this 

case. The R² value indicates the proportion of variance in the dependent variable (Financial 

Performance - FP) explained by the independent variables. Higher R² values suggest better 

explanatory power of the model. R² for FP is 0.957. This value indicates that approximately 

95.7% of the variance in Financial Performance is explained by the independent constructs 

(BS, CS, ID, PES, and SMAAS). An adjusted R² of 0.952 confirms the model’s stability when 

accounting for the number of predictors, indicating a strong predictive capability of the model. 

The f² value, or effect size, measures the change in R² when a specific independent 

variable is included or excluded from the model. According to Cohen’s guidelines, an f² value 

of 0.02, 0.15, and 0.35 indicates small, medium, and large effect sizes, respectively. 

 

Table 6: Summary of Structural Model Analysis 
Path f-Square (f²) Effect Size Interpretation 

BS -> FP 0.108 Small to medium effect 

CS -> FP 0.150 Medium effect 

ID -> FP 0.231 Medium to large effect 

PES -> FP 0.142 Small to medium effect 

SMAAS -> FP 0.354 Large effect 

(Source: Survey Data, 2024) 

 

Budgeting Systems (BS) has a small to medium effect on Financial Performance (FP), 

with a notable contribution to the variance in FP, supporting its importance in driving financial 

outcomes (f² = 0.108). Costing Systems (CS) have a medium effect on FP, emphasizing that 

Costing Systems contribute substantially to enhancing financial performance (f² = 0.150). 

Information for decision-making (ID) demonstrates a medium to large effect on FP, indicating 

that innovation has a strong influence on financial outcomes (f² = 0.231). Performance 

Evaluation Systems (PES) show a small to medium effect on FP, underscoring those efficient 

processes are beneficial but may not be as influential as other constructs (f² = 0.142). Strategic 

Management Accounting and Analysis (SMAAS) has the largest effect on FP, with a large f² 

value. This result highlights the critical role of effective strategic management accounting 

systems in achieving financial performance (f² = 0.354). 

The R² and f² analyses reveal that the structural model has strong explanatory power, 

with all independent constructs contributing significantly to the explained variance in Financial 

Performance (FP). SMAAS has the most substantial impact on FP, followed by ID, CS, PES, 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

365 
 

and BS. The findings confirm the model's robustness and highlight the importance of strategic, 

sustainable, and innovative practices in driving financial success. 

 
Figure 1: Summary of Structural Model Analysis 

 

Bootstrapping Results Analysis 

Bootstrapping is a non-parametric resampling technique used in Partial Least Squares 

Structural Equation Modeling (PLS-SEM) to assess the statistical significance of path 

coefficients. In this study, 5,000 bootstrap samples were used to estimate the precision of the 

model's path coefficients and their associated t-statistics and p-values. 

 Path Coefficients and Significance Testing 

Table 07 presents the bootstrapping results for the structural model, including the original 

sample estimates (O), sample means (M), standard deviations (STDEV), t-statistics, and p-

values for each path: 

 

Table 7: Summary of Path Coefficients and Significance Testing 
 Original sample 

(O) 

Sample mean 

(M) 

Standard deviation 

(STDEV) 

T statistics 

(|O/STDEV|) 

P 

values 

BS -> FP 0.305 0.302 0.112 2.726 0.006 

CS -> FP 0.338 0.332 0.134 2.512 0.012 

ID -> FP -0.379 -0.391 0.104 3.648 0.000 

PES -> FP 0.287 0.279 0.127 2.261 0.024 

SMAAS -> 

FP 

0.418 0.446 0.145 2.880 0.004 

(Source: Survey Data, 2024) 

 

The results indicate the significance of the paths between independent constructs and 

financial performance (FP): 

The relationship between Budgeting System (BS) and Financial Performance (FP) is 

positive and statistically significant at the 1% level, indicating that firms with stronger 

budgeting systems tend to exhibit better financial performance (β = 0.305, p = 0.006). 



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

366 
 

Costing System (CS) positively influences Financial Performance (FP), significantly at 

the 5% level. This suggests that the costing system contributes to improved financial outcomes 

(β = 0.338, p = 0.012). 

Information for decision making (ID) shows a significant negative relationship with 

Financial Performance (FP) at the 1% level, indicating that under certain conditions, 

Information for decision making may temporarily reduce financial performance, possibly due 

to initial decision-making provision costs (β = -0.379, p = 0.000).  

The relationship between Performance Evaluation Systems (PES) and Financial 

Performance (FP) is positive and significant at the 5% level, highlighting the financial benefits 

of efficient and sustainable processes (β = 0.287, p = 0.024). 

Strategic Management Accounting analysis (SMAAS) has the strongest positive impact 

on Financial Performance (FP), significant at the 1% level, underscoring the importance of 

robust strategic management accounting analysis systems in driving financial performance (β 

= 0.418, p = 0.004).  

The bootstrapping results confirm the statistical significance of all hypothesized 

relationships. These findings demonstrate that various aspects of corporate sustainability, 

innovation, and strategic management significantly influence financial performance, either 

positively or negatively, emphasizing the multifaceted nature of these interactions. 

 

4. CONCLUSIONS AND RECOMMANDATIONS 

The findings of the bootstrapping and structural model demonstrate how different 

management accounting techniques have a major impact on financial performance. Strategic 

management accounting analysis has the biggest positive impact on financial performance, 

followed by information for decision-making, costing systems, performance assessment 

systems, and budgeting systems. This indicates that the model has good explanatory power. 

Similar results were found in other studies (Adu-gyamfi & Chipwere, 2020; Alleyne & 

Weekes-Marshall, 2011; Mohomed, 2021; Hapuarachchi, 2019), where all researchers have 

found a positive association between SMAAS and financial performance: that means the 

financial performance of companies has increased with the adoption of SMAAS. 

 Although the majority of the correlations are positive overall, the negative correlation 

between financial performance and decision-making information raises the possibility that 

performance may be momentarily hampered by the initial expenses of decision-making. Other 

similar studies found positive findings between decision-making and financial performance 

(Adu-gyamfi & Chipwere, 2020; Hapuarachchi, 2019), identifying companies which utilized 

IDM have ended up with higher financial performances. The results highlight how crucial 

sound strategic, and long-term strategies are to achieving financial success. managerial 

accounting skills, streamline decision-making and guarantee that their budgeting, performance 

evaluation, and costing systems are effectively synchronized to maintain long-term 

profitability.  

These results help maximise the internal validity of this study so that the findings are 

reliable and valid. One of the notable findings of the studies covered in this research is that the 

use of management accounting practices, including SMA, can increase the company’s financial 

performance and need to incorporate enhanced economic estimate approaches, budgeting and 

performance assessment tools for enhanced imagining and resource allocation. It also stresses 

a call for the management accountants to integrate with other organizational segments like the 

marketing, operations and human resource segments to enhance the overall imprint of the 

management accounting practices. 

In addition, the research has important implications for financial managers, 

management accountants, organisational leaders, academicians, and policymakers. It offers 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

367 
 

potential insights into the ways that managers of financial institutions can manage their 

institutions in accordance with generally accepted principles in management accounting in 

order to make sound strategic purposes in the establishments. It also postulates that there is a 

need for continuous professional development of management accountants to point towards 

effective practice concerning current trends and practices.  

Through training and developing the personnel and promoting cooperation between 

departments, manufacturing organizations may increase financial results and make better 

decisions. It also underlines the importance of creating an organisational culture more 

supportive of the rational use of financial data within the context of the enterprise at various 

tiers. Such an approach will assist firms in the strengthening of their capacity to adapt to the 

volatile business environments and in the subsequent facilitation of organisational efficiency.  

In addition, it advises that policy makers should formulate a legal environment in which 

companies practice sound management accounting based on accountability and corporate 

financial reporting. The research was conducted only on Sri Lankan listed manufacturing 

companies which restricts the study to some extent to the results of other industries or non-

listed companies. The analysis was based on the self-completion questionnaire data, which 

risks contain bias and the cross-sectional research method does not take into account the 

dynamic changes in the management accounting practices. In addition, the study mainly relied 

on a quantitative approach which might not capture the qualitative elements relating to the 

management accounting practices, which includes culture and leadership to name but a few. 

The several recommendations mentioned below are the results of the research, which 

should be implemented to improve management accounting practices and manufacturing 

companies' financial performance: The business needs to use technology by investing in 

modern accounting software and making use of data analytics. A culture of collaboration 

should be fostered by the organization through cross-functional teams and regular 

communication channels. Performance evaluation should be appropriately prioritized by the 

organization through the use of clear performance metrics and regular performance reviews. 

The organization may improve training and development programs by implementing 

customized training initiatives and supporting professional certifications.  

The business has to create explicit policies and processes to improve its frameworks for 

management accounting. The business would have to use a balanced scorecard methodology, 

it is appropriate for the company to focus on ethical practices by establishing a code of ethics 

and offering ethics training. It is also appropriate for the company to engage stakeholders 

through regular communication and involve them in decision-making processes. The company 

is appropriately engaging in continuous improvement with regular assessments and fostering a 

culture of innovation. 

 

REFERENCES 

1. Alleyne, P., & Weekes-Marshall, D. (2011). An exploratory study of management 

accounting practices in manufacturing companies in Barbados. International Journal of 

Business and Social Science, 2(9), 49–58. http://ijbssnet.com/journal/index/361 

2. Almatarneh, Z., Jarah, B. A. F., & Jarrah, M. A. AL. (2022). The role of management 

accounting in the development of supply chain performance in logistics manufacturing 

companies. Uncertain Supply Chain Management, 10(1), 13–18. 

https://doi.org/10.5267/j.uscm.2021.10.015 

3. Gichaaga, P. M. (2014). Effe 

4. cts of Management Accounting Practices on Financial Performance of Manufacturing 

Companies in Kenya. 1–66. 

5. Horngren, C. T. (2008). Instructor ’ s Manual Management and Cost. 

6. Kariyawasam, : H. (2018). A Study of Cost and Management Accounting Practices in Sri 



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

368 
 

Lanka’s Manufacturing Industry. International Journal of Recent Advances in 

Multidisciplinary Research, 5(3), 3632–3634. 

7. N. Hapuarachchi, A. A. (2019). Impact of Management Accounting Practices on 

Performance of Hotel Businesses in Sri Lanka. Fourth Interdisciplinary Conference of 

Management Researchers. 

8. Nurullah, M., & Kengatharan, L. (2015). Capital budgeting practices: evidence from Sri 

Lanka. Journal of Advances in Management Research, 12(1), 55–82. 

https://doi.org/10.1108/JAMR-01-2014-0004 

9. Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational 

performance: Towards methodological best practice. Journal of Management, 35(3), 718–

804. https://doi.org/10.1177/0149206308330560 

10. Roslender, R., & Hart, S. J. (2003). In search of strategic management accounting: 

Theoretical and field study perspectives. Management Accounting Research, 14(3), 255–

279. https://doi.org/10.1016/S1044-5005(03)00048-9 

 
APPENDIX 
SECTION A  

01. Name of the company.  

02. What is the industrial sector of your company engaging in?  

                     

 

 

 

 

 

 

 

 

 

 
03. The number of years in operation. 

     

 

 

 
04. What is your position in the company? 

 

 

 
05. What is your age? 

 

                      

                      

                      

             

 

  
06. What is your gender? 

 Energy 

 Material 

 Capital Goods 

 Automobiles & Components 

 Commercial & Professional Services 

 Food, Beverage & Tobacco 

 Consumer Durables & Apparel 

 Healthcare Equipment & Services 

 Household & Personal Products 

 Utilities 

 other 

 1 – 5 years 

 6 – 15 years 

 16 – 25 years 

 Above 25 years  

 Accountant 

 Account Executive 

 Below 25 years 

 25 – 35 years 

 35 – 45 years 

 45 – 55 years 

 Prefer not to say 

 Male 

 Female 



Navodani Indunil YAPA, Niluka RAJAKARUNA, Hiranya DISSANAYAKE 
 

369 
 

 
               

               

               

 
07. What is your educational qualification?            

 

 

 

 

 

 
SECTION B: Management Accounting Practices  

How often does your company use the following management accounting practices? 

Score using the key which ranges from 1 (Never) to 5 (Very Frequently). 
 1 2 3 4 5 

How often does your company use the following management accounting practices relating to costing 

systems (CS) 

CS1.  How often does your company separate variable, incremental, and 

fixed costs in its financial reporting and production process? 

     

CS02. How frequently does your company apply a plant-wide overhead 

rate for cost allocation? 

     

CS3. How often does your company utilize department-specific or 

multiple plant-wide overhead rates for more accurate cost allocation? 

     

CS04. How frequently does your organization implement activity-based 

costing (ABC) to enhance cost-accuracy? 

     

CS05.  How often does your company set and review target costs for its 

products to ensure competitiveness? 

     

How often does your company use the following management accounting practices relating to budgeting 

systems (BS) 

BS1. How frequently does your company use budgeting as a tool for 

planning future operations and activities? 

     

BS2. How often does your company implement budgeting to monitor 

and control costs throughout the fiscal year? 

     

BS3. How frequently does your company utilize activity-based 

budgeting to allocate resources based on the activities that incur costs? 

     

BS4. How often does your company adopt a zero-based budgeting 

approach, where every expense must be justified for each new period? 

     

BS5. How frequently does your company engage in budgeting that 

aligns with long-term strategic planning goals? 

     

How often does your company use the following management accounting practices relating to performance 

evaluation systems (PES) 

PES1. How frequently does your company use financial measures to 

evaluate overall performance and financial health? 

     

PES2. How often does your company incorporate non-financial 

measures related to customer satisfaction and loyalty in performance 

evaluations? 

     

PES3. How frequently does your company utilize non-financial 

measures related to operational efficiency and innovation in its 

performance evaluations? 

     

PES4. How often does your company assess non-financial measures 

related to employee performance and engagement in its evaluation 

processes? 

     

PES5.  How frequently does your company calculate and use economic 

value added (EVA) or residual income as a part of its performance 

evaluation system? 

     

How often does your company use the following management accounting practices relating to strategic 

management accounting analysis systems (SMAAS) 

 Other 

 A/L only 

 Bachelor Degree 

 Master Degree 

 Phd 



IMPACT OF MANAGEMENT ACCOUNTING PRACTICES ON THE PERCEIVED 

FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN SRI LANKA 

 

370 
 

SMAAS1. How frequently does your company utilize long-range 

forecasting to support strategic decision-making and planning? 

     

SMAAS12. How often does your company conduct industry analysis to 

inform its strategic management accounting practices? 

     

SMAAS3. How frequently does your company analyse its competitive 

position as part of its strategic management accounting efforts? 

     

SMAAS4. How often does your company perform value chain analysis 

to identify areas for improvement and competitive advantage? 

     

SMAAS5. How frequently does your company use product life cycle 

analysis to guide its strategic management decisions? 

     

How often does your company use the following management accounting practices relating to information for 

decision making (ID) 

ID1.  How often does your company use the discounted cash flow 

method to evaluate major capital investment projects? 

     

ID2.  How frequently does your company assess major capital 

investments using the payback period and/or accounting rate of return? 

     

ID3.  To what extent does your company document and report non-

financial aspects when evaluating major capital investments? 

     

ID4.  How often does your company evaluate the risk of major capital 

investment projects using profitability analysis or computer simulation 

techniques? 

     

ID5.  How frequently does your company perform sensitivity “what if” 

analysis when assessing major capital investment projects? 

     

 
SECTION C:  Financial performance 

To what extent do management accounting practices affect the following aspects financial 

performance of your company? (FP) 

Rate on a scale of 1 (no extent) to 5 (very great extent).  

FP1.  To what extent has the gross profit margin of your company 

improved due to the application of management accounting 

practices? 

     

FP2.  To what extent has the return on equity (ROE) of your 

company increased as a result of implementing management 

accounting practices? 

     

FP3.  To what extent has the return on assets (ROA) of your 

company improved due to the use of management accounting 

practices? 

     

FP4.  To what extent has financial leverage (measured as Equity 

/ Total Assets) of your company increased as a result of adopting 

management accounting practices? 

     

FP5. To what extent does the management accounting function 

in your company contribute to developing strategies that leverage 

financial innovations to create a sustainable competitive 

advantage? 

     

 


