Description
As Lindsay (1994, 1995) encourages validation
of existing results, this research replicates
Guilding and McManus (2002) in a New
Zealand (NZ) context. The usage and perceived
merit of customer accounting practices were
lower in NZ than in the Australian study. Few
of the regressions where customer accounting
usage and perceived merit were dependent
variables revealed a statistically significant role
for competition intensity and market orientation.
There was some minor support for the
perceived merit of customer accounting being
higher in companies experiencing medium
levels of competition intensity.
Accounting Research Journal
The Use and Perceived Merit of Customer Accounting in New Zealand
Beverley R. Lord Yvonne P. Shanahan Benjamin M. Nolan
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New Zealand", Accounting Research J ournal, Vol. 20 Iss 1 pp. 47 - 59
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The Use and Perceived Merit of Customer Accounting in New Zealand
47
The Use and Perceived Merit of
Customer Accounting in New Zealand
Beverley R. Lord, Yvonne P. Shanahan
Department of Accountancy, Finance & Information Systems
University of Canterbury
and
Benjamin M. Nolan
PriceWaterhouseCoopers
Christchurch, New Zealand
Abstract
As Lindsay (1994, 1995) encourages validation
of existing results, this research replicates
Guilding and McManus (2002) in a New
Zealand (NZ) context. The usage and perceived
merit of customer accounting practices were
lower in NZ than in the Australian study. Few
of the regressions where customer accounting
usage and perceived merit were dependent
variables revealed a statistically significant role
for competition intensity and market orientation.
There was some minor support for the
perceived merit of customer accounting being
higher in companies experiencing medium
levels of competition intensity.
1. Introduction
In 1997, Foster and Young found that the
number one priority of managers was customer
profitability/satisfaction. Over the last decade,
there have been a number of papers addressing
customer issues in both the marketing and
management accounting literatures. The
marketing literature focuses on customer
lifetime value (see, for example, Mulhern, 1999;
Libai, Narayandas and Humby, 2002), customer
loyalty (Reinartz and Kumar, 2002) and
customer relationship management (Ryals,
Key words: customer accounting, contingency analysis,
New Zealand
Acknowledgment: The authors appreciate the helpful
suggestions on this paper fromthe discussant, Shane Dikolli,
and participants in the Accounting and Finance Association
of Australia and New Zealand conference in Melbourne,
July 2005, and fromthe editor and the anonymous reviewer.
2002), whereas the management accounting
literature concentrates on customer profitability
analysis (CPA) (see, for example, Foster, Gupta
and Sjoblom, 1996; Smith and Dikolli, 1995).
One of the recent works combining customer
accounting themes developed in the marketing
and management accounting literatures is
provided by Guilding and McManus (2002).
Their survey of 300 Australian companies
found that there was some usage of customer
accounting (CA) practices, yet the perceived
merit of these practices was greater than their
usage. They found associations between CA
and both market orientation and the level of
competition intensity, albeit a weak relationship
for the latter.
A key observation made by Guilding and
McManus (2002) concerned the dearth of
research in the customer accounting area.
Lindsay (1994, 1995) argues for the
confirmation of previous results, hence the
motivation for replicating the Guilding and
McManus (2002) study in a New Zealand
context.
The remainder of the paper is organised as
follows. The next two sections present the
marketing and the management accounting
literature on customer accounting practices. As
this is a replication of the work of Guilding and
McManus (2002), their work is summarised,
including the objectives of the research, the
research questions and the research method.
This study’s findings are then presented and
discussed, followed by a conclusion.
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
48
2. Marketing and the customer
Within the marketing literature, there has been a
shift of emphasis from revenues to profits,
including attracting and retaining profitable
customers (Foster and Gupta, 1994). Mulhern
(1999) claimed that customer profitability can
be a basis for deciding on the allocation of
marketing resources, and these resources are
best allocated to the most profitable customers
or segments. Ryals (2003) argued that the role
of marketing is to identify profitable customers
and to apply retention strategies that reduce the
risk of defection.
Customer lifetime value, also known as
lifetime customer profitability analysis
(Mulhern, 1999; Libai et al., 2002; Ryals, 2002;
Gupta and Lehmann, 2003; van Raaij, Vernooij
and van Triest, 2003), is a prospective analysis
of all the costs and revenues a customer will
generate over a lifetime, and is a form of
discounted cash flow analysis (Andon, Baxter
and Bradley, 2003a). Successful companies
recognise the fact that, in many trading
situations, not all customers are equal, so
knowledge of a customer’s lifetime value is
essential (Wayland and Cole, 1994).
In many situations, a small percentage of
customers contribute a large proportion of
profits, and a large number of customers are
unprofitable (Shapiro, Rangan, Moriarty and
Ross, 1987; Niraj, Gupta and Narasimhan,
2001; Ryals, 2003). Mulhern (1999)
recommended that, when acquiring a new
customer, a company should not pay more than
the assessed lifetime value to acquire them.
Libai et al. (2002) documented a retailer who
used the segment-based approach to enable
marketing actions to be tailored to the right
customers from the customer base.
Gupta and Lehmann (2003) suggested that
the lifetime value of a customer is its annual
margin multiplied by a factor, usually in the
range of 1 to 5. The solution that they proposed
is much simpler than the application of the other
customer lifetime models, as it involves less
subjective assessment of future revenues and
costs.
Although “the issue of customer profitability
has attracted interest in both the management
accounting and marketing literature” (Niraj et
al., 2001), the literature reveals limited cross-
disciplinary examination of CPA systems
(Foster and Gupta, 1994; Foster et al., 1996;
Guilding, Kennedy and McManus, 2001; Niraj
et al., 2001).
3. Accounting and the customer
Customer profitability analysis (CPA), also
sometimes called customer account profitability
(Connolly and Ashworth, 1994) or customer
profitability (Niraj et al., 2001), is the most
widely used customer accounting technique
(Smith, 1993; Smith and Dikolli, 1995; Foster et
al., 1996; Noone and Griffin, 1997; Mulhern,
1999; Guilding et al., 2001; Guilding and
McManus, 2002; van Raaij et al., 2003). CPA
can identify the most profitable customers,
allowing marketing efforts to be directed
towards them (Mulhern, 1999; Guilding et al.,
2001; Libai et al., 2002; Ryals, 2003).
Van Raaij et al. (2003, p. 580) found that
insights into customer profitability “had an
immediate impact on strategies, programs and
actions”, enabling better decisions to be made.
Connolly and Ashworth (1994) claimed that all
forward-looking companies recognise the need
to focus on customer account profitability. They
gave the example of Crookes Healthcare who
felt that the prime objective of customer account
profitability was to manage their customer
portfolio — their most significant intangible
asset.
Although CPA may reveal that a customer is
unprofitable, that does not necessarily mean that
the customer should not be retained (Smith and
Dikolli, 1995; van Raaij et al., 2003). The effect
of terminating a relationship needs to be
considered, and it may be that managing an
existing relationship is of more benefit to the
company in the long-term (Libai et al., 2002;
van Raaij et al., 2003).
Smith and Dikolli (1995) suggested that
CPA using activity-based costing (ABC) is an
effective way to collect detailed information on
customers. Many of the problems with customer
accounting techniques arise because “most
management accounting systems focus not on
the customer but on products, departments, or
geographic regions” (Foster et al., 1996, p. 5).
CPA needs information where the customer is
the unit of analysis. ABC can generate
information on the customer, which gives
managers better insight into how customers
generate revenues and consume costs (Cooper
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The Use and Perceived Merit of Customer Accounting in New Zealand
49
and Kaplan, 1991), leading to better long-term
decision-making (Noone and Griffin, 1997; van
Raaij et al., 2003).
Some companies have identified customers
as important intangible assets (Connolly and
Ashworth, 1994; Wayland and Cole, 1994;
Niraj et al., 2001), and that assessing their
value, using net present value, customer lifetime
value and CPA information, will offer a
guideline for the overall value of a firm (Andon,
Baxter and Bradley, 2003a, 2003b). However, it
appears this practice is uncommon and
management information systems will need to
become more customer-focused in order to
apply this technique.
4. Summary of Guilding and
McManus (2002)
Guilding and McManus (2002) classified
customer accounting practices as: customer
profitability analysis (CPA), customer segment
profitability analysis, lifetime customer
profitability analysis, the valuation of customers
or customer groups as assets, and customer
accounting (a holistic notion)
1
. Their study
assessed the use and perceived merit of these
various practices using a 7-point Likert scale,
ranging from ‘1’ (not at all/negligible intensity)
to ‘7’ (to a large extent/extremely intense). They
also sought to test contingent factors that might
affect the use and perceived merit of customer
accounting in an Australian context, using a
survey of the top 300 listed Australian
companies.
Guilding and McManus (2002) found that
the use of customer accounting, customer
segment profitability analysis, and CPA were
above the midpoint of their measure, while the
other practices appraised were well below this
point. They also found that managers perceived
the merit of the customer accounting practices
to be greater than the extent of their use. The
perceived merit of all the customer accounting
practices were above the midpoint of the same
scale.
Slater and Narver (1994, p. 22) found
market orientation increased customer value,
because “a market-driven business develops a
1 See Appendix A for the glossary of customer accounting
practices which was provided to participants in both
Guilding and McManus (2002) and this study.
comprehensive understanding of its customers’
business and how customers in the immediate
and downstream markets perceive value”.
Therefore the measurement of customer value
becomes important. Guilding and McManus
(2002) found some support for the use and
perceived merit of customer accounting
practices in companies with a high market
orientation. However, no support was found for
the hypothesis that the use and perceived merit
of customer accounting practices is higher in
companies experiencing medium levels of
competitive intensity.
5. The Replication
Guilding and McManus (2002) stress that there
is scope for further research on the largely
untapped area of customer accounting. Lindsay
(1994, 1995) claims that, in the natural
sciences, replications are an important way of
establishing the validity and significance of
prior research. Although this has not been the
norm in accounting research, Lindsay (1995,
p. 35) argues “that replication (to establish
whether the result holds under different
conditions, leading to generalization) must
become the critical criterion of adequacy”.
This research surveyed companies listed on
the New Zealand stock exchange (NZX).
As it is a replication, the objectives and
hypotheses are identical to those of Guilding
and McManus (2002). The objective was “to
appraise the incidence of customer accounting,
to assess practitioners’ perceptions of customer
accounting’s merit as a managerial tool, and
to…test hypotheses concerned with contingent
factors that might affect the use and perceived
merit of customer accounting” (Guilding and
McManus, p. 45). The hypotheses were:
H1a: “customer accounting usage rates will be
higher in companies experiencing medium
levels of competition intensity” (p. 49).
H1b: the “perceived managerial benefit of
customer accounting is greater in
companies experiencing mediumlevels of
competition intensity” (p. 49).
H2a: “customer accounting usage rates are
higher in companies with a high market
orientation” (p. 50).
H2b: the “perceived managerial benefit of
customer accounting is greater in
companies with a high market orientation”
(p. 50).
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50
6. Research method
The replication used data collected from a
questionnaire
2
containing the four questions
reported in Guilding and McManus (2002). The
questionnaire was mailed to the chief financial
officer (CFO) and the marketing manager of all
organisations listed on the NZ stock exchange
(NZSX)
3
with New Zealand addresses, a total of
143 organisations, with a follow-up mailing two
weeks after the initial mail-out.
There were 52 responses from the first
mailing and 32 fromthe second, 84 responses
altogether (a 29.4% response rate). However
14 of these (from 11 different companies) were
not usable, because of wrong addresses,
unwillingness to participate in the survey, or
inapplicability of the survey to that company.
Therefore, there were 70 usable responses
(24.5% of the sample), 47 fromCFOs and 23
fromMarketing Managers.
When both the CFO and marketing manager
fromthe same company submitted responses,
Guilding and McManus (2002) did not include
the response of the marketing manager. This
was because the marketing manager was the
least frequent respondent, and therefore greater
homogeneity would be promoted. The same
approach was taken in this study.
4
This has
resulted in the following analysis being based
on 58 responses.
The same two tests for non-response bias
used by Guilding and McManus (2002) were
undertaken. The first involved telephoning ten
non-respondents. Reasons for their non-
participation were: they did not receive the
questionnaire because their secretaries probably
thought it was spam, they were too busy, or it
was company policy not to complete
questionnaires. The second test involved
calculating a Mann-Whitney U statistic to
investigate whether there were any differences
in responses from the first and last 25% of
respondents. No statistically significant
differences were found.
2 See Appendix B for the questionnaire.
3 http://www.nzx.com
4 There were 12 companies for which both the CFO and
the Marketing Manager responded. The correlation of the
two responses was statistically significant (at a p value of
0.1 or less) for 8 of the 12 companies. The CFO’s
response was used in each of these 12 cases.
7. Results
Table 1 presents descriptive statistics for the
usage rates of the five customer accounting
practices. Guilding and McManus (2002) found
‘customer accounting’ was the most used
of the five practices, followed by ‘customer
segment profitability analysis’ and ‘customer
profitability analysis’. These first three practices
were all above the midpoint range. Guilding and
McManus (2002) found that the use of the other
two practices was below the midpoint range. All
means in this research were below the midpoint,
ranging from‘customer profitability analysis’ at
3.98 to ‘lifetime customer profitability analysis’
at 2.37. This cross country difference may be
due to the smaller size of New Zealand listed
companies compared to the Australian
study which limited the sample to the largest
300 as measured by market capitalisation. Prior
research has found that larger companies are
more likely to apply more developed
management accounting systems (see, for
example, Bruns and Waterhouse, 1975,
Merchant, 1981).
The means of the first three practices are
ranked in a different order than in Guilding and
McManus (2002). The bottom two are in the
same order for both usage and perceived merit
in this study. All the customer accounting
practices had higher means in the findings of
Guilding and McManus (2002), except for the
valuation of customers or customer groups as
assets.
The practice with the major difference in
means is ‘customer accounting’. Customer
accounting had a mean of 4.22 in the results of
Guilding and McManus (2002), whereas it had
a mean of only 3.08 in this research. Customer
accounting had the highest usage in the findings
of Guilding and McManus (2002), but it only
ranked third in this research. This is possibly
because the New Zealand companies did not
take the holistic approach to ‘customer
accounting’ given in the definition. If any
customer accounting practice was used,
‘customer accounting’ should have been given
the same score as the highest used practice. This
would then see the practice ‘customer
accounting’ being the highest used practice, as
in the results of Guilding and McManus (2002).
This applies equally to the perceived merit of
‘customer accounting’.
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The Use and Perceived Merit of Customer Accounting in New Zealand
51
To discover if the results of this research
were significantly different fromthe results of
Guilding and McManus (2002), t-tests were
carried out on the mean usage of the five
practices. The usage of lifetime customer
profitability analysis, valuation of customers or
customer groups as assets, and customer
accounting were all significantly higher in
Australian companies (t-stat 6.61, 5.42 and 3.69
respectively, p<0.001 for all).
Descriptive statistics for the perceived
managerial merit of the five customer
accounting practices are presented in Table 2.
The perceived merit of all the practices were
above the midpoint range in the findings of
Guilding and McManus (2002). The perceived
merit in the findings of Guilding and McManus
(2002) ranged from ‘customer segment
profitability analysis’ at 5.28 to the ‘valuation of
customers or customer groups as assets’ at 4.19.
The bottom two practices are well below the
means of the top three practices. In this study,
the practices were perceived as being beneficial
in the same order as they were used. Customer
profitability analysis (4.86) was the practice
perceived to have the most merit followed by
customer segment profitability analysis (4.35)
and customer accounting (3.82). The first two
practices are above the midpoint, while
customer accounting, the valuation of customers
or customer groups as assets and lifetime
customer profitability analysis are below it.
Table 1
Descriptive Statistics for Customer Accounting Usage Rates
Mean Std. Deviation
Theoretical
Range Actual range
Incidence of
“n/a”
G&M G&M Min Max Min Max G&M
Customer profitability analysis 3.98 4.03 2.04 2.10 1 7 1 7 4% 19%
Customer segment profitability
analysis
3.70 4.12 2.11 2.14 1 7 1 7 2% 17%
Customer accounting 3.08 4.22 1.73 2.14 1 7 1 6 8% 15%
Valuation of customers or customer
groups as assets
2.58 2.58 1.73 1.89 1 7 1 7 2% 22%
Lifetime customer profitability
analysis
2.37 2.64 1.50 1.96 1 7 1 7 4% 23%
Table 2
Descriptive Statistics for the Perceived Managerial Merit of
Customer Accounting
Mean Std. Deviation
Possible
Range Actual range
Incidence of
“n/a”
G&M G&M Min Max Min Max G&M
Customer profitability analysis 4.86 5.08 2.11 2.04 1 7 1 7 2% 15%
Customer segment profit ability
analysis
4.35 5.28 2.13 1.87 1 7 1 7 0% 15%
Customer accounting 3.82 5.21 1.95 1.93 1 7 1 7 2% 12%
Valuation of customers or customer
groups as assets
3.57 4.19 1.95 2.07 1 7 1 7 0% 17%
Lifetime customer profitability
analysis
3.56 4.38 1.93 2.08 1 7 1 7 2% 19%
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
52
The five customer accounting practices are
all perceived as having more benefit in an
Australian context (Guilding and McManus,
2002) compared to the New Zealand context
(this research). The mean scores in the work
of Guilding and McManus (2002) were all
higher than the results of this research. These
differences were significant for four of the
practices: customer accounting (t-stat 4.37,
p<0.001), customer segment profitability
analysis (t-stat 2.83, p<0.01), lifetime customer
profitability analysis (t-stat 2.55, p<0.02) and
valuation of customers or customer groups as
assets (t-stat 1.93, p<0.1).
Principal component factor analysis of
the five competition intensity items was
undertaken, and one factor with an eigenvalue
greater than one (3.172) was revealed. This
factor explained 63.4% of the variance and had
factor loadings of 0.60, 0.53, 0.74, 0.68 and
0.63 respectively. A further principal
component factor analysis was conducted on the
four market orientation items. One factor
(eigenvalue 2.61) explained 65.1% of the
variance, with factor loadings of 0.57, 0.71,
0.60 and 0.74 respectively. These factors were
used in the correlation and regression analysis
that follow.
A matrix of the Pearson correlations for
the usage of the five customer accounting
practices and also competition intensity, market
orientation and the square of competition
intensity is presented in Table 3. Guilding and
McManus (2002) did not include the square of
competition intensity in their correlations, but
did in their regression analysis. In this study
the square of competition intensity is only
significantly correlated with customer
profitability analysis (p<0.05).
Table 3
Pearson Correlations Between the Use of the Five Customer Accounting
Practices and the Three Independent Variables
a
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer
groups as
assets
Marketing
orientation
G&M G&M G&M G&M G&M G&M
Customer profitability
analysis
0.50
***
0.70
**
Customer segment
profitability analysis
0.40
**
0.60
**
0.65
***
0.71
**
Lifetime customer
profitability analysis
0.30
*
0.54
**
0.61
***
0.57
**
0.72
***
0.60
**
Valuation of customers
or customer groups as
assets
0.42
**
0.40
**
0.35
**
0.45
**
0.41
**
0.54
**
0.58
***
0.77
**
Marketing orientation 0.17 0.32
**
0.23 0.27
**
0.08 0.30
**
0.11 0.31
**
0.13 0.34
**
Competition intensity -0.06 0.34
**
0.20 0.36
**
0.24 0.49
**
0.28
*
0.23
*
0.23 0.23
*
0.38
**
0.44
**
(Competition
intensity)
2
-0.05 -0.30
*
-0.12 -0.20 -0.23 -0.26
a There are now three independent variables with the addition of the square of competition intensity to competition
intensity and market orientation.
*** Correlation is significant at the 0.001 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
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The Use and Perceived Merit of Customer Accounting in New Zealand
53
Guilding and McManus (2002) found
statistically significant relationships for the
inter-correlations between all five customer
accounting practices (p <0.01). A similar
result was found in this study, with all
relationships significant at p <0.05 or less. The
strongest relationships are between customer
segment profitability analysis and lifetime
customer profitability analysis (r =0.72);
customer profitability analysis and customer
segment profitability analysis (r =0.65),
lifetime customer profitability analysis
(r =0. 61), and customer accounting (r =0.50);
and lifetime customer profitability analysis and
valuation of customers or customer groups as
assets (r =0.58).
Guilding and McManus (2002) also found
statistically significant relationships between the
use of the five practices and competition
intensity and market orientation (p < 0.01 and
p < 0.05). However, in this research, there was
only one statistically significant relationship:
between lifetime customer profitability analysis
and competition intensity. No relationships
existed between market orientation and the use
of any of the five customer accounting
practices. However there was a relationship
between market orientation and competition
intensity (r =0.38, p <0.01).
Table 4 presents a matrix of the Pearson
correlations between the perceived merit of the
five customer accounting practices and
competition intensity, market orientation and
competition intensity squared. Guilding and
McManus (2002) found statistically significant
and positive relationships between the perceived
merit of all the customer accounting practices
and market orientation and competition
intensity (p < 0.001). Their highest inter-
correlation was between customer profitability
analysis and customer segment profitability
analysis (r =0.78).
Table 4
Pearson Correlations Between the Perceived Merit of the Five Customer
Accounting Practices and the Three Independent Variables
b
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer
groups as
assets
Marketing
orientation
G&M G&M G&M G&M G&M G&M
Customer profitability
analysis
0.71
***
0.71
***
Customer segment
profitability analysis
0.69
***
0.70
***
0.76
***
0.78
***
Lifetime customer
profitability analysis
0.61
***
0.66
***
0.69
***
0.77
***
0.64
***
0.76
***
Valuation of customers
or customer groups as
assets
0.59
***
0.63
***
0.52
***
0.66
***
0.63
***
0.69
***
0.80
***
0.77
***
Marketing orientation 0.17 0.47
***
0.31
*
0.34
***
0.18 0.31
***
0.24 0.37
***
0.03 0.34
***
Competition intensity 0.09 0.46
***
0.18 0.44
***
0.22 0.55
***
0.28
*
0.40
***
0.31
*
0.38
***
0.38
**
0.44
***
(Competition
intensity)
2
-0.16 -0.37
**
-0.25 -0.30
*
-0.34
*
-0.26
b
There are now three independent variables with the addition of the square of competition intensity to competition
intensity and market orientation.
*** Correlation is significant at the 0.001 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
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The inter-correlations between the perceived
merit of the five customer accounting practices
are all statistically significant in this study
(at p < 0.001). The highest inter-correlation is
between lifetime customer profitability analysis
and the valuation of customers or customer
groups as assets (r =0.80). This research
identified more statistically significant
relationships for the perceived merit than for the
usage.
Guilding and McManus (2002) believe there
is a linear relationship between the two
independent variables (competition intensity
and market orientation) and the perceived merit
of the five practices because there is a
significantly positive relationship between
them. This research found only two significant
correlations between competition intensity and
the five customer accounting practices: lifetime
customer profitability analysis (r =0.28,
p <0.05) and valuation of customers or
customer groups as assets (r =0.31, p <0.05).
There was also a statistically significant
relationship between customer profitability
analysis and market orientation (r =0.31,
p <0.05). The square of competition intensity
was found to be significantly negatively
correlated only with the valuation of customer
or customer groups as assets (p < 0.05).
Table 5 presents the results of the regression
analysis where the usage of the five customer
accounting practices are the dependent
variables. The independent variables are
competition intensity, market orientation, and
the square of competition intensity. Guilding
and McManus (2002) found a statistically
significant relationship for all regression
equations, and adjusted R
2
’s ranging from8% to
23%. In the replication, none of the five
regressions was statistically significant. The
adjusted R
2
’s ranged from0% to 23%.
As shown in Table 5, no support was found
for hypothesis 1a in either Guilding and
McManus (2002) or the replication; that is,
customer accounting usage rates were not
higher in companies experiencing medium
levels of competition intensity.
Guilding and McManus (2002) found some
support for hypothesis 2a because the
coefficient for market orientation was
statistically significant and positive for three of
the five customer accounting practices. This
research found no support for customer
accounting usage rates being higher in
companies with a high market orientation.
Table 5
Customer Accounting Usage Rates Regression Analysis
c
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer groups
as assets
G&M G&M G&M G&M G&M
Constant 3.16
***
2.54
***
4.24
***
2.68
***
3.78
***
3.12
***
2.49
***
2.02
***
2.76
***
2.44
***
Competition
intensity
-0.33 0.06 -0.01 0.15 0.52 0.33
***
0.36 0.11 0.22 0.19
(Competition
intensity)
2
-0.09 -0.16 -0.30 -0.14 0.02 -0.11 -0.06 0.03 -0.15 0.11
Market orientation 0.35 0.17
**
0.32 0.11 0.01 0.08 0.01 0.26
***
0.09 0.32
***
Adjusted R
2
-0.01 0.16 0.06 0.14 0.00 0.23 0.03 0.08 0.01 0.10
F 0.81 6.68
***
2.11 5.95
***
1.02 10.43
***
1.43 3.61
***
1.25 4.52
***
p 0.50 0.00 0.11 0.00 0.39 0.00 0.25 0.01 0.30 0.00
c A standardised regression coefficient is provided for each independent variable.
* p<0.1
** p<0.05
*** p<0.01
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The Use and Perceived Merit of Customer Accounting in New Zealand
55
The results for the regression analysis where
the perceived merit of the five customer
accounting practices are the dependent variables
are presented in Table 6. In the replication, only
customer profitability analysis had statistically
significant coefficients: with market orientation
(p <0.05) and with competition intensity
squared (p <0.05). The adjusted R
2
’s ranged
from0% to 32%. In contrast, all five regression
equations had at least one significant
relationship in the findings of Guilding and
McManus (2002), with adjusted R
2
’s ranging
from17% to 32%.
Guilding and McManus (2002) found no
support for the perceived managerial benefit of
customer accounting being greater in companies
experiencing medium levels of competition.
However some support was found for
hypothesis 1b in this research, with the
coefficient for the square of competition
intensity exhibiting a statistically significant
relationship with the perceived merit of
customer profitability analysis (p < 0.05).
Guilding and McManus (2002) found
support for hypothesis 2b, that perceived
managerial benefit of customer accounting is
greater in companies with a high market
orientation, for: customer accounting (p < 0.01),
lifetime customer profitability analysis
(p < 0.01), and the valuation of customers or
customer groups as assets (p < 0.01). Some
support was also provided for hypothesis 2b in
the results of this research, with market
orientation exhibiting a statistically significant
relationship with: customer profitability analysis
(p < 0.05).
8. Discussion
Lindsay (1994, p. 40) states that “reporting
negative results is important in establishing the
conditions under which a result (initially
established under close replications) does not
hold”. The first finding of this replication
showed that the usage of all of the customer
accounting practices was below the midpoint (4
on the 7-point Likert scale), in contrast to
Guilding and McManus (2003) in which three
practices had means above the midpoint. The
perceived merit of the top two practices were
above the midpoint. This contrasts with
Guilding and McManus (2002) who found that
the perceived merit of all of the five practices
were well above the midpoint. They also found
that the valuation of customers or customer
groups as assets was the least used practice and
the practice that held the least perceived merit.
Table 6
Customer Accounting Perceived Merit Regression Analysis
d
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer groups
as assets
G&M G&M G&M G&M G&M
Constant 4.08
***
3.85
***
5.35
***
3.07
***
4.71
***
3.54
***
3.89
***
2.28
***
3.93
***
2.47
***
Competition
intensity
-0.11 0.14 -0.29 0.22
***
0.14 0.33
***
0.19 0.23
***
0.38 0.20
(Competition
intensity)
2
-0.14 -0.16 0.42
**
-0.10 -0.19 -0.17 -0.21 0.03 -0.27 -0.02
Market orientation 0.38 0.29
***
0.68
**
0.14 0.39 0.04 0.39 0.22
***
-0.10 0.19
***
Adjusted R
2
0.00 0.30 0.19 0.23 0.05 0.32 0.09 0.21 0.09 0.17
F 1.00 14.07
***
4.93
***
10.12
***
1.92 15.77
***
2.72
*
9.01
***
2.64
*
7.42
***
p 0.40 0.00 0.01 0.00 0.14 0.00 0.06 0.00 0.06 0.00
d
A standardised regression coefficient is provided for each independent variable.
* p<0.1
** p<0.05
*** p<0.01
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Comparing tables 1 and 2 shows that each
practice was perceived to have greater
managerial benefit than its current use. This
highlights that there is scope for greater use of
the individual customer accounting practices,
and customer accounting in general. This
finding was consistent in both studies.
However, there were statistically significant
differences, between Guilding and McManus
(2002) and the replication study, with respect to
the mean usage of lifetime customer
profitability analysis, valuation of customers or
customer groups as assets and customer
accounting, and the perceived benefit of all
except customer profitability analysis.
Whereas Guilding and McManus (2002)
found statistically significant relationships for
all usage and perceived merit regression
equations formulated, this research found that
the regression equations for the perceived merit
of only three of the practices were significant.
No significant regressions were found for the
use of the five customer accounting practices.
This strongly suggested that other factors are
needed to explain the variation in use and
perceived merit of the customer accounting
practices. Also, support was not found for all of
the hypotheses in this research, nor in the
research of Guilding and McManus (2002).
Therefore, new hypotheses need to be
developed and tested.
Guilding and McManus (2002) concluded
that, while there was no support for their
hypotheses concerning competition intensity, it
was still worthy of future research. This
research again found no support for the use of
customer accounting in companies experiencing
medium levels of competition intensity.
Contrary to the findings of Guilding and
McManus (2002), there was some minor
support found for the perceived merit of
customer accounting being higher in companies
experiencing medium levels of competition
intensity.
Lindsay (1995) states that replication can be
used to confirm earlier results, therefore
allowing generalisation. With two studies
finding little support for medium levels of
competition intensity (competition squared),
perhaps this variable could be omitted from
future research. However, as there is some
evidence that competition intensity itself might
be related to the use and perceived merit of
customer accounting, this should continue
to be examined in future research. Other factors
that might be worth investigating include
competitive strategy and environmental
uncertainty (Guilding and McManus, 2002), as
well as company size and industry.
As there is stronger support for the
hypotheses concerning market orientation, and
Slater and Narver (1994) found that being
market oriented increases customer value, this
variable should be included in future research.
The replication has also revealed an
opportunity to improve the method. Guilding
and McManus (2002) included a holistic
definition termed “customer accounting”.
Respondents could have been using the other
practices, but only recorded “customer
accounting”, or vice versa. In this case, there is
a higher usage (statistically significant at 10%
level) of two practices (CPA and customer
segment profitability analysis) than the holistic
notion of “customer accounting”. Future
research might drop the holistic category.
9. Conclusion
It has been acknowledged that customer
accounting is a largely untapped research area
(Guilding and McManus, 2002). This research
has been a useful first step in research into
customer accounting in New Zealand. There is
opportunity for future research to continue with
market orientation and explore other factors
such as competitive strategy to try to explain
the use and perceived merit of customer
accounting. Whether a company has a
differentiation strategy, is a cost leader or
operates in a niche market is likely to affect the
use and perceived merit of customer accounting.
Industry and company size are other factors that
should also be considered.
As Lindsay (1994) points out, in the same
way that Otley’s (1978) study produced
findings that conflicted with Hopwood (1972)
and sparked a flurry of research, reporting the
contradictory findings between this study and
Guilding and McManus (2002) should be an
incentive for other researchers to continue work
in this very important, yet still largely untapped,
management accounting area.
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Appendix A
Glossary of Customer Accounting Terms
Customer accounting “includes all accounting practices directed towards appraising profit, sales,
or present value of earnings relating to a customer or group of customers” (Guilding and McManus,
2002, p. 48).
Customer profitability analysis (CPA) “involves calculating profit earned from a specific
customer. The profit calculation is based on costs and sales that can be traced to a particular
customer. This technique is sometimes referred to as customer account profitability” (Guilding and
McManus, 2002, p. 46).
Customer segment profitability analysis “is the practice of performing a customer profitability
analysis (as defined above), on a segment or customer group basis” (Guilding and McManus, 2002,
p. 47).
Lifetime CPA “involves extending the time horizon for customer profitability analysis to include
future years. The practice focuses on all anticipated future revenue streams and costs involved in
servicing a particular customer” (Guilding and McManus, 2002, p. 47).
The valuation of customers or customer groups as assets “refers to the calculation of the value of
customers for the company” (Guilding and McManus, 2002, p. 48).
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The Use and Perceived Merit of Customer Accounting in New Zealand
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Appendix B
Customer Accounting Questionnaire
Please circle, on the scale from 1 to 7, the number that is most applicable to your organisation.
Indicate N/A if it is not applicable to your organisation.
1. To what extent does your company use the following practices?
not at all to a large extent
a. Customer profitability analysis
(CPA)
1 2 3 4 5 6 7 N/A
b. Customer segment profitability
analysis
1 2 3 4 5 6 7 N/A
c. Lifetime customer profitability
analysis
1 2 3 4 5 6 7 N/A
d. Valuation of customers or
customer groups as assets
1 2 3 4 5 6 7 N/A
e. Customer accounting 1 2 3 4 5 6 7 N/A
2. To what extent do you consider the following practices would be a useful aid to management in your
company?
not at all to a large extent
a. Customer profitability analysis
(CPA)
1 2 3 4 5 6 7 N/A
b. Customer segment profitability
analysis
1 2 3 4 5 6 7 N/A
c. Lifetime customer profitability
analysis
1 2 3 4 5 6 7 N/A
d. Valuation of customers or
customer groups as assets
1 2 3 4 5 6 7 N/A
e. Customer accounting 1 2 3 4 5 6 7 N/A
3. For your organisation, what is the level of competition intensity for the following items?
negligible intensity mediumintensity extremely intense
a. Selling and distribution 1 2 3 4 5 6 7 N/A
b. Quality and variety of products 1 2 3 4 5 6 7 N/A
c. Price 1 2 3 4 5 6 7 N/A
d. Market share 1 2 3 4 5 6 7 N/A
e. Customer service 1 2 3 4 5 6 7 N/A
4. To what extent do you agree with the following statements?
negligible intensity mediumintensity extremely intense
a. My company has a strong
understanding of our customers
1 2 3 4 5 6 7 N/A
b. The functions in my company
work closely together to create
superior value for our customers
1 2 3 4 5 6 7 N/A
c. Management in my organisation
thinks in terms of serving the
needs and wants of well-defined
markets chosen for their long-
term growth and profit potential
for the company
1 2 3 4 5 6 7 N/A
d. My company has a strong
market orientation
1 2 3 4 5 6 7 N/A
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Teaching Resource. Accounting Education 20, 39-61. [CrossRef]
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doc_384991967.pdf
As Lindsay (1994, 1995) encourages validation
of existing results, this research replicates
Guilding and McManus (2002) in a New
Zealand (NZ) context. The usage and perceived
merit of customer accounting practices were
lower in NZ than in the Australian study. Few
of the regressions where customer accounting
usage and perceived merit were dependent
variables revealed a statistically significant role
for competition intensity and market orientation.
There was some minor support for the
perceived merit of customer accounting being
higher in companies experiencing medium
levels of competition intensity.
Accounting Research Journal
The Use and Perceived Merit of Customer Accounting in New Zealand
Beverley R. Lord Yvonne P. Shanahan Benjamin M. Nolan
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The Use and Perceived Merit of Customer Accounting in New Zealand
47
The Use and Perceived Merit of
Customer Accounting in New Zealand
Beverley R. Lord, Yvonne P. Shanahan
Department of Accountancy, Finance & Information Systems
University of Canterbury
and
Benjamin M. Nolan
PriceWaterhouseCoopers
Christchurch, New Zealand
Abstract
As Lindsay (1994, 1995) encourages validation
of existing results, this research replicates
Guilding and McManus (2002) in a New
Zealand (NZ) context. The usage and perceived
merit of customer accounting practices were
lower in NZ than in the Australian study. Few
of the regressions where customer accounting
usage and perceived merit were dependent
variables revealed a statistically significant role
for competition intensity and market orientation.
There was some minor support for the
perceived merit of customer accounting being
higher in companies experiencing medium
levels of competition intensity.
1. Introduction
In 1997, Foster and Young found that the
number one priority of managers was customer
profitability/satisfaction. Over the last decade,
there have been a number of papers addressing
customer issues in both the marketing and
management accounting literatures. The
marketing literature focuses on customer
lifetime value (see, for example, Mulhern, 1999;
Libai, Narayandas and Humby, 2002), customer
loyalty (Reinartz and Kumar, 2002) and
customer relationship management (Ryals,
Key words: customer accounting, contingency analysis,
New Zealand
Acknowledgment: The authors appreciate the helpful
suggestions on this paper fromthe discussant, Shane Dikolli,
and participants in the Accounting and Finance Association
of Australia and New Zealand conference in Melbourne,
July 2005, and fromthe editor and the anonymous reviewer.
2002), whereas the management accounting
literature concentrates on customer profitability
analysis (CPA) (see, for example, Foster, Gupta
and Sjoblom, 1996; Smith and Dikolli, 1995).
One of the recent works combining customer
accounting themes developed in the marketing
and management accounting literatures is
provided by Guilding and McManus (2002).
Their survey of 300 Australian companies
found that there was some usage of customer
accounting (CA) practices, yet the perceived
merit of these practices was greater than their
usage. They found associations between CA
and both market orientation and the level of
competition intensity, albeit a weak relationship
for the latter.
A key observation made by Guilding and
McManus (2002) concerned the dearth of
research in the customer accounting area.
Lindsay (1994, 1995) argues for the
confirmation of previous results, hence the
motivation for replicating the Guilding and
McManus (2002) study in a New Zealand
context.
The remainder of the paper is organised as
follows. The next two sections present the
marketing and the management accounting
literature on customer accounting practices. As
this is a replication of the work of Guilding and
McManus (2002), their work is summarised,
including the objectives of the research, the
research questions and the research method.
This study’s findings are then presented and
discussed, followed by a conclusion.
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
48
2. Marketing and the customer
Within the marketing literature, there has been a
shift of emphasis from revenues to profits,
including attracting and retaining profitable
customers (Foster and Gupta, 1994). Mulhern
(1999) claimed that customer profitability can
be a basis for deciding on the allocation of
marketing resources, and these resources are
best allocated to the most profitable customers
or segments. Ryals (2003) argued that the role
of marketing is to identify profitable customers
and to apply retention strategies that reduce the
risk of defection.
Customer lifetime value, also known as
lifetime customer profitability analysis
(Mulhern, 1999; Libai et al., 2002; Ryals, 2002;
Gupta and Lehmann, 2003; van Raaij, Vernooij
and van Triest, 2003), is a prospective analysis
of all the costs and revenues a customer will
generate over a lifetime, and is a form of
discounted cash flow analysis (Andon, Baxter
and Bradley, 2003a). Successful companies
recognise the fact that, in many trading
situations, not all customers are equal, so
knowledge of a customer’s lifetime value is
essential (Wayland and Cole, 1994).
In many situations, a small percentage of
customers contribute a large proportion of
profits, and a large number of customers are
unprofitable (Shapiro, Rangan, Moriarty and
Ross, 1987; Niraj, Gupta and Narasimhan,
2001; Ryals, 2003). Mulhern (1999)
recommended that, when acquiring a new
customer, a company should not pay more than
the assessed lifetime value to acquire them.
Libai et al. (2002) documented a retailer who
used the segment-based approach to enable
marketing actions to be tailored to the right
customers from the customer base.
Gupta and Lehmann (2003) suggested that
the lifetime value of a customer is its annual
margin multiplied by a factor, usually in the
range of 1 to 5. The solution that they proposed
is much simpler than the application of the other
customer lifetime models, as it involves less
subjective assessment of future revenues and
costs.
Although “the issue of customer profitability
has attracted interest in both the management
accounting and marketing literature” (Niraj et
al., 2001), the literature reveals limited cross-
disciplinary examination of CPA systems
(Foster and Gupta, 1994; Foster et al., 1996;
Guilding, Kennedy and McManus, 2001; Niraj
et al., 2001).
3. Accounting and the customer
Customer profitability analysis (CPA), also
sometimes called customer account profitability
(Connolly and Ashworth, 1994) or customer
profitability (Niraj et al., 2001), is the most
widely used customer accounting technique
(Smith, 1993; Smith and Dikolli, 1995; Foster et
al., 1996; Noone and Griffin, 1997; Mulhern,
1999; Guilding et al., 2001; Guilding and
McManus, 2002; van Raaij et al., 2003). CPA
can identify the most profitable customers,
allowing marketing efforts to be directed
towards them (Mulhern, 1999; Guilding et al.,
2001; Libai et al., 2002; Ryals, 2003).
Van Raaij et al. (2003, p. 580) found that
insights into customer profitability “had an
immediate impact on strategies, programs and
actions”, enabling better decisions to be made.
Connolly and Ashworth (1994) claimed that all
forward-looking companies recognise the need
to focus on customer account profitability. They
gave the example of Crookes Healthcare who
felt that the prime objective of customer account
profitability was to manage their customer
portfolio — their most significant intangible
asset.
Although CPA may reveal that a customer is
unprofitable, that does not necessarily mean that
the customer should not be retained (Smith and
Dikolli, 1995; van Raaij et al., 2003). The effect
of terminating a relationship needs to be
considered, and it may be that managing an
existing relationship is of more benefit to the
company in the long-term (Libai et al., 2002;
van Raaij et al., 2003).
Smith and Dikolli (1995) suggested that
CPA using activity-based costing (ABC) is an
effective way to collect detailed information on
customers. Many of the problems with customer
accounting techniques arise because “most
management accounting systems focus not on
the customer but on products, departments, or
geographic regions” (Foster et al., 1996, p. 5).
CPA needs information where the customer is
the unit of analysis. ABC can generate
information on the customer, which gives
managers better insight into how customers
generate revenues and consume costs (Cooper
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The Use and Perceived Merit of Customer Accounting in New Zealand
49
and Kaplan, 1991), leading to better long-term
decision-making (Noone and Griffin, 1997; van
Raaij et al., 2003).
Some companies have identified customers
as important intangible assets (Connolly and
Ashworth, 1994; Wayland and Cole, 1994;
Niraj et al., 2001), and that assessing their
value, using net present value, customer lifetime
value and CPA information, will offer a
guideline for the overall value of a firm (Andon,
Baxter and Bradley, 2003a, 2003b). However, it
appears this practice is uncommon and
management information systems will need to
become more customer-focused in order to
apply this technique.
4. Summary of Guilding and
McManus (2002)
Guilding and McManus (2002) classified
customer accounting practices as: customer
profitability analysis (CPA), customer segment
profitability analysis, lifetime customer
profitability analysis, the valuation of customers
or customer groups as assets, and customer
accounting (a holistic notion)
1
. Their study
assessed the use and perceived merit of these
various practices using a 7-point Likert scale,
ranging from ‘1’ (not at all/negligible intensity)
to ‘7’ (to a large extent/extremely intense). They
also sought to test contingent factors that might
affect the use and perceived merit of customer
accounting in an Australian context, using a
survey of the top 300 listed Australian
companies.
Guilding and McManus (2002) found that
the use of customer accounting, customer
segment profitability analysis, and CPA were
above the midpoint of their measure, while the
other practices appraised were well below this
point. They also found that managers perceived
the merit of the customer accounting practices
to be greater than the extent of their use. The
perceived merit of all the customer accounting
practices were above the midpoint of the same
scale.
Slater and Narver (1994, p. 22) found
market orientation increased customer value,
because “a market-driven business develops a
1 See Appendix A for the glossary of customer accounting
practices which was provided to participants in both
Guilding and McManus (2002) and this study.
comprehensive understanding of its customers’
business and how customers in the immediate
and downstream markets perceive value”.
Therefore the measurement of customer value
becomes important. Guilding and McManus
(2002) found some support for the use and
perceived merit of customer accounting
practices in companies with a high market
orientation. However, no support was found for
the hypothesis that the use and perceived merit
of customer accounting practices is higher in
companies experiencing medium levels of
competitive intensity.
5. The Replication
Guilding and McManus (2002) stress that there
is scope for further research on the largely
untapped area of customer accounting. Lindsay
(1994, 1995) claims that, in the natural
sciences, replications are an important way of
establishing the validity and significance of
prior research. Although this has not been the
norm in accounting research, Lindsay (1995,
p. 35) argues “that replication (to establish
whether the result holds under different
conditions, leading to generalization) must
become the critical criterion of adequacy”.
This research surveyed companies listed on
the New Zealand stock exchange (NZX).
As it is a replication, the objectives and
hypotheses are identical to those of Guilding
and McManus (2002). The objective was “to
appraise the incidence of customer accounting,
to assess practitioners’ perceptions of customer
accounting’s merit as a managerial tool, and
to…test hypotheses concerned with contingent
factors that might affect the use and perceived
merit of customer accounting” (Guilding and
McManus, p. 45). The hypotheses were:
H1a: “customer accounting usage rates will be
higher in companies experiencing medium
levels of competition intensity” (p. 49).
H1b: the “perceived managerial benefit of
customer accounting is greater in
companies experiencing mediumlevels of
competition intensity” (p. 49).
H2a: “customer accounting usage rates are
higher in companies with a high market
orientation” (p. 50).
H2b: the “perceived managerial benefit of
customer accounting is greater in
companies with a high market orientation”
(p. 50).
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
50
6. Research method
The replication used data collected from a
questionnaire
2
containing the four questions
reported in Guilding and McManus (2002). The
questionnaire was mailed to the chief financial
officer (CFO) and the marketing manager of all
organisations listed on the NZ stock exchange
(NZSX)
3
with New Zealand addresses, a total of
143 organisations, with a follow-up mailing two
weeks after the initial mail-out.
There were 52 responses from the first
mailing and 32 fromthe second, 84 responses
altogether (a 29.4% response rate). However
14 of these (from 11 different companies) were
not usable, because of wrong addresses,
unwillingness to participate in the survey, or
inapplicability of the survey to that company.
Therefore, there were 70 usable responses
(24.5% of the sample), 47 fromCFOs and 23
fromMarketing Managers.
When both the CFO and marketing manager
fromthe same company submitted responses,
Guilding and McManus (2002) did not include
the response of the marketing manager. This
was because the marketing manager was the
least frequent respondent, and therefore greater
homogeneity would be promoted. The same
approach was taken in this study.
4
This has
resulted in the following analysis being based
on 58 responses.
The same two tests for non-response bias
used by Guilding and McManus (2002) were
undertaken. The first involved telephoning ten
non-respondents. Reasons for their non-
participation were: they did not receive the
questionnaire because their secretaries probably
thought it was spam, they were too busy, or it
was company policy not to complete
questionnaires. The second test involved
calculating a Mann-Whitney U statistic to
investigate whether there were any differences
in responses from the first and last 25% of
respondents. No statistically significant
differences were found.
2 See Appendix B for the questionnaire.
3 http://www.nzx.com
4 There were 12 companies for which both the CFO and
the Marketing Manager responded. The correlation of the
two responses was statistically significant (at a p value of
0.1 or less) for 8 of the 12 companies. The CFO’s
response was used in each of these 12 cases.
7. Results
Table 1 presents descriptive statistics for the
usage rates of the five customer accounting
practices. Guilding and McManus (2002) found
‘customer accounting’ was the most used
of the five practices, followed by ‘customer
segment profitability analysis’ and ‘customer
profitability analysis’. These first three practices
were all above the midpoint range. Guilding and
McManus (2002) found that the use of the other
two practices was below the midpoint range. All
means in this research were below the midpoint,
ranging from‘customer profitability analysis’ at
3.98 to ‘lifetime customer profitability analysis’
at 2.37. This cross country difference may be
due to the smaller size of New Zealand listed
companies compared to the Australian
study which limited the sample to the largest
300 as measured by market capitalisation. Prior
research has found that larger companies are
more likely to apply more developed
management accounting systems (see, for
example, Bruns and Waterhouse, 1975,
Merchant, 1981).
The means of the first three practices are
ranked in a different order than in Guilding and
McManus (2002). The bottom two are in the
same order for both usage and perceived merit
in this study. All the customer accounting
practices had higher means in the findings of
Guilding and McManus (2002), except for the
valuation of customers or customer groups as
assets.
The practice with the major difference in
means is ‘customer accounting’. Customer
accounting had a mean of 4.22 in the results of
Guilding and McManus (2002), whereas it had
a mean of only 3.08 in this research. Customer
accounting had the highest usage in the findings
of Guilding and McManus (2002), but it only
ranked third in this research. This is possibly
because the New Zealand companies did not
take the holistic approach to ‘customer
accounting’ given in the definition. If any
customer accounting practice was used,
‘customer accounting’ should have been given
the same score as the highest used practice. This
would then see the practice ‘customer
accounting’ being the highest used practice, as
in the results of Guilding and McManus (2002).
This applies equally to the perceived merit of
‘customer accounting’.
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The Use and Perceived Merit of Customer Accounting in New Zealand
51
To discover if the results of this research
were significantly different fromthe results of
Guilding and McManus (2002), t-tests were
carried out on the mean usage of the five
practices. The usage of lifetime customer
profitability analysis, valuation of customers or
customer groups as assets, and customer
accounting were all significantly higher in
Australian companies (t-stat 6.61, 5.42 and 3.69
respectively, p<0.001 for all).
Descriptive statistics for the perceived
managerial merit of the five customer
accounting practices are presented in Table 2.
The perceived merit of all the practices were
above the midpoint range in the findings of
Guilding and McManus (2002). The perceived
merit in the findings of Guilding and McManus
(2002) ranged from ‘customer segment
profitability analysis’ at 5.28 to the ‘valuation of
customers or customer groups as assets’ at 4.19.
The bottom two practices are well below the
means of the top three practices. In this study,
the practices were perceived as being beneficial
in the same order as they were used. Customer
profitability analysis (4.86) was the practice
perceived to have the most merit followed by
customer segment profitability analysis (4.35)
and customer accounting (3.82). The first two
practices are above the midpoint, while
customer accounting, the valuation of customers
or customer groups as assets and lifetime
customer profitability analysis are below it.
Table 1
Descriptive Statistics for Customer Accounting Usage Rates
Mean Std. Deviation
Theoretical
Range Actual range
Incidence of
“n/a”
G&M G&M Min Max Min Max G&M
Customer profitability analysis 3.98 4.03 2.04 2.10 1 7 1 7 4% 19%
Customer segment profitability
analysis
3.70 4.12 2.11 2.14 1 7 1 7 2% 17%
Customer accounting 3.08 4.22 1.73 2.14 1 7 1 6 8% 15%
Valuation of customers or customer
groups as assets
2.58 2.58 1.73 1.89 1 7 1 7 2% 22%
Lifetime customer profitability
analysis
2.37 2.64 1.50 1.96 1 7 1 7 4% 23%
Table 2
Descriptive Statistics for the Perceived Managerial Merit of
Customer Accounting
Mean Std. Deviation
Possible
Range Actual range
Incidence of
“n/a”
G&M G&M Min Max Min Max G&M
Customer profitability analysis 4.86 5.08 2.11 2.04 1 7 1 7 2% 15%
Customer segment profit ability
analysis
4.35 5.28 2.13 1.87 1 7 1 7 0% 15%
Customer accounting 3.82 5.21 1.95 1.93 1 7 1 7 2% 12%
Valuation of customers or customer
groups as assets
3.57 4.19 1.95 2.07 1 7 1 7 0% 17%
Lifetime customer profitability
analysis
3.56 4.38 1.93 2.08 1 7 1 7 2% 19%
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
52
The five customer accounting practices are
all perceived as having more benefit in an
Australian context (Guilding and McManus,
2002) compared to the New Zealand context
(this research). The mean scores in the work
of Guilding and McManus (2002) were all
higher than the results of this research. These
differences were significant for four of the
practices: customer accounting (t-stat 4.37,
p<0.001), customer segment profitability
analysis (t-stat 2.83, p<0.01), lifetime customer
profitability analysis (t-stat 2.55, p<0.02) and
valuation of customers or customer groups as
assets (t-stat 1.93, p<0.1).
Principal component factor analysis of
the five competition intensity items was
undertaken, and one factor with an eigenvalue
greater than one (3.172) was revealed. This
factor explained 63.4% of the variance and had
factor loadings of 0.60, 0.53, 0.74, 0.68 and
0.63 respectively. A further principal
component factor analysis was conducted on the
four market orientation items. One factor
(eigenvalue 2.61) explained 65.1% of the
variance, with factor loadings of 0.57, 0.71,
0.60 and 0.74 respectively. These factors were
used in the correlation and regression analysis
that follow.
A matrix of the Pearson correlations for
the usage of the five customer accounting
practices and also competition intensity, market
orientation and the square of competition
intensity is presented in Table 3. Guilding and
McManus (2002) did not include the square of
competition intensity in their correlations, but
did in their regression analysis. In this study
the square of competition intensity is only
significantly correlated with customer
profitability analysis (p<0.05).
Table 3
Pearson Correlations Between the Use of the Five Customer Accounting
Practices and the Three Independent Variables
a
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer
groups as
assets
Marketing
orientation
G&M G&M G&M G&M G&M G&M
Customer profitability
analysis
0.50
***
0.70
**
Customer segment
profitability analysis
0.40
**
0.60
**
0.65
***
0.71
**
Lifetime customer
profitability analysis
0.30
*
0.54
**
0.61
***
0.57
**
0.72
***
0.60
**
Valuation of customers
or customer groups as
assets
0.42
**
0.40
**
0.35
**
0.45
**
0.41
**
0.54
**
0.58
***
0.77
**
Marketing orientation 0.17 0.32
**
0.23 0.27
**
0.08 0.30
**
0.11 0.31
**
0.13 0.34
**
Competition intensity -0.06 0.34
**
0.20 0.36
**
0.24 0.49
**
0.28
*
0.23
*
0.23 0.23
*
0.38
**
0.44
**
(Competition
intensity)
2
-0.05 -0.30
*
-0.12 -0.20 -0.23 -0.26
a There are now three independent variables with the addition of the square of competition intensity to competition
intensity and market orientation.
*** Correlation is significant at the 0.001 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
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Guilding and McManus (2002) found
statistically significant relationships for the
inter-correlations between all five customer
accounting practices (p <0.01). A similar
result was found in this study, with all
relationships significant at p <0.05 or less. The
strongest relationships are between customer
segment profitability analysis and lifetime
customer profitability analysis (r =0.72);
customer profitability analysis and customer
segment profitability analysis (r =0.65),
lifetime customer profitability analysis
(r =0. 61), and customer accounting (r =0.50);
and lifetime customer profitability analysis and
valuation of customers or customer groups as
assets (r =0.58).
Guilding and McManus (2002) also found
statistically significant relationships between the
use of the five practices and competition
intensity and market orientation (p < 0.01 and
p < 0.05). However, in this research, there was
only one statistically significant relationship:
between lifetime customer profitability analysis
and competition intensity. No relationships
existed between market orientation and the use
of any of the five customer accounting
practices. However there was a relationship
between market orientation and competition
intensity (r =0.38, p <0.01).
Table 4 presents a matrix of the Pearson
correlations between the perceived merit of the
five customer accounting practices and
competition intensity, market orientation and
competition intensity squared. Guilding and
McManus (2002) found statistically significant
and positive relationships between the perceived
merit of all the customer accounting practices
and market orientation and competition
intensity (p < 0.001). Their highest inter-
correlation was between customer profitability
analysis and customer segment profitability
analysis (r =0.78).
Table 4
Pearson Correlations Between the Perceived Merit of the Five Customer
Accounting Practices and the Three Independent Variables
b
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer
groups as
assets
Marketing
orientation
G&M G&M G&M G&M G&M G&M
Customer profitability
analysis
0.71
***
0.71
***
Customer segment
profitability analysis
0.69
***
0.70
***
0.76
***
0.78
***
Lifetime customer
profitability analysis
0.61
***
0.66
***
0.69
***
0.77
***
0.64
***
0.76
***
Valuation of customers
or customer groups as
assets
0.59
***
0.63
***
0.52
***
0.66
***
0.63
***
0.69
***
0.80
***
0.77
***
Marketing orientation 0.17 0.47
***
0.31
*
0.34
***
0.18 0.31
***
0.24 0.37
***
0.03 0.34
***
Competition intensity 0.09 0.46
***
0.18 0.44
***
0.22 0.55
***
0.28
*
0.40
***
0.31
*
0.38
***
0.38
**
0.44
***
(Competition
intensity)
2
-0.16 -0.37
**
-0.25 -0.30
*
-0.34
*
-0.26
b
There are now three independent variables with the addition of the square of competition intensity to competition
intensity and market orientation.
*** Correlation is significant at the 0.001 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
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ACCOUNTING RESEARCH JOURNAL VOLUME 20 NO 1 (2007)
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The inter-correlations between the perceived
merit of the five customer accounting practices
are all statistically significant in this study
(at p < 0.001). The highest inter-correlation is
between lifetime customer profitability analysis
and the valuation of customers or customer
groups as assets (r =0.80). This research
identified more statistically significant
relationships for the perceived merit than for the
usage.
Guilding and McManus (2002) believe there
is a linear relationship between the two
independent variables (competition intensity
and market orientation) and the perceived merit
of the five practices because there is a
significantly positive relationship between
them. This research found only two significant
correlations between competition intensity and
the five customer accounting practices: lifetime
customer profitability analysis (r =0.28,
p <0.05) and valuation of customers or
customer groups as assets (r =0.31, p <0.05).
There was also a statistically significant
relationship between customer profitability
analysis and market orientation (r =0.31,
p <0.05). The square of competition intensity
was found to be significantly negatively
correlated only with the valuation of customer
or customer groups as assets (p < 0.05).
Table 5 presents the results of the regression
analysis where the usage of the five customer
accounting practices are the dependent
variables. The independent variables are
competition intensity, market orientation, and
the square of competition intensity. Guilding
and McManus (2002) found a statistically
significant relationship for all regression
equations, and adjusted R
2
’s ranging from8% to
23%. In the replication, none of the five
regressions was statistically significant. The
adjusted R
2
’s ranged from0% to 23%.
As shown in Table 5, no support was found
for hypothesis 1a in either Guilding and
McManus (2002) or the replication; that is,
customer accounting usage rates were not
higher in companies experiencing medium
levels of competition intensity.
Guilding and McManus (2002) found some
support for hypothesis 2a because the
coefficient for market orientation was
statistically significant and positive for three of
the five customer accounting practices. This
research found no support for customer
accounting usage rates being higher in
companies with a high market orientation.
Table 5
Customer Accounting Usage Rates Regression Analysis
c
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer groups
as assets
G&M G&M G&M G&M G&M
Constant 3.16
***
2.54
***
4.24
***
2.68
***
3.78
***
3.12
***
2.49
***
2.02
***
2.76
***
2.44
***
Competition
intensity
-0.33 0.06 -0.01 0.15 0.52 0.33
***
0.36 0.11 0.22 0.19
(Competition
intensity)
2
-0.09 -0.16 -0.30 -0.14 0.02 -0.11 -0.06 0.03 -0.15 0.11
Market orientation 0.35 0.17
**
0.32 0.11 0.01 0.08 0.01 0.26
***
0.09 0.32
***
Adjusted R
2
-0.01 0.16 0.06 0.14 0.00 0.23 0.03 0.08 0.01 0.10
F 0.81 6.68
***
2.11 5.95
***
1.02 10.43
***
1.43 3.61
***
1.25 4.52
***
p 0.50 0.00 0.11 0.00 0.39 0.00 0.25 0.01 0.30 0.00
c A standardised regression coefficient is provided for each independent variable.
* p<0.1
** p<0.05
*** p<0.01
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The Use and Perceived Merit of Customer Accounting in New Zealand
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The results for the regression analysis where
the perceived merit of the five customer
accounting practices are the dependent variables
are presented in Table 6. In the replication, only
customer profitability analysis had statistically
significant coefficients: with market orientation
(p <0.05) and with competition intensity
squared (p <0.05). The adjusted R
2
’s ranged
from0% to 32%. In contrast, all five regression
equations had at least one significant
relationship in the findings of Guilding and
McManus (2002), with adjusted R
2
’s ranging
from17% to 32%.
Guilding and McManus (2002) found no
support for the perceived managerial benefit of
customer accounting being greater in companies
experiencing medium levels of competition.
However some support was found for
hypothesis 1b in this research, with the
coefficient for the square of competition
intensity exhibiting a statistically significant
relationship with the perceived merit of
customer profitability analysis (p < 0.05).
Guilding and McManus (2002) found
support for hypothesis 2b, that perceived
managerial benefit of customer accounting is
greater in companies with a high market
orientation, for: customer accounting (p < 0.01),
lifetime customer profitability analysis
(p < 0.01), and the valuation of customers or
customer groups as assets (p < 0.01). Some
support was also provided for hypothesis 2b in
the results of this research, with market
orientation exhibiting a statistically significant
relationship with: customer profitability analysis
(p < 0.05).
8. Discussion
Lindsay (1994, p. 40) states that “reporting
negative results is important in establishing the
conditions under which a result (initially
established under close replications) does not
hold”. The first finding of this replication
showed that the usage of all of the customer
accounting practices was below the midpoint (4
on the 7-point Likert scale), in contrast to
Guilding and McManus (2003) in which three
practices had means above the midpoint. The
perceived merit of the top two practices were
above the midpoint. This contrasts with
Guilding and McManus (2002) who found that
the perceived merit of all of the five practices
were well above the midpoint. They also found
that the valuation of customers or customer
groups as assets was the least used practice and
the practice that held the least perceived merit.
Table 6
Customer Accounting Perceived Merit Regression Analysis
d
Customer
accounting
Customer
profitability
analysis
Customer
segment
profitability
analysis
Lifetime
customer
profitability
analysis
Valuation of
customers or
customer groups
as assets
G&M G&M G&M G&M G&M
Constant 4.08
***
3.85
***
5.35
***
3.07
***
4.71
***
3.54
***
3.89
***
2.28
***
3.93
***
2.47
***
Competition
intensity
-0.11 0.14 -0.29 0.22
***
0.14 0.33
***
0.19 0.23
***
0.38 0.20
(Competition
intensity)
2
-0.14 -0.16 0.42
**
-0.10 -0.19 -0.17 -0.21 0.03 -0.27 -0.02
Market orientation 0.38 0.29
***
0.68
**
0.14 0.39 0.04 0.39 0.22
***
-0.10 0.19
***
Adjusted R
2
0.00 0.30 0.19 0.23 0.05 0.32 0.09 0.21 0.09 0.17
F 1.00 14.07
***
4.93
***
10.12
***
1.92 15.77
***
2.72
*
9.01
***
2.64
*
7.42
***
p 0.40 0.00 0.01 0.00 0.14 0.00 0.06 0.00 0.06 0.00
d
A standardised regression coefficient is provided for each independent variable.
* p<0.1
** p<0.05
*** p<0.01
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Comparing tables 1 and 2 shows that each
practice was perceived to have greater
managerial benefit than its current use. This
highlights that there is scope for greater use of
the individual customer accounting practices,
and customer accounting in general. This
finding was consistent in both studies.
However, there were statistically significant
differences, between Guilding and McManus
(2002) and the replication study, with respect to
the mean usage of lifetime customer
profitability analysis, valuation of customers or
customer groups as assets and customer
accounting, and the perceived benefit of all
except customer profitability analysis.
Whereas Guilding and McManus (2002)
found statistically significant relationships for
all usage and perceived merit regression
equations formulated, this research found that
the regression equations for the perceived merit
of only three of the practices were significant.
No significant regressions were found for the
use of the five customer accounting practices.
This strongly suggested that other factors are
needed to explain the variation in use and
perceived merit of the customer accounting
practices. Also, support was not found for all of
the hypotheses in this research, nor in the
research of Guilding and McManus (2002).
Therefore, new hypotheses need to be
developed and tested.
Guilding and McManus (2002) concluded
that, while there was no support for their
hypotheses concerning competition intensity, it
was still worthy of future research. This
research again found no support for the use of
customer accounting in companies experiencing
medium levels of competition intensity.
Contrary to the findings of Guilding and
McManus (2002), there was some minor
support found for the perceived merit of
customer accounting being higher in companies
experiencing medium levels of competition
intensity.
Lindsay (1995) states that replication can be
used to confirm earlier results, therefore
allowing generalisation. With two studies
finding little support for medium levels of
competition intensity (competition squared),
perhaps this variable could be omitted from
future research. However, as there is some
evidence that competition intensity itself might
be related to the use and perceived merit of
customer accounting, this should continue
to be examined in future research. Other factors
that might be worth investigating include
competitive strategy and environmental
uncertainty (Guilding and McManus, 2002), as
well as company size and industry.
As there is stronger support for the
hypotheses concerning market orientation, and
Slater and Narver (1994) found that being
market oriented increases customer value, this
variable should be included in future research.
The replication has also revealed an
opportunity to improve the method. Guilding
and McManus (2002) included a holistic
definition termed “customer accounting”.
Respondents could have been using the other
practices, but only recorded “customer
accounting”, or vice versa. In this case, there is
a higher usage (statistically significant at 10%
level) of two practices (CPA and customer
segment profitability analysis) than the holistic
notion of “customer accounting”. Future
research might drop the holistic category.
9. Conclusion
It has been acknowledged that customer
accounting is a largely untapped research area
(Guilding and McManus, 2002). This research
has been a useful first step in research into
customer accounting in New Zealand. There is
opportunity for future research to continue with
market orientation and explore other factors
such as competitive strategy to try to explain
the use and perceived merit of customer
accounting. Whether a company has a
differentiation strategy, is a cost leader or
operates in a niche market is likely to affect the
use and perceived merit of customer accounting.
Industry and company size are other factors that
should also be considered.
As Lindsay (1994) points out, in the same
way that Otley’s (1978) study produced
findings that conflicted with Hopwood (1972)
and sparked a flurry of research, reporting the
contradictory findings between this study and
Guilding and McManus (2002) should be an
incentive for other researchers to continue work
in this very important, yet still largely untapped,
management accounting area.
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Appendix A
Glossary of Customer Accounting Terms
Customer accounting “includes all accounting practices directed towards appraising profit, sales,
or present value of earnings relating to a customer or group of customers” (Guilding and McManus,
2002, p. 48).
Customer profitability analysis (CPA) “involves calculating profit earned from a specific
customer. The profit calculation is based on costs and sales that can be traced to a particular
customer. This technique is sometimes referred to as customer account profitability” (Guilding and
McManus, 2002, p. 46).
Customer segment profitability analysis “is the practice of performing a customer profitability
analysis (as defined above), on a segment or customer group basis” (Guilding and McManus, 2002,
p. 47).
Lifetime CPA “involves extending the time horizon for customer profitability analysis to include
future years. The practice focuses on all anticipated future revenue streams and costs involved in
servicing a particular customer” (Guilding and McManus, 2002, p. 47).
The valuation of customers or customer groups as assets “refers to the calculation of the value of
customers for the company” (Guilding and McManus, 2002, p. 48).
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Appendix B
Customer Accounting Questionnaire
Please circle, on the scale from 1 to 7, the number that is most applicable to your organisation.
Indicate N/A if it is not applicable to your organisation.
1. To what extent does your company use the following practices?
not at all to a large extent
a. Customer profitability analysis
(CPA)
1 2 3 4 5 6 7 N/A
b. Customer segment profitability
analysis
1 2 3 4 5 6 7 N/A
c. Lifetime customer profitability
analysis
1 2 3 4 5 6 7 N/A
d. Valuation of customers or
customer groups as assets
1 2 3 4 5 6 7 N/A
e. Customer accounting 1 2 3 4 5 6 7 N/A
2. To what extent do you consider the following practices would be a useful aid to management in your
company?
not at all to a large extent
a. Customer profitability analysis
(CPA)
1 2 3 4 5 6 7 N/A
b. Customer segment profitability
analysis
1 2 3 4 5 6 7 N/A
c. Lifetime customer profitability
analysis
1 2 3 4 5 6 7 N/A
d. Valuation of customers or
customer groups as assets
1 2 3 4 5 6 7 N/A
e. Customer accounting 1 2 3 4 5 6 7 N/A
3. For your organisation, what is the level of competition intensity for the following items?
negligible intensity mediumintensity extremely intense
a. Selling and distribution 1 2 3 4 5 6 7 N/A
b. Quality and variety of products 1 2 3 4 5 6 7 N/A
c. Price 1 2 3 4 5 6 7 N/A
d. Market share 1 2 3 4 5 6 7 N/A
e. Customer service 1 2 3 4 5 6 7 N/A
4. To what extent do you agree with the following statements?
negligible intensity mediumintensity extremely intense
a. My company has a strong
understanding of our customers
1 2 3 4 5 6 7 N/A
b. The functions in my company
work closely together to create
superior value for our customers
1 2 3 4 5 6 7 N/A
c. Management in my organisation
thinks in terms of serving the
needs and wants of well-defined
markets chosen for their long-
term growth and profit potential
for the company
1 2 3 4 5 6 7 N/A
d. My company has a strong
market orientation
1 2 3 4 5 6 7 N/A
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This article has been cited by:
1. Farzana Aman Tanima, Ken Bates. 2015. The incidence and perceived managerial merit of customer accounting in New
Zealand. Pacific Accounting Review 27:4, 466-485. [Abstract] [Full Text] [PDF]
2. Paul Andon, Jane Baxter. 2011. Introducing and Contextualising Customer Lifetime Valuation: A Management Accounting
Teaching Resource. Accounting Education 20, 39-61. [CrossRef]
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doc_384991967.pdf