Enterprise Resource Planning (ERP) systems emerged in the 1990s as one of the fasted growing and perhaps one of the most important developments in corporate use of information technology. These systems, which consolidate all of the back office processing needs of a typical business into one common system, affect all functional areas, especially the accounting function. In spite of this effect, there has been very little ERP related academic research driven by accounting theory.
This dissertation addresses that gap in the literature by relying on a theoretical framework well established in accounting research, specifically agency theory, to formulate three research questions that address the effects of ERP systems on earnings management, shareholder value, and internal control. These questions are addressed in three separate essays that use different methodologies from the accounting literature to develop and empirically examine several hypotheses.
The first essay uses three different proxies to examine how ERP affects earnings management: discretionary accruals, earnings quality, and frequency of small earnings losses and negative changes. Short-term discretionary accruals provide evidence that ERP systems have a positive impact on earnings management; however long-term discretionary accruals and the other two proxies do not.
The second essay uses three different measures of shareholder value: long-horizon buy-and-hold returns, market-to-book, and price-to-intrinsic value based on the residual income model, to examine the impact of ERP systems on shareholder value. All three measures provide evidence that ERP systems increase shareholder value.
The third essay uses Sarbanes-Oxley Section 404 compliance results to measure the impact that ERP systems have on internal control. The essay provides evidence that a smaller proportion of ERP implementing firms reported internal control weaknesses than a control group during the first three years that reporting was required.
Overall, this dissertation provides evidence that ERP systems may have a limited effect on earnings management, and a positive impact on both shareholder value, and internal controls over financial information. These results contribute to academic research in the field of accounting; and should be of interest to a wide variety of constituents, including practitioners of financial accounting and reporting, managerial accounting, auditing, and accounting information systems.