The Effect of Enterprise Systems Implementation on the Firm Information Environment

Abstract

This study uses an archival research design to assess the impact of enterprise systems on a firm's internal information environment as reflected in the production of management earnings forecasts. Specifically, the authors hypothesize that, if enterprise systems improve management's access to decision‐relevant internal information, higher quality management earnings forecasts should ensue. Consistent with disclosure theory and the purported technical characteristics of enterprise systems, the authors find a positive association between enterprise system implementations and subsequent increases in the likelihood of management forecast issuance and the accuracy of the forecasts. Additional robustness tests support the argument that improvements in management forecasts are due to improvements in the firm's internal information environment rather than to enhancements in management's ability to manage earnings. Beyond accumulating financial reporting information, the authors note that such systems provide management with information to make day‐to‐day operational decisions. Moreover, the paper provides a basis for considering management forecast qualities as a measurable proxy for improvements in the firm's internal information environment that result from information technology investments.

The Association between Information Technology Investments and Audit Risk

“…Other studies find that investments in IT increase financial and market performance (e.g., Bharadwaj 2000; Zhu and Kraemer 2002) and improves organizational innovativeness (Kleis et al 2012;Xue et al 2012) across different contexts. Dorantes et al (2013) report that Enterprise Systems improve companies' internal information environment and increases both quantity and quality of management forecasts. Kobelsky et al (2008) suggest that investing IT is essentially a way for companies to realize their strategic goals of improving future performance.…”

“…Our research fills this gap by examining IT and audit risk in an integrated research setting. Second, prior accounting literature, such as Hayes et al (2001), Ranganathan and Brown (2006), and Dorantes et al (2013), documents the effects of IT by using an indicator variable to represent whether companies implement Enterprise Systems specifically (ERP, SCM, CRM system, etc.) or not.…”

ERP benefits capability framework: orchestration theory perspective

“…ERP, according to the literature, can, it is argued, affect the forecasting quality (Dorantes et al 2013). Nevertheless, this research found that this statement is based on many assumptions.…”

The Impact of Interaction Between Enterprise Resource Planning System and Management Control System on Firm Performance in The Turkish Manufacturing Sector

“…Especially financial and non-financial information and eliminating barriers between entity's value chains located within and across organization give managers opportunities to manage everything with real-time information (Dorantes, Li, Peters andRichardson, 2013: 1430). ERP is expected to automate formal MCS tasks and provide opportunities for informal-based MCS.…”