The Effect of Enterprise Systems Implementations on the Firm Information Environment

Abstract

Proponents of Enterprise Systems argue that these systems improve the information environment of the firm. However, evidence on these benefits is largely anecdotal and survey-based. In this paper, we use 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, we hypothesize that if enterprise systems improve management’s access to decision relevant internal information, management should be able to produce higher quality earnings forecasts. Consistent with disclosure theory and the purported technical characteristics of enterprise systems, we find evidence that enterprise system implementations are subsequently associated with significant 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 enhancements in management’s ability to manage earnings. Prior literature and professional guidance points to the common challenges and importance of measuring the benefits of information technology investments. Our study responds to these challenges by providing an initial 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.

Keywords: Enterprise Systems, Internal Controls, Information Quality, Management Forecast, Earnings Quality

JEL Classification: M41, G3