The Effects of Information Systems Compatibility on Firm Performance Following Mergers and Acquisitions

47 Pages Posted: 4 Mar 2019 Last revised: 31 Oct 2019

See all articles by Uday S. Murthy

Uday S. Murthy

University of South Florida - School of Accountancy

Thomas Joseph Smith

University of South Florida

James Whitworth

University of South Florida

Yiyang Zhang

Youngstown State University

Date Written: February 13, 2019

Abstract

This study investigates the consequences of information systems compatibility between the target and acquirer firms in the context of mergers and acquisitions (M&A). We posit that the degree of information systems compatibility impacts post-M&A operating efficiency and audit efficiency. Using a unique data set of ERP implementations, we find that acquirers using the same ERP vendor as their targets exhibit shorter post-merger operating cycles and shorter post-merger audit delays relative to acquirers with different ERP vendors than their targets. We suggest that our operating cycle finding is likely due to higher systems compatibility fostering post-merger operating efficiency to a greater degree than mergers involving incompatible systems. The audit efficiency finding we document is consistent with acquirers with the same ERP vendor as their target realizing more efficient financial reporting and accounting close processes relative to mergers involving different ERP vendors. In supplemental analysis, we find evidence that acquirers with the same ERP vendor as their target also exhibit more accurate management forecast guidance following the acquisition. Taken together, the findings of this study should be of interest to capital market participants and managers involved in M&A activity by providing evidence about how the degree of compatibility between acquirer and target ERP systems impacts post-merger activities across different economically significant functional areas.

Keywords: ERP Integration, Mergers and Acquisitions, Operating Cycles, Audit Delay

JEL Classification: D24, G34, M15, M42

Suggested Citation

Murthy, Uday S. and Smith, Thomas Joseph and Whitworth, James and Zhang, Yiyang, The Effects of Information Systems Compatibility on Firm Performance Following Mergers and Acquisitions (February 13, 2019). Available at SSRN: https://ssrn.com/abstract=3333811 or http://dx.doi.org/10.2139/ssrn.3333811

Uday S. Murthy

University of South Florida - School of Accountancy ( email )

Tampa, FL 33620
United States
813-974-6523 (Phone)
813-974-6528 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/accounting/faculty/murthy/index.html

Thomas Joseph Smith (Contact Author)

University of South Florida ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

James Whitworth

University of South Florida ( email )

Tampa, FL 33620
United States

Yiyang Zhang

Youngstown State University ( email )

United States

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