Enterprise Resource Planning Systems and Firm Value: An Event Study Analysis

Abstract

There is considerable debate on the contributions of IT investments to firm value. Over a decade of research on the business value of information technology has produced mixed findings. This study focuses on the business value generated by a specific kind of IT systems, namely enterprise resource planning (ERP) systems. Studying the value created by ERP systems is appropriate and important for four reasons. First, ERP systems are being widely used by corporate community. Given the widespread adoption of ERP applications, it becomes essential to assess the contributions of these systems. Second, ERP systems typically encompass a wide spectrum of organizational functions. Given the wide functional coverage of ERP systems, they are likely to have a larger impact on firm performance than those information systems focusing on a specific function. Third, ERP systems require considerable investments in hardware, software, networking, and complementary organizational changes. Since ERP investments represent a critical IT expense for firms, it becomes important to assess the returns from ERP spending. Fourth, the reported failures of ERP systems by companies such as FoxMeyer Drugs, Applied Materials, Hershey, Mobil Europe, and Dow Chemicals have questioned the very viability of ERP systems. This is another compelling reason to ascertain the true contributions of ERP systems.

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