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Earnings Management Following Implementation of Enterprise Resource Planning Systems
John J Morris,
Kent State University
ABSTRACT. Enterprise resource planning (ERP) systems are marketed as productivity improvement tools that consolidate back office information processing needs into one common system, with enhanced information transparency. Prior research has focused on productivity improvement features. This study examines the information transparency feature, drawing on agency theory and its related earnings management models to measure the impact on earnings management. The study compares 70 firms that implemented ERP systems with 70 control firms matched on industry and size. The results provide evidence that the absolute value of discretionary working capital accruals, a proxy for earnings management, increases less for ERP implementers than for non-implementers, suggesting that ERP systems do have an impact on earnings management. Further investigation shows that this difference increases over time, with no difference the first year following implementation, and the largest difference in the fourth year.
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