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Contemporary Accounting Research Vol. 40 No. 3 2023

Enterprise system implementation and cash flow volatility

Alfred Z. Liu1; Morton Pincus2; Sean Xin Xu3

1 DeGroote School of Business McMaster University Hamilton Ontario Canada · 2 Paul Merage School of Business University of California, Irvine Irvine California USA · 3 Research Center for Contemporary Management, School of Economics and Management Tsinghua University Beijing China

open access

Abstract

This study investigates the financial and operational implications of enterprise systems (ESs) in corporate risk management. Using matched difference‐in‐differences analyses based on ES implementation events, we document a significant reduction in the volatility of operating cash flows following ES implementations. We further show that ES implementers have better post‐implementation operational efficiency than matched non‐ES firms and better manage sales, costs of sales, working capital, and operating expenses to reduce operating cash flow volatility. Consistent with the benefits of lower cash flow volatility documented in prior literature, we find ES implementers demonstrate higher investment efficiency, lower reliance on external financing, and higher debt capacity post‐ES‐implementation than the matched non‐ES firms. Our study sheds light on the economic benefits of utilizing ESs in corporate risk management and in so doing responds to the paucity of empirical research in this area.

DOI
10.1111/1911-3846.12872
Volume
40
Issue
3
Pages
1937-1965
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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