Stock market reactions to announcements of ERP system implementation in the US

Research on the impact of announcements of investments in enterprise resource planning (ERP) systems has so far yielded divergent results. The present study, using data on ERP system implementation announcements of 112 predominantly Fortune 350 firms during 1990-2010, examines the impact of ERP implementation announcements on stock returns in the United States. The empirical result shows that abnormal returns of the US firms for the event window (-1, +1) on ERP system implementation announcements are positive and statistically significant. Our empirical results reveal that publicly traded companies in the US generate significant reactions in the positive direction in the stock market. The reason of this positive announcement effect is that the market stays hopeful of larger returns for the years to come with the streamlining of business processes in line with the industry's best practices. The capital market anticipates positive net future cash flows from the use of ERP systems. ERP systems enhance the efficiency and effectiveness of the firms through increasing their production flexibility and streamlining critical business processes such as sale and inventory management. Accordingly, stock market participants react positively to the announcements of ERP system implementations as is proven in this study. --P. ii.