Impact of ERP System on Shareholder Value, Article Review Example

The article is founded on the issue that has been raised in the recent past, the true value of ERP systems to businesses, especially to the shareholders. While the use of ERP systems have been attributed to positive performance in terms of streamlining operations, mitigating redundancy in the functional processes, analysis of information silos, and availing fast and accurate information organization wide so as to enhance the decision making process, it is quite expensive. The article highlights how businesses can determine the real value that IT generates to a given business, and how that value is distributed to the shareholders. The study employs models and methods that have been developed within capital market academia so as to determine the impact that ERP systems have on shareholder value.

Literature Review

There is an existing conceptual framework present within the research. This research employs the concepts held by Hayes et al. However, the study employs long-horizon buy-and-hold returns as the more ideal metrics as opposed to the study of the short-term effect on the share price as used by Hayes et al. The connection between the conceptual framework and the current study by the authors is determined by one factor; that ERP system affects shareholder value.

The authors employs an adequate number of sources to base their argument and research. They use a total of twenty previous research pertaining to the valuation of ERP systems to provide the foundations for their research. The researcher employs a number of sources that analyze the effect of information asymmetry to shareholder value. This recognizes the potential weaknesses of ERP systems. When information asymmetry exists, shareholder value is skewed and constrained.

Research Methodology

The researcher employs an effective research methodology that comprises the long-term buy-and-hold model developed by Ang and Zhang. The participants of the study are clearly defined with a specific inclusion and exclusion criteria, only those companies that had implemented ERP systems between 1994 and 2003.

There is a definitive sample size employed in the research. The study sampled companies from within 33 industries that had implemented ERP systems within a given period of time. The financial performance of these companies was analyzed, especially pertaining to the value that the shareholder receives. The sample size cannot be determined to be representative of the population as the number of companies that have implemented ERP systems at the time was not determined.

Results

The results highlight interesting trends and characteristics about the sample population. The companies analyzed in the study depicted considerable growth one year after implementation. However, the abnormal returns diminished every year afterwards.

Discussion and Conclusion

The discussion entails the empirical characteristics of the results obtained. By defining critical statistical elements such as F-statistics and adjusted r-Square results to ascertain that ERP system implementation has a positive association with the share price of any given company. The conclusions provide a concise analysis of the results. The author effectively highlights the relationship between capital market conditions and the implementation of ERP systems. Both have an effect on share value. However, an indicator variable may be employed to indicate the bull and bear markets.

Overall Evaluation

The study is generally limited by virtue of the representation of the samples employed by the other research employed. The article has taken into consideration a number of studies initially conducted. However, these studies do not take into consideration the adequate representation of the population. The study is validated by virtue of previous research conducted on the topic have arrived to similar conclusions.

References

Morris, J. J. (2015). Measuring The Impact Of Enterprise Resource Planning (ERP) Systems On Shareholder Value. Review of Business Information Systems, 15(1), 31-39. Retrieved July 3, 2015, from http://www.cluteinstitute.com/ojs/index.php/RBIS/article/viewFile/3996/4049