Enterprise resource planning systems and non-financial performance incentives: The joint impact on corporate performance

Some accounting information systems research suggests that the implementation of enterprise resource planning (ERP) systems improves corporate performance [Hayes DC, Hunton JE, Reck JL. Market reaction to ERPS implementation announcements. J Inf Syst 2001;15(1): 3–18; Hunton JE, Lippincott B, Reck J. Enterprise resource planning systems: Comparing firm performance of adopters and nonadopters. Int J Account Inf Syst 2003;4:165–184], while a seemingly disparate line of managerial accounting research indicates that the inclusion of non-financial performance incentives (NFPI) in executive compensation contracts also enhances performance [Said AA, HassabElnaby HR, Wier, B. An empirical investigation of the performance consequences of non-financial measures. J Manage Account Res 2003;15:193–223]. Two theoretical perspectives tie together these research streams. Cybernetic control theory explains how ERP systems offer the means by which managers can effectively use nonfinancial performance indicators, and agency theory describes how NFPI provide the motive and opportunity for managers to attend to key non-financial performance indicators. The research hypothesis tested herein asserts that the joint adoption of ERP and use of NFPI will yield greater corporate performance than either ERP or NFPI alone. In the current study, performance is reflected by return on assets (ROA) and stock returns (SR). Study results support the hypothesis, as archival data indicate that firms with both NFPI and ERP obtain significantly higher short-term and long-term ROA and SR than International Journal of Accounting Information Systems 8 (2007) 165–190 ☆ All authors contributed equally to this project. ☆☆ The authors gratefully acknowledge the helpful comments received from Chris Ittner, William Greene, Emad Mohd, Amal Said, Allan Webb, participants at the 2005 National Meeting of the American Accounting Association, the 2005 European Conference on Accounting Information Systems, the 2006 Management Accounting Section Midyear Meeting, and the 2007 European Accounting Association. ⁎ Corresponding author. Tel.: +1 781 891 2422. E-mail address: jhunton@bentley.edu (J. Hunton). 1467-0895/$ see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.accinf.2007.05.001 either ERP-only or NFPI-only firms. Research findings offer valuable insight into the theoretical and practical implications of jointly adopting the ERP and NFPI strategies. © 2007 Elsevier Inc. All rights reserved.