Journal of Accounting & Organizational Change: Article Information

Journal of Accounting & Organizational Change
Market reaction to enterprise applications: a multicultural perspective

Ana C. Silva Oswaldo Lorenzo Gonzalo Arturo Chavez
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Ana C. Silva Oswaldo Lorenzo Gonzalo Arturo Chavez , (2015),"Market reaction to enterprise
applications: a multicultural perspective", Journal of Accounting & Organizational Change, Vol. 11 Iss
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Market reaction to enterprise Market

reaction to
applications: a multicultural enterprise
applications
perspective
Ana C. Silva 269
Department of Finance, Merrimack College, North Andover,
Massachusetts, USA
Oswaldo Lorenzo
Department of Strategy and Information Systems, University of Deusto,

Bilbao, Spain, and
Gonzalo Arturo Chavez
Department of Finance, Hult International Business School, Cambridge,
Massachusetts, USA
Abstract
Purpose – This paper aims to identify the relationship between national culture, enterprise
application (EA) implementations and firm value for a sample of the largest and most actively traded
firms in Japan, the United Kingdom and the USA. The study seeks to contribute to a better
understanding of the cultural traits that play a role in successful technological innovation.
Design/methodology/approach – Using 11 years of price and accounting data, as well as corporate
announcements from English- and Japanese-speaking sources, this study applies event study
methodology and fixed-effects regressions to a sample of international adopters of enterprise resource
planning (ERP), customer relationship management (CRM), supply chain management and
firm-specific applications.
Findings – The results show a country-related contrast in the way investors perceive value in EAs.
Investors with national cultures that are more collectivist perceive their firms to be well-prepared to
extract value from large-scale technologies. In contrast, individualistic cultures seem to face more
implementation challenges.
Research limitations/implications – Although the study provides statistically significant results,
a larger sample of countries and enterprise systems adopters would further enhance a generalization of
results.
Practical implications – The empirical results provide evidence of the national culture traits that
seem to increase the likelihood of success in enterprise systems implementations as seen from the
perspective of actual investors.
Originality/value – The empirical study of how multiple EAs (ERP, SCR, CRM and SPECIFIC) and
national culture differences interact with a market-based metric of value (stock market prices), while
also using an international sample of firms from three distinct regions, is novel to the existent literature.
Keywords CRM, Culture, SCM, ERP, Event study, Enterprise applications
Paper type Research paper
Journal of Accounting &
Organizational Change
Vol. 11 No. 2, 2015
pp. 269-294
The authors thank Robert Galliers, Peter Kawalek and Leo McCann for useful suggestions and © Emerald Group Publishing Limited
1832-5912
comments. The authors assume responsibility for any errors. DOI 10.1108/JAOC-11-2012-0107
JAOC Introduction
11,2 Do enterprise applications (EAs) contribute to firm value? If so, is the impact a function
of the type of application implemented and/or differences in national cultures? As the
investments in EAs have grown to become some of the largest capital expenditures for
companies and as capital investment flows become increasingly global, the answer to
these questions gain importance.
270 EAs are large-scale and off-the-shelf[1] information technologies implemented and
used by companies to achieve a wide variety of benefits such as transaction automation,
process standardization, the integration of business functions, cost reduction, increased
customer satisfaction, integration with suppliers and improved decision-making and
management control (Kwahk and Lee, 2008; Chapman, 2005; Robey et al., 2002).
As described by Mcafee (2006), EA include applications for enterprise resource
planning (ERP), customer relationship management (CRM) and supply chain

management (SCM). Most ERP applications offer functionalities for all areas and
business units of a firm and often include the implementation of cross-functional
features. The automation of transactions and the internal integration of processes and
information create business value because of cost reduction and better intra-firm
coordination (Hunton et al., 2002; Robey et al., 2002). On the other hand, SCM and CRM
applications focus their offering on the management of relations and processes with
external stakeholders, i.e. suppliers and customers. As SCM applications enhance
integration with suppliers, value is created in the form of reduced delivery time and
reduced level of stocks throughout the supply chain (Vijayasarathy, 2010; Bose et al.,
2008). CRM applications centralize and analyze customer information, increasing
customer satisfaction and preventing the loss of customer knowledge (Hendricks et al.,
2007; Mithas et al., 2005).
EA are certainly complex technologies because of their size, off-the-shelf approach
and the operational and technological changes that they introduce in organizations
(Chapman and Kihn, 2009; Xu and Ma, 2008; Ettlie et al., 2005). The logic of EA combines
accounting issues, such as the rearrangement of information collection, processing and
reporting, with logistic issues related to the redesign and integration of business
processes. This is the reason why the implementation of these packaged and standard
applications usually entails significant organizational changes.
Although the organizational and social significance of EA is widely accepted, their
business value is still controversial. A number of cases have been reported as failures;
some of them resulting in the company’s bankruptcy (Scott and Vessey, 2002). Thus,
additional evidence of the manner in which EA contribute to firm value becomes
important. Studies that look at EA tend to treat them as a single system, without placing
much attention to the manner in which value is created by different types of
applications. To our knowledge, Hendricks et al. (2007) is the only study addressing the
business value of different EA. Therefore, we seek to address the current research gap
regarding the impact of the different types of EAs on business value expectations. By
incorporating several types of applications, we also provide results that are more robust
to application-specific biases.
This work also aims to assess how markets under different cultural environments
perceive the value implications of EA implementation announcements. We do this by
studying the market price reaction from individual and institutional investors once
implementation announcements are made. The changes in price are thus the result of
trading decisions based on all public information. The value implication, along with its Market
probability of success, are assigned by investors given their information set, which reaction to
includes the type of EA and the country of implementation. We use the efficient market
hypothesis (Fama, 1970, 1976, 1991) as the basis for assuming that prices reflect all
enterprise
relevant information in an immediate and complete manner. applications
The linking of theory and actual investor perception is important. A small group of
previous studies have looked at the market reaction to EA announcements and find 271
support for the argument that EA benefits are higher when organizational integration is
superior (Hendricks et al., 2007; Ranganathan and Brown, 2006). However, they focused
their efforts on the US market. The increasingly global nature of capital investment
flows also makes it important to study the role that national culture can play on the
likelihood of successful technological innovation. The use of an international sample to
investigate the perceived value of EA announcements in markets under different

cultural contexts is, therefore, an opportunity to further contribute to the literature.
Analyzing how stock market prices react to EA implementation announcements at
the individual firm level enhances our results in two ways. The first is that we use
market information from actual EA adopters, thus providing applied research that is
informative for managers. The second benefit of implementing a by-firm analysis is that
the use of our 168 events covering three geographic areas provides results that are less
affected by the excess specificity found in case studies or potentially biased data from
vendor surveys. Larger samples from public market sources allow us to adjust for
individual firm and industry characteristics and, therefore, provide statistically
significant, unbiased inferences that can be generalized for all firms.
Our main finding documents a contrast between Japanese (positive) and US
(negative) market reactions. Because we control for firm characteristics, industry
classifications, type of applications and time-related influences, we are able to conclude
that the contrasting market reactions can be explained by a country effect. We believe
this occurs because investors’ expectations regarding the fit between an EA, and the
way in which organizations and technology are managed will vary depending on
national culture differences. There is reasonable evidence (Leidner and Kayworth, 2006;
Hasan and Ditsa, 1999) that cultural orientation may predispose some individuals and
organizations to support or reject the implementation and usage of specific information
technology. Given that both multinational and local companies implement the same
type of EA across countries, we suspect that contrasts in the ex-post performance of EA
implementations are affected by national culture differences. Our results evidence that,
in spite of the continuing reduction of investment barriers in our globalized economy,
national culture matters and plays a significant role in the market’s value perception of
EA implementation announcements.
The effect of national and organizational culture on different types of information
technology, management information and control systems and innovation
implementation projects has been the focus of much attention (Brainin, 2008; Leidner
and Kayworth, 2006; Myers and Tan, 2002; Png et al., 2001; Veiga et al., 2001; Chow et al.,
1999; Harrison and McKinnon, 1999; Kedia and Bhagat, 1988; Straub, 1994). In most
cases, the studies used one or more of Hofstede et al.’s (2010) and Hofstede’s (2001, 1983)
cultural values to explore or describe the relationships between culture and technology.
In particular, Veiga et al. (2001) offers a series of research propositions that explore the
potential impact of differences in national culture on information technology (IT)
JAOC implementation and acceptance based on Hofstede et al.’s (2010) and Hofstede’s (2001,
11,2 1983) work. They conceptualize the impact of four cultural dimensions on the perceptual
and attitudinal constructs of the technology acceptance model. The four dimensions are:
individualism-collectivism, power distance, time orientation and uncertainty avoidance.
According to Veiga et al. (2001), implementation processes attuned to these cultural
dimensions are more likely to enhance the perceived usefulness and ease of use of
272 technology.
Our research builds on the work of Veiga et al. (2001), as well as previous studies that
link technology and culture. We hypothesize that national cultural differences impact
stock market reactions to EA investment announcements. To test our hypothesis, we
use 168 public announcements of EA investments over a period of 10 years in three
countries: Japan, the United Kingdom and the USA. Our findings thus contribute to the
understanding of national culture implications, by using investors’ reactions to infer

how the perceived value of implementing EAs changes according to different
geographic locations.
The rest of the paper is as follows. In the next section, we present our literature review
and research framework. We then describe our data, followed by an explanation of our
methodology. The last two sections present our results and conclusions.
Literature review and research framework

The framework followed by our study is shown in Figure 1. We focus on the effect of EA
implementation announcements on corporate performance. Our main performance
outcome is the change in shareholder value, measured in terms of cumulative abnormal
returns. We also propose that the effect of EA announcements on shareholder value is
influenced by national cultural differences. This occurs because investors’ expectations
regarding the fit between an EA and the way in which organizations and technology are
managed will vary depending on the country of implementation. There is evidence from
Moderators
Cultural Differences
• Japan
• USA
• UK
ES Value Expectaons
Implementaon about Performance
Announcements
• ERP
• SCM Shareholder Value
• CRM • Abnormal returns
• Specific
Figure 1.
Hypothesized impact
of national cultural Control
differences on EAs Size Firm’s profitability
• Total assets • ROA
expectations
other management fields that investors not only assess technology options based on Market
financial considerations. They also consider national, organizational and human reaction to
resource issues when estimating the future impact of a decision (Stahl and Voigt, 2008; enterprise
Chatterjee et al., 1992). Our model also incorporates control variables to account for any
firm-specific drivers such as firm size or past profitability as well as sector
applications
classifications.
273
Impact of EA implementation announcements on shareholder value
A revision of previous efforts to link EA implementation announcements to shareholder
value identified six studies (all US-based) during the past decade. Table I describes their
main findings. Five studied ERP applications, two investigated SCM applications and
only one studied both EAs in addition to CRM applications. Three of these studies are
especially relevant to our work.
First, Hayes et al. (2001) started this research stream by analyzing the market
reaction to ERP application announcements. They found overall positive reaction to
initial ERP announcements, the reaction in small and healthy firms being the most
positive. They also found that the market response to larger ERP vendors was
significantly more positive.
Second, Ranganathan and Brown (2006) analyzed the impact (at the time of purchase)
of ERP investments on shareholder returns. They found that ERP projects with greater
functional scope (two or more value chain modules) or greater physical scope (multiple
sites) resulted in improved shareholder returns. Their findings provide support for the
argument that ERP benefits are superior when organizational integration is achieved.
Third, Hendricks et al. (2007) reported the effects of investments in ERP, SCM and
CRM systems on a firm’s long-term stock price performance (two-, three- and five-year
abnormal returns) and profitability measures. This study represents the only previous
empirical effort to analyze the market reaction to announcements of investments using
different types of EAs. Their analysis yielded mixed results. For ERP applications, they
found evidence of improvements in profitability but not in stock returns. SCM
applications showed positive stock returns as well as improvement in profitability,
while neither metric improved for CRM applications. The authors argued that, although
their results were not uniformly positive across the different types of EAs, the fact that
no persistent evidence of negative performance was found was an encouraging result,
given the high implementation costs and the publicized implementation problems
associated with these investments.
The lack of international evidence linking EA to firm value contrasts with the
considerable international interest in EA applications. ERP systems are very popular
worldwide and companies based outside the USA seem to be convinced of the need for
these applications to improve organizational capabilities and business results (Lorenzo
et al., 2009; Bose et al., 2008). However, cross-country evidence is scarce. In the case of
SCM and CRM applications, their implementation in an international context appears to
be at different stages of development (Ketikidis et al., 2008; Ang and Buttle, 2006), with
many questions still being raised about their level of usage, value and acceptance.
Therefore, there is a unique opportunity to study international samples, and so learn
more about the way national culture affects value perceptions.
11,2
274
JAOC
Table I.
the effect of EA
shareholder value
announcements on
Literature review of
Study ERP SCM CRM
Hayes et al. (2001) Overall positive reaction to initial ERP

Data: US market announcements
Reaction is most positive for small/
healthy firms
Market response to larger ERP
vendors is significantly more positive
Hunton et al. (2002) Overall reaction to ERP
Data: US market implementation was positive
Mean earnings forecast revisions in
the small/healthy and large/unhealthy
firm conditions were significantly
greater than mean forecast revisions
in the small/unhealthy firm condition
Chavez and Lorenzo (2006) Announcement of SCM implementations
Data: US market had a positive impact on the market
value of firms
Stand-alone SCM do not present a
significant market reaction
SCM implementations that are part of a
broader enterprise application (SCM-ES)
implementation carried a significant
value enhancement
Ranganathan and Brown Found support for the hypotheses that
(2006) ERP projects with greater functional
Data: US market scope (two or more value-chain
modules) or greater physical scope
(multiple sites) resulted in positive,
higher shareholder returns
Hendricks et al. (2007) Evidence of improvements in On average, adopters of SCM system No evidence of improvements in stock
Data: US market profitability but not in stock returns experienced positive stock returns as returns or profitability for firms that
The results for improvements in well as improvements in profitability invested in CRM
profitability were stronger in the case
of early adopters of ERP systems
Benco and Prather (2008) Only healthy firms that announce ERP
Data: US market investments experience statistically
significant event period returns
Given the discussion above, we do not have a at priori expectation of the market reaction Market
to EA application announcements in an international sample, and thus, we will let our reaction to
empirical research shed light on this effect.
enterprise
applications
Impact of cultural differences on EA value perceptions
An important component of our analysis is the assumption that investors have access to
all public information related to EA implementation announcements and that this 275
ultimately determines new stock prices. The new stock prices are a result of revised buy
and sell stock orders prompted by the change in investors’ expectations of a firm’s
capability to generate future value because of the information provided by the
announcement. Such changes in price provide a measurable signal of how market
participants assess the economic implications of newly disseminated information.

The proposal that security prices reflect all available information is not new. It is the
consequence of the efficient markets hypothesis[2] (EMH). The EMH motivated a very
important line of research expanding several decades. The hypothesis has evolved with
time (Fama, 1970, 1976, 1991) but, in its basic form, describes three possible levels of
market efficiency. Prices in weak-form efficient markets reflect all past information,
whereas the semi-strong and strong forms of market efficiency assume that prices
immediately reflect all public and private information, respectively. Empirical research
testing for semi-strong form efficiency is commonly referred to as an event study. As
with all attempts to describe reality, the EMH in its semi-strong form is not without
controversy. However, empirical findings are predominantly supportive of semi-strong
form efficiency in both USA and developed international markets (Malkiel, 2005).
The assumption that markets are semi-strong form efficient and so all public
information is immediately and completely reflected in prices has been quite valuable
for studies that measure the impact of business events (event studies). The rationale is
that investors will make use of both qualitative and quantitative (financial) information
to better assess the value implication of business decisions. This has already been the
basis for studies targeting specific EAs such as ERPs (Hayes et al., 2001). When a firm’s
announces its decision to adopt an EA, investors immediately assess the value
implication of the news, given all the public information at their disposal. The public
information includes both the expected cost and the expected benefit of the application
as well as the probability of its successful implementation. This probability is
contingent on the cultural environments in which the technology will be implemented
and the characteristics of the technology itself. Some technologies benefit from specific
cultural characteristics such as collectivism or uncertainty avoidance and will,
therefore, be assigned higher probabilities of success if implemented in cultures
consistent with these features.
Therefore, our empirical research benefits from the EMH in that all relevant
information is assumed to be immediately priced into stocks, with cultural differences
playing a relevant role in such pricing. In other words, the price reaction becomes a link
between value and the degree of fit (or misfit) achieved between culture and
technological innovation.
There is reasonable evidence (Leidner and Kayworth, 2006; Hasan and Ditsa, 1999)
that cultural orientations may predispose some individuals and organizations to
support or reject the implementation and usage of information technology. In addition,
there is also evidence that EA require change in the form of new skills, roles and
JAOC business practices (Soh et al., 2000). Therefore, culture may play an important role in the
11,2 different results of an EA implementation.
Although information systems research has treated organizational and national
culture as two separate streams of inquiry when studying culture and information
systems (Leidner and Kayworth, 2006), we believe that the study of cultural differences
on EA value perceptions needs to take a more integrated approach. Based on Lodge and
276 Vogel (1987), we argue that views and assumptions embedded in national culture are
reflected in organizational attitudes and beliefs. This is also supported by Hofstede
(1999), who states that organizational culture tends to harmonize its values to those of
the national culture.
A number of approaches have been proposed for the study of national culture
(Trompenaars and Hampden-Turner, 2005; Magala, 2005; Hofstede, 2001; Smith et al.,
1996; Triandis, 1986; Child, 1981). We adopt Hofstede et al.’s (2010) and Hofstede’s (2001,
1983) cultural taxonomy for the formulation of our framework. Two reasons are behind
our selection. First, we aim to build on the previous work of Veiga et al. (2001) regarding
the potential impact of differences in national culture on IT implementation and
acceptance and which is based on Hofstede et al.’s (2010) and Hofstede’s (2001, 1983).
Second, Hofstede et al.’s (2010) and Hofstede’s (2001, 1983) taxonomy is the most cited
and utilized in the business and technology literature[3] (Hunter and Beck, 2000; Keil
et al., 2000; Chow et al., 1996; Straub, 1994). This provides us with a large supporting
base of studies that help us understand, analyze and conceptualize the national
differences among the three markets in our work.
In the past two decades, Hofstede et al.’s (2010) and Hofstede’s (2001, 1983) theory has
become a fundamental reference when studying national culture and managerial values.
He identified five dimensions of cultural variation (Figure 2):
(1) power distance (PDI);
(2) individualism vs collectivism (IDV);
(3) masculinity vs femininity (MAS);
(4) uncertainty avoidance (UAI); and
(5) long-term orientation (LTO).
Individualism vs collectivism refers to how much a society fosters each person looking
after himself or their immediate family (individualism) versus being taken care of by
their group in exchange for loyalty (collectivism). Power distance relates to how a
society deals with the fact that people are unequal. The uncertainty avoidance
dimension recognizes that some societies socialize their members into accepting
uncertainty and not becoming upset by it. In contrast, other societies emphasize beating
the future, trying to create security and generally avoiding risk. Masculinity vs
femininity addresses the fundamental issue of the division of roles between the sexes in
society. Finally, long-term orientation can be interpreted as the extent to which a society
shows a pragmatic future-oriented perspective rather than a conventional historical
short-term view.
Based on Hofstede’s taxonomy of national culture, Veiga et al.’s (2001) propositions of
IT acceptance, and the factors and capabilities that previous studies have identified as
necessary for a value-enhancing EA implementation (Díaz et al., 2010; Galliers, 1997;
Pascale and Athos, 1981), we can hypothesize how some of these cultural dimensions
Market
reaction to
enterprise
applications
277
Figure 2.
Country Scores on
the Hofstede’s
dimensions: a
relative comparison
between Japan,
United Kingdom, and
USA
may be perceived to facilitate success in certain countries. Our analysis covers three of
the five dimensions: individualism vs collectivism, uncertainty avoidance and long-term
orientation. The other two dimensions (i.e. power distance and masculinity) have been
more difficult to conceptualize in the context of how they may affect an investor’s value
perception of an EA implementation, so they are excluded from this study. We present
our arguments for the three dimensions below.
There are several consequences of individualism as far as the degree of value creation
that can be achieved when implementing EA. Individualist behavior within a company
can create a proliferation of stand-alone applications. Managers with individualist
behavior tend to avoid collaboration with other areas. They also tend to develop and
implement applications that only support their specific needs (Lorenzo et al., 2012; Baba
et al., 1996). Managers with individualistic traits tend to see their areas as functional
departments that require little interaction with other areas within the firm.
Individualism may lead to a lower interest in, and value perception of, EA technologies
because they usually require and enhance both collaboration and integration.
In contrast, collectivist societies tend to view these technologies as fundamental
(Veiga et al., 2001). If we observe the information presented in Figure 2, the IDV scores
for the UK and the USA are consistent with individualistic societies. In contrast, Japan
can be defined as a collectivistic society. A society that emphasizes collectivism
facilitates cross-functional and transversal management of processes at the intra- and
inter-company levels. This trait is recognized as crucial to achieving successful EA
JAOC adoptions (Ishida, 1998). In a study conducted in the USA (more individualistic) and
11,2 China (more collectivistic) with the participation of 304 management supervisors,
Bendoly et al. (2006) found that managers in China were more enthusiastic about the
communication and coordination capabilities provided by ERP systems regardless of
the extent to which internal processes were interdependent. We argue that in highly
collectivist societies, the value expectations for EA are superior because the applications
278 are seen as enhancing organizational performance.
From an uncertainty avoidance perspective, one can assume that in risk-averse
societies, managers would prefer to avoid implementing EA systems because of their
high level of complexity and risks. However, EA is a necessary technology among most
companies worldwide. Therefore, a society with high level of uncertainty avoidance
would most likely implement an EA in a manner that ensures that risk can be both
controlled and mitigated. Japan is the country with the highest uncertainty avoidance
rate in Figure 2, almost three times that of UK and double that of the USA. Japan invests
a large amount of effort into feasibility studies, and all risk factors are generally worked
out well before any kind of organizational project begins (Hofstede, 2001; Hofstede et al.,
2010). Thus, uncertainty avoidance would give rise to a structured preparation for
implementation, analysis of the organizational capabilities needed and the use of
implementation tactics that are progressive and incremental. The success of this type of
structured approach has been documented in the EA literature (Veiga et al., 2001;
Bhattacherjee, 2000).
As an additional example, Veiga et al. (2001) state that when implementing new
applications in a culture that values uncertainty avoidance, it is very important to use
implementation tactics that increase perceptions that the new system is well-understood
and that not using it constitutes risky behavior (e.g. pilot projects aimed at
demonstrating the system’s reliability). In a study of national cultural differences and
their relation to different stages of information technology implementation, Brainin
(2008) explain that the higher the preference for uncertainty avoidance in a country, the
greater the amount of resources allocated to the implementation process. Finally,
Yoshihara and Okabe (2004) found that the most common way Japanese companies
install an ERP is through a modular approach. This is an implementation strategy based
on incremental evolution, which is a recommended approach when one seeks to reduce
the risk associated with the adoption process (Diaz et al., 2010).
The long-term orientation dimension is a critical characteristic in achieving value
maximization for EA implementations. In an EA, it can take a project up to six years to
achieve a mastery of the technology and processes. From this perspective, we are talking
about “EA journeys” rather than EA projects. An organization that operates in a society
that is long-term-oriented will constantly invest in R&D, in technology that supports
organizational competences, and will tend to prioritize steady growth rather than
short-term profit. In other words, managers in these societies favor decisions that
preserve the durability and sustainability of their organizations. Given these
arguments, a long-term-oriented society will place a higher value on technological
implementations that help its organizations prepare for their future needs. In contrast, a
short-term-oriented society will assign value to a technology only when it supports
current tasks and when it facilitates more immediate benefits.
We incorporate the cultural characteristics analysis presented above to argue that
managers in more collectivist, risk-averse and long-term societies will dedicate more
initial effort to prepare their organizations for technological innovations and Market
transformations. Pascale and Athos (1981) propose a framework of seven levers of IT reaction to
implementations: skills, style, staff, systems, strategy and structure. The authors argue
that an “American” approach generally concentrates its efforts on the “hard” levers
enterprise
(systems, strategy and structure), as these are the ones that can be more easily and applications
quickly modified and so require less initial effort and offer quicker results. Lay-offs,
acquisitions or divestments are examples of using the strategy and structure levers, 279
whereas “off-the-shelf” implementation of enterprise management applications would
be an example of the systems lever. In contrast, Japanese companies tend to, in addition
to the “hard” levers, also incorporate the “soft” levers such as the ability to work under
uncertainty and to implement decisions based on consensus. For example, Huang and
Palvia (2001) argue that Japanese organizations that install ERP systems assign more
importance to the human resource dimension of the implementation than to any other
organizational lever.
Given the arguments that surround the three dimensions discussed above, our
ex-ante expectations are that enterprise EA implementation announcements will be
perceived as offering greater value by national cultures where greater emphasis is
placed on collectivism, uncertainty avoidance and long-term orientation.
Data collection
Our research is based on analyzing the stock price reactions that surround the
dissemination of a firm’s decision to implement an EA in Japan, the United Kingdom and
the USA during a ten-year period (1997-2007). To maximize the number of corporate
announcements of EA implementations and the availability of stock price data, we
select publicly traded firms that are part of one of the benchmark stock indexes for each
country under study. We use the Nikkei225 index from Japan, the FTSE100 from the
United Kingdom and the S&P500 from the USA. Within each market index, we select the
largest 150 firms as our initial target sample[4]. We require that all firms in our sample
have a publicly verifiable source of announcement decisions, so that we can be certain
that the information is available to the general public and that the date of the
announcement can be clearly identified. Therefore, we use announcements that are
verified through the global news provider Factiva, corporate Web pages, press releases
from application providers and Internet-based news.
To ensure that our results reflect the reaction of prices to announcements of EA
implementation and not to other corporate events, we use the public sources of
information described above to identify, for each firm in our sample, all other corporate
news that occurred 10 days before and 10 days after the firm’s announcement date. If an
additional news event that potentially altered the stock market price of a firm occurred
during the 20 days that surround the day of an announcement, the firm is excluded from
the sample. This process provides additional assurance that the market reactions we
observe in our analyses are not a result of other informational events.
In spite of our use of a wide spectrum of sources of publicly available information, it
is worth noting that we were unable to find announcement dates for many firms that are
known to have adopted EAs. We believe that a probable cause for this lack of
dissemination information is that, in some instances, corporations include contract
clauses that prohibit vendors from announcing implementation-related information. An
additional challenge was the use of English as the main search language, which
JAOC generated very few announcements for Japanese firms. This was due to the fact that
11,2 many announcements, even for the larger firms in the Nikkei, were published in
Japanese. Therefore, we modified our search by also using Japanese as the main
language. This last effort, together with the three filters described previously, allowed
us to identify 48 announcements from Japan, 46 from the UK and 144 from the USA.
Therefore, we collected 238 potential event firms across North America, Europe and
280 Asia.
The date in which the first verifiable announcement was made is classified as a firm’s
Event Day, or t ⫽ 0. Daily closing stock prices for each firm and for the three stock
market indices are obtained from the Compustat Global database. Our event study
methodology requires the availability of daily price information on each event day, as
well as the 170 days prior and after the event day, so our sample is furthered filtered with
this price availability requirement. Additionally, our methodology carries out

regressions that control for size and profitability. The proxies for these firm
characteristics are Total Assets and Return on Assets, respectively, which we obtain
from the Compustat Global database. Any missing control variable for a particular firm
implies the firm’s exclusion from the regression analysis. The application of these filters
results in a final sample composed of 30 firms from Japan, 33 from the UK and 105 from
the USA. We thus have a total sample size of 168 event firms.
Using the information contained in each announcement, we classify each application
as ERP, SCM, CRM or SPECIFIC. It is worth noting that SPECIFIC applications are, as
all the others, standardized (“off-the-shelf”) products. The difference is that their
incorporation into a firm’s systems is meant to address a specific functionality such as
treasury management. Table II presents the definitions of each application classification
and examples of their functionality. Table III shows how each application type is
represented in our final sample.
Methods
Event study methodology
To determine the market’s assessment of a firm’s adoption of EA, we apply event study
methodology as in Brown and Warner (1980). The idea is that markets are efficient, in
the sense that market participants, when provided with an informational event that
changes the risk or magnitude of expected future cash flows, will alter their stock
purchases or sales, so that a new stock price reflects these new underlying expectations.
The change in price beyond an expected value, or abnormal return, is thus an indicator
of investors’ assessment of the corporate news. Therefore, if the news event is perceived
by investors as value enhancing, it should generate a price increase beyond an expected
value, or a positive abnormal return. If the news has negative implications, then the
abnormal return will be negative.
Market efficiency in the US and UK markets has been widely documented by the
economic literature. However, less familiarity exists for Japan. Early literature that
included Japan (Becker et al., 1990; Eun and Shim, 1989) assessed international market
efficiency by determining whether cross-country correlations could be used to earn
abnormal returns. The studies concluded that market efficiency could not be ruled out
once transaction costs were considered. In other cases, no significant difference was
found between the US and Japanese markets when testing the efficacy of contrarian
strategies (Chang et al., 1995) or analyzing post-listing return and volume behavior
Enterprise
Market
application Definition Examples of functionality reaction to
enterprise
ERP Applications for the automation Order-to-cash cycle, purchase-to-pay cycle,
of internal cross-functional financial data cycle, etc. applications
processes and transactions, and
for the integration of the whole
enterprise data
281
SCM Applications for the Demand and supply planning including
management and planning of collaborative forecasting, inventory and
the flow of materials and warehousing management, fulfillment
information among supply processes, etc.
chain partners
CRM Applications that facilitate Sales force automation, data warehousing,
long-term relationship with customer-related data mining, etc.
customers
SPECIFIC Applications that address Content management, knowledge
specific organizational management systems, financial and
functions beyond the traditional budget planning, health benefits
functionality offered by ERP, administration, price management, etc.
SCM and CRM
Notes: Enterprise applications are standard, commercial off-the-shelf application technologies

implemented and used by companies to achieve a wide variety of benefits such as transaction
automation, the integration of business functions, cost reduction, increased customer satisfaction, Table II.
integration with suppliers and improved decision-making and management control; this table presents Definition of
definitions for the four enterprise applications included in our study: ERP, SCM, CRM and SPECIFIC enterprise
applications applications
Country ERP (%) SCM (%) CRM (%) SPECIFIC (%)
Japan 4 42 4 50
UK 17 28 7 48
US 30 24 25 21
Notes: This table shows, for each country in our sample, the percentage of enterprise application Table III.
announcements that were classified under the four application categories of ERP, SCM, CRM or Distribution of
SPECIFIC; the SPECIFIC classification is used for cases in which the off-the-shelf system has been built application
to satisfy firm-specific needs to an extent such that it cannot be classified generically as ERP, SCM or categories in our
CRM (e.g. knowledge management system, financial and budget system, price management system) sample
(Hwang and Jayaraman, 1993). Price reaction in the Japanese market has also been
shown to be consistent with rational behavior surrounding dividend announcements
(Kato et al., 1997; Dhatt et al., 1994) and stock repurchases (Hatakeda and Isagawa, 2004).
In addition, stock market participants in the Tokyo Stock Exchange have correctly used
public information to differentiate between healthy and problematic banks (Yamori,
1999) and to adequately price private information (Barclay et al., 1990).
To estimate abnormal returns around the event dates, we start by estimating the
following market model regression:
JAOC Rit ⫽ ␣i ⫹ ␤iRmt ⫹ ␧it,
11,2
where Rit is the return of asset i on day t, and Rmt is the return of the respective stock
index on day t. In estimating the market model coefficients alpha and beta, we use the
160-day period from t ⫽ ⫺10 to t ⫽ ⫺170 days prior to the event day. We also adjust for
a possible ex-post selection bias (Amihud et al., 1997). This occurs because a firm’s
282 adoption of enterprise systems may have been a natural consequence of previous efforts
to progressively prepare for future implementation. If true, the ex-ante estimation period
parameters would be based on returns that could have already incorporated the impact
of being perceived as an adopter. To adjust for this, we use ex-post estimation period
parameters. Our ex-post estimation period includes 160 observations starting on day t ⫽
⫹10 and ending on day t ⫽ ⫹170. The results obtained after adjusting for the ex-post
selection bias did not alter the results obtained using ex-ante information. Therefore, we
only present the latter.
The abnormal return (AR) estimate of firm i at time t in the event window is
calculated as follows:
ARit ⫽ Rit ⫺ ( ␣i ⫹ ␤iRmt ),
where Rit and Rmt are returns, on day t, for stock i and the market index, respectively.
The abnormal returns for each firm i, using an event window that starts in day T1 and
ends in day T2, are aggregated and averaged to find the average cumulative return
(ACAR) calculation:
N T2
ACART1,T2 ⫽
1
N 兺兺 AR ,
i⫽1 t⫽T1
it
where N is the number of firms.

We apply the standard cross-sectional test proposed by Boehmer et al. (1991) that
accounts for event-induced variance increases. Our test statistic is calculated as in
Cowan (2001).
Fixed-effects regressions
To analyze the determinants of the market value assigned to EA implementations, we
estimate the following fixed-effects regression model:
ACARit ⫽ ␣0 ⫹ ␣1TAit ⫹ ␣2ROAit ⫹ ␣3UKit ⫹ ␣4USit ⫹ ␣5CRMit ⫹ ␣6SCMit

⫹ ␣7SPECIFICit ⫹ ␧it (1)
The dependent variable in expression (1), ACAR, is the cumulative abnormal return on
the day of announcement. The explanatory variables are total assets (TA) in millions of
US dollars, return on assets (ROA) and country and EA type dummy variables. Our
profitability variable, ROA, is estimated as a three-year rolling average measure to
better capture evidence of consistent profitability rather than allowing it to be the result
of one-time events that can occur in a particular year. UK and USA are country dummy
variables that are each assigned the value of 1 if the firm belongs to the United Kingdom
or USA, respectively, and zero otherwise. Finally, CRM, SCM and SPECIFIC are systems
dummy variables that are each assigned the value of 1 if the implementation is classified Market
as CRM, SCM or firm-specific, respectively, and zero otherwise. Country fixed-effects reaction to
regressions use Japan as the base country, whereas EA fixed-effects regressions use
ERP as the base application.
enterprise
The fixed-effects regression model facilitates the comparison of market reactions applications
between countries while simultaneously adjusting for the control variables described
above. If prices reflect all relevant public information related to an EA implementation, 283
then it can be argued that the change in market prices (our dependent variable) will
reflect the compounded effect of the type of technology applied as well as the impact of
the national culture in which the new system is implemented.
Results
Event study results

We apply our event study methodology to the full sample and to each of the three
country samples included in our analysis. Table IV presents mean cumulative abnormal
returns for several event windows surrounding the implementation announcement. The
full sample does not show a statistically significant price reaction on the event day (0, 0).
However, the t ⫽ 0 to t ⫽ ⫹1 two-day window (0, ⫹1) shows an overall negative return
that is significant at the 10 per cent level. This would suggest that the market does not
perceive EA implementation announcements as indicators that a value enhancing event
is taking place. Overall, our total sample results do not provide any evidence that
supports the relevance of EA and actually provides some evidence (at the 10 per cent
significance level) of a negative reaction.
When we decompose our analysis by country, our analysis generates results that
show more statistically significant, but contrasting price reactions. Japan presents an
event day positive abnormal return of 2.06 per cent that is statistically significant at a 5
per cent level. In contrast, there is a smaller, but equally significant negative abnormal
return of 0.26 per cent for the USA for the same event window. The UK does not show a
significant price reaction on the announcement day. Both results indicate a greater level
of skepticism in the UK and USA regarding EA implementations. Although we will
provide a more detailed analysis of this contrast when we present our fixed-effects
regressions in the following section, our results so far indicate that investors have
Mean cumulative abnormal return (%)

WINDOW Total Japan UK USA
(⫺1, 0) ⫺0.14 0.00 ⫺0.27* ⫺0.12

(0, 0) ⫺0.06 ⫹2.06** ⫹0.92 ⫺0.26**
(0,⫹1) ⫺0.18* ⫺0.65 ⫹0.47 ⫺0.37**
(0,⫹2) ⫺0.16 ⫺0.15 ⫹0.12* ⫺0.25
(⫺1,⫹1) ⫺0.25 ⫺0.66 ⫹0.02 ⫺0.24
N 168 30 33 105
Notes: This table presents event study results that measure the price reaction surrounding different
event windows after a corporate announcement of the decision to adopt an enterprise application; mean Table IV.
cumulative returns are provided across all locations and further decomposed by country; N is the Event study results
number of firm events; ** ; * represent statistical significance at the 5 and 10% levels, respectively by country
JAOC inherently different perceptions of the value-enhancement that can occur when adopting
11,2 EAs in different countries. These initial results would support our expectation that
cultural differences affect the perceived value of EA implementations.
We also apply the event-study analysis to our sample after it has been divided according
to the type of EA that was implemented. Our objective is to determine whether there is any
particular application that may be generating strong market reaction and also to explore
284 whether a specific application may possibly be driving our previous results. As Table V
shows, although there is no significant market reaction on the event day (0, 0), we observe
significant price reactions when the event window is widened. For SCM applications, there is
a negative price reaction of 0.85 per cent that is statistically significant at the 5 per cent level
for the (⫺1, 1) three-day window. We also observe significant abnormal returns, at the 10 per
cent level, for the (0, ⫹1) and (0,⫹2) windows. In contrast, a 0.30 per cent reaction is positive
and also significant when an ERP implementation announcement is made and we use the
(0, ⫹2) three-day window. Finally, we do not find significant abnormal returns when we
analyze CRM and SPECIFIC applications.
Given these results, it would seem that SCM applications are received with more
reluctance than ERP implementations. This is consistent with previous studies measuring
the market reaction to SCM announcements in the USA. Using a smaller sample and
non-parametric analysis, Chavez and Lorenzo (2006) find that a positive market reaction to
SCM adoption announcements is conditioned on whether the application implies a stronger
commitment to change because it is part of a more comprehensive enterprise system
implementation effort. When stand-alone SCM implementations were studied, no
significance was observed. The results we obtain for ERP applications using our global
sample of firms also seem to indicate that the positive price reaction is correlated to
implementations that imply greater internal commitment. This is because ERP
implementations, by nature, are systems that integrate all information used within the firm.
Most ERP implementations are also more comprehensive in that they most likely include an
SCM component. In contrast, a stand-alone SCM implementation will not benefit from the
same level of consistency. In many cases, a previous ERP application greatly facilitates the
success of an SCM, while the opposite is not necessarily the case. This would help explain
the negative reaction we observe for SCM implementations.
Mean cumulative abnormal return (%)

WINDOW SCM ERP CRM SPECIFIC
(⫺1, 0) ⫺0.32 ⫹0.37 ⫹0.03 ⫺0.27

(0, 0) ⫹0.03 ⫹0.11 ⫺0.31 ⫺0.07
(0,⫹1) ⫺0.51* ⫹0.52 ⫺0.33 ⫺0.11
(0,⫹2) ⫺0.55* ⫹0.30** ⫹0.16 ⫺0.18
(⫺1,⫹1) ⫺0.85** ⫹0.30 ⫹0.01 ⫺0.31
N 51 35 30 52
Notes: This table presents event study results that measure the price reaction surrounding different
event windows after a corporate announcement of the decision to adopt an enterprise application; mean
Table V. cumulative returns are provided across all locations and further decomposed by the type of enterprise
Event study results system; N is the number of event firms; ** ; * represent statistical significance at the 5 and 10% levels,
by applications respectively
Our results by application alleviate any concern that the influence of a particular system Market
may have been driving the results in the by-country categories where Japan and the reaction to
USA showed the strongest reactions. As Table III shows that Japan’s EA
implementations are concentrated on SPECIFIC and SCM systems. Our global
enterprise
by-application results indicated that SCM and SPECIFIC applications have no applications
significant price reaction. Thus, the positive price reaction in Japan appears to be
country-related rather than a reflection of the predominance of either SCM or SPECIFIC 285
applications. Similarly, the positive abnormal returns observed for the USA cannot be
explained by a dominance of any one system, as our sample for this country actually
evidences a use that is equally distributed among all four EA categories.
Although the firms in our sample are some of the largest and most actively traded
firms in their respective countries, there are differentiating factors that may have
influenced the outcome of our previous analysis. Based on the widely documented effect
of firm size by a large spectrum of economic research, we incorporate size as a control
variable. The size control is based on the notion that scale should have an impact on the
degree of effectiveness that can be achieved when implementing EAs. Larger firms
would most probably face greater challenges when integrating information across
multiple divisions, especially when the implementation requires changing the way
information is generated and shared. On the other hand, all else being equal,
technological, human and capital resources should be greater for larger firms. Greater
resources should facilitate integration efforts. Without an ex-ante expectation of
whether the challenge for larger firms would dominate their greater availability of
resources, we will let our empirical results evidence the impact of firm size when
assessing the value of EA implementations.
A firm’s history of profitability may also provide information to market participants
regarding a firm’s capability to effectively manage EA implementations, given that these are
typically complex and high-cost endeavors. We use return on assets (ROA) as a measure of
profitability. To better proxy a firm’s historical ability to generate profits, our ROA variable
is a rolling average of the return on assets for the previous three years. Therefore, our
analysis considers the evolution of a firm’s profitability rather than allowing one-time losses
or gains to bias results. We expect a positive relationship with abnormal returns, as firms
that have historically demonstrated the ability to attain higher profitability should have
greater credibility when it comes to the management and control of EA implementations.
Table VI presents descriptive statistics for our control variables when grouped by
country. The differences in magnitude of some of our descriptive statistics evidence the
importance of adjusting for size and profitability when implementing international
comparisons.
Fixed-effects regression results

To provide a more detailed analysis of our initial results, we run fixed-effects
regressions for our full sample while controlling for size, profitability and using country
and EA dummy variables. The dependent variable is abnormal return on the event day.
Country fixed-effects regressions use Japan as the base country in Model I, whereas EAs
fixed-effects regressions use ERP as the base system in Model II. For each firm-year, we
use the end of the previous year’s total assets (TA) as a proxy for firm size and a
three-year rolling average of annual return on assets (ROA). Our Model 3 incorporates
both country and application effects. Therefore, our regressions allow us to make a
JAOC direct country comparison across all applications (Model 1), an application comparison
11,2 across countries (Model 2) and an all-inclusive analysis (Model 3). The coefficients we
find in Models 1 and 3 support the contrasts between Japan and the USA that we found
in our previous analyses. The significance levels also indicate that these differences are
not due to random occurrences.
Table VII presents our three fixed regression models. Model 1 is a country
286 fixed-effects regression that controls for size and profitability. The coefficient for TA is
negative and significant, indicating that negative price reactions to EA implementation
announcements are linked to firms that are larger in size. Our results also show that past
profitability is a factor that positively influences the market’s perception of the value of
an EA implementation. This suggests that proven history of profitability is perceived as
a signal of credibility concerning the firm’s future evolution. All else equal, successful
firms are perceived to have the necessary capabilities to implement EAs in a

value-enhancing manner.
Total assets
(USD millions) Return on assets
Country N Mean Median Mean Median
Japan 30 24,859 13,295 0.010 0.012

United Kingdom 33 2,235 1,547 0.079 0.061
United States 105 50,091 18,561 0.053 0.051
Table VI. Notes: This table contains mean and median values for the firm-specific control variables total assets
Descriptive statistics and return on assets; total assets is a size proxy, obtained at the end of the year prior to each event year;
for firm-specific return on assets is a profitability proxy and is calculated as a rolling average of the three years prior to
variables each event year; finally, N is the number of firms per country
Explanatory variables I II III
Intercept 0.0051** 0.0018 0.0093**

UK ⫺0.0050 ⫺0.0055
US ⫺0.0081** ⫺0.0088**
CRM ⫺0.0043 ⫺0.0047
SCM ⫺0.0020 ⫺0.0046
SPECIFIC ⫺0.0017 ⫺0.0042
TA ⫺3.5805E-8* ⫺4.2300E-8** ⫺3.4734E-8*
ROA 0.0386* 0.0271 0.0368*
Adjusted R-square 5.42% 2.11% 4.14%
N 168 168 168
Notes: This table presents fixed effects regression results; the dependent variable is cumulative
abnormal return on the day of each announcement; the explanatory variables are TA in millions of
dollars, ROA and a group of dummy variables for country and application type; TA is obtained at the
Table VII. end of the year prior to each event year, while ROA is calculated as a rolling average of the three years
Country and EA prior to each event year; country fixed-effects regressions use Japan as the base country; enterprise
fixed effect applications fixed-effects regressions use ERP as the base enterprise system; N is the number of event
regressions firms; ** ; * represent statistical significance at the 5 and 10% levels, respectively
The country analysis from Model 1 is consistent with our event study results. The intercept Market
term, Japan, is positive and significant at the 5 per cent level after we adjust for size and reaction to
profitability. We also continue to observe either a weaker or negative abnormal return
behavior for the UK and USA, respectively. Of special interest, the negative coefficient for the
enterprise
USA indicates that there is a negative (lower) difference in abnormal returns in the USA applications
when compared to Japan. Thus, the previous difference in market reaction obtained in our
initial results persists. Because we have now incorporated control variables in our regression 287
model, this analysis allows us to rule out the possibility that the contrast we find between
Japan, the UK and the USA is driven by firm size or past profitability. Although not shown
here, we also controlled for industry effects for all of our regression models and found them
to neither have a significant impact nor alter our current findings.
Model 2 in Table VII shows our results for a fixed-effect regression by application
type, with ERP being the base case. We observe that when we control for size and
profitability, none of the three EAs we study can be statistically linked to the market
price reaction on the event day. This is consistent with our initial event study results
from Table V, which indicated that the type of application does not explain price
movements in window (0, 0).
Our most complete regression analysis is found in Model 3, which incorporates all control
variables as well as dummy variables for country and type of application. As before, the base
country and application are Japan and ERP, respectively. Our results allow several
observations. First, the significant intercept indicates that there is a one-day positive
abnormal return of 0.93 per cent when an ERP announcement is made in Japan, once all firm
and application-specific effects have been accounted for. In contrast, the reaction to the same
announcement in the USA is 0.88 per cent lower with a 5 per cent level of statistical
significance. The UK also shows a lower, although statistically weak, difference with respect
to Japan. The significant and positive intercept for ERP implementation in Japan indicates
that investors seem to be more optimistic about EA implementations in this market. Second,
the price reaction to SCM, CRM and firm-SPECIFIC systems are lower than for ERP systems,
with the difference not being significant. Third, firm size continues to show a significant and
negative effect on abnormal returns. Finally, previous success or failure in generating
profitability continues to significantly explain changes in market prices when EA
implementation announcements are made.
Robustness tests
Although not presented here, we carry out additional analyses for robustness purposes.
When applying our event study methodology, we explore whether the difference in reaction
may be due to an early adopter effect. The argument is that countries with earlier
experiences regarding the challenges involved in EA implementations will reflect a more
conservative, or even negative, view of the value implications of these technologies.
Exploring this possibility would seem reasonable in light of the fact that EAs were
historically implemented in the USA earlier than in Japan, thus explaining the negative
results for the USA. In our sample, most of the Japanese and UK implementations occur after
2003. In contrast, the US sample contains a greater presence of earlier adoptions.
To adjust for the first adopter effect, any firm that announces an EA implementation
on or before 2001 is classified as an early adopter, whereas firms with implementation
after 2001 are considered late adopters. We do not find any explanatory power when we
consider early versus late adopters. Therefore, the timing of the implementation
JAOC decision does not seem to have biased our results. For completeness, we further classify
11,2 our sample of firms as very early adopters if their announcement occurred on or before
the year 2000 and very late adopters for events after 2004. Again, this new classification
does not provide new information.
Additionally, we implement a time fixed-effects regression analysis to explore
whether the progressive passage of time can explain abnormal return behavior. Our
288 fixed-effects regressions progressively use each year as the base, but find no effect. Our
conclusion is that timing, whether by intervals or by annual increments, has not been a
factor in our findings.
Finally, we ran our fixed-effects regressions using two-digit sector dummy variables
to account for the possibility that the sector to which a firm belongs can potentially be
driving our results. We also generate broad service and manufacturing groups[5] to
determine whether a wider classification modifies our findings. In both cases, we find
that the marked contrast between Japan and the USA persists.
Our results and robustness tests provide evidence in support of a link between the
value perception of EA implementations and culture. Specifically, there is a difference in
market reaction between Japan, the United Kingdom and the USA, and this difference
cannot be attributed to a random cause, firm or industry characteristics, how early EAs
were adopted in each country, or the passage of time.
Conclusions
This paper studies the market reaction that is generated when corporations announce
their decision to adopt and implement EAs. We include four different applications:
(1) ERP;
(2) SCM;
(3) CRM; and
(4) SPECIFIC.
Our study also accounts for three distinct market locations: Japan, the United Kingdom
and the USA.
We provide a market-based assessment of the value inherent in EA implementations
using 168 firms from the three distinct countries of origin represented in our sample. Our
work extends the currently available knowledge base by providing a link between
theory and an empirical measurement of actual investor perceptions using stock price
changes surrounding EA implementation announcements. One would expect that any
technology that facilitates the collection, analysis and sharing of information must
provide a value enhancement. However, we find that the expected benefits from
technological innovation, in fact, differ depending on the country of implementation.
After adjusting our results to firm and industry characteristics, we argue these
contrasting findings to be the natural consequence of prices fully and instantaneously
(per the EMH) reflecting investors’ assessments of the expected benefits generated, at
least in part, by the influence of national culture.
First, our findings link the impact of different types of EA to the business value
expectations of investors located internationally. When we consider our total sample of
countries, we found that the announcements of ERP applications have significant
positive market reaction. This result is in line with the previous work of Hayes et al.
(2001) for the US market, which posits that ERP applications are perceived by investors Market
as a value-adding technology. A negative market reaction is found when SCM reaction to
applications announcements are made. If we compare our results to previous research of
US firms, we see that the literature offers mixed results. Although Hendricks et al.’s
enterprise
(2007) study reported positive stock returns for the adoption of SCM applications, applications
Chavez and Lorenzo (2006) found no significant market reaction for stand-alone SCM
applications and significant value enhancement for SCM applications that were part of 289
a broader EA implementation. The latter would explain the negative reaction we
observe for SCM applications in our data. Finally, we found no significant abnormal
returns for announced implementations of CRM and SPECIFIC applications. This is in
line with the only other previous investigation (Hendricks et al., 2007) of CRM
applications for the USA. It would seem that investors do not perceive the potential
benefits of CRM applications to tangibly impact the value of firms.

Second, our work contributes to the existing literature by providing empirical
evidence of the impact of the country of origin when implementing EA. National culture
appears to be a critical factor when investors assess the likelihood of success in EA
implementations. The most intriguing finding in this study relates to the contrast in
market reaction to announcements observed for Japan, versus the UK and USA. Both
our event study and regression analyses show that the Japanese market has a positive
reaction to EA announcements, whereas the UK and USA markets received the same
news with neutral and negative abnormal price changes, respectively. This result does
not seem to be driven by the greater presence of a particular type of EA in each country,
by the size of a firm, its previous record of profitability, affiliation to a particular
industry, how early EA started being adopted in a nation or the passage of time. In
summary, the differences in market reactions appear to be caused by the fact that the
informational events occur in distinct locations that have contrasting national cultures.
Third, other relationships of interest were found in this study. The market’s
perception of the eventual success of EAs seems to be that larger firms will face greater
challenges in implementing new systems. EA are continuously expanding to become
more comprehensive in nature and may require an ever-increasing amount of effort and
resources to successfully standardize information and transaction protocols. This effort
would imply a level of coordination and commitment that may prove to be more difficult
for larger and more complex enterprises. In addition, we find that firms that have
demonstrated the ability to generate past profitability experience a positive reaction
from markets when they announce the adoption of these high-cost and complex projects.
This is consistent with the notion that markets recognize and value a firm’s capability to
efficiently muster capital, human and technological resources.
We are cognizant of limitations. Overcoming these limitations is a valuable opportunity
for future research. First, this study has referenced Hofstede et al.’s (2010) and Hofstede’s
(2001, 1983) value dimensions to propose a link between value, location and national culture.
As well-argued by some authors (Myers and Tan, 2002; Smith et al., 1996), a broader view of
culture considering other important factors could be adopted in future research. Second,
culture is just one element of national differences (McCann et al., 2004; Hall and Soskice,
2001). Further research could be implemented to include other important national
institutional factors that, along with culture, could be affecting the perceived value of EA
implementations. These factors may include legal environments, corporate governance
considerations and the regulation and structure of financial markets.
JAOC In summary, our study documents a cultural contrast in the manner in which
11,2 investors perceive the value of implementing EAs. We explain our results as possibly
reflecting the perceived difficulties inherent in preparing for, and executing,
technological innovation. Countries whose cultures are more collectivist, adverse to
uncertainty and with a long-term orientation may be in a better position to extract value
from large-scale and off-the-shelf complex technologies that require a high level of
290 collaborative, adaptive and integrative effort. In contrast, cultures whose traits are more
individualistic and oriented toward the short-term could be perceived to extract less
value from these large-scale technologies. Although further research may shed
additional light on the drivers of these differences, our current work contributes to the
knowledge base by providing empirical evidence that these geographic differences exist
and cannot be explained away by other factors that affect value.
Notes
1. Commercial-Off-The-Shelf Software (COTS) is pre-built software usually from a third party
vendor. COTS can be purchased, leased or even licensed to the general public. Motivations for
using COTS components include efforts to reduce overall maintenance costs as well as
system-development expenses, since components can be bought or licensed instead of
developed from scratch.
2. A reflection of the relevance of this idea is the fact that one of the recipients of the 2013 Nobel
Prize in Economic Sciences was Eugene Fama. The award came as recognition for his
development and empirical support of the EMH.
3. For a critique of Hofstede’s assumptions, see McSweeney (2002). The reader can also find
Hofstede’s (2002) reply.
4. This was not possible for the FTSE100, as it contains 100 firms.
5. For example, Compustat Gsector groups 10, 15, 20, 25, 30 and 45 are classified as
“service-related”.
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About the authors

Ana C. Silva is Assistant Professor of Finance at Merrimack College. Her research has focused on
market microstructure, emerging markets, and corporate governance. Dr Silva has published
articles in the Journal of Banking and Finance, Journal of Applied Corporate Finance, Emerging
Markets Review and others.
Oswaldo Lorenzo is Professor of Operations and Information Systems at Deusto Business
School. His papers and articles have been published in California Management Review, Journal of
Business Ethics, Communications of the Association for Information Systems, etc.
Gonzalo Arturo Chavez is Professor of Finance at Hult International Business School. His
research interests relate to financial markets and corporate governance. Dr Chavez has published
in the Journal of Banking and Finance, Journal of Business Ethics, Journal of Applied Corporate
Finance and others. Gonzalo Arturo Chavez is the corresponding author and can be contacted at:
gonzalo.chavez@faculty.hult.edu
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Market reaction to enterprise applications: a multicultural perspective

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Market reaction to enterprise Market

Department of Strategy and Information Systems, University of Deusto,

planning (ERP), customer relationship management (CRM) and supply chain

investigate the perceived value of EA announcements in markets under different

understanding of national culture implications, by using investors’ reactions to infer

Literature review and research framework

Hayes et al. (2001) Overall positive reaction to initial ERP

participants assess the economic implications of newly disseminated information.

this price availability requirement. Additionally, our methodology carries out

Notes: Enterprise applications are standard, commercial off-the-shelf application technologies

Country ERP (%) SCM (%) CRM (%) SPECIFIC (%)

ARit ⫽ Rit ⫺ ( ␣i ⫹ ␤iRmt ),

where N is the number of firms.

ACARit ⫽ ␣0 ⫹ ␣1TAit ⫹ ␣2ROAit ⫹ ␣3UKit ⫹ ␣4USit ⫹ ␣5CRMit ⫹ ␣6SCMit

Event study results

Mean cumulative abnormal return (%)

(⫺1, 0) ⫺0.14 0.00 ⫺0.27* ⫺0.12

Mean cumulative abnormal return (%)

(⫺1, 0) ⫺0.32 ⫹0.37 ⫹0.03 ⫺0.27

Fixed-effects regression results

firms are perceived to have the necessary capabilities to implement EAs in a

Japan 30 24,859 13,295 0.010 0.012

Explanatory variables I II III

Intercept 0.0051** 0.0018 0.0093**

benefits of CRM applications to tangibly impact the value of firms.

cross-cultural social psychology”, in Bagley, C. and Verna, G. (Eds), Personality, Cognition

About the authors

Das könnte Ihnen auch gefallen

Intercept 0.0051 0.0018 0.0093