Intended and Unintended Consequences of ERP System Implementation

We provide evidence that enterprise resource planning (ERP) systems are potentially beneficial to firm decision-making but can also have unintended effects. The tax function is one of the largest consumers of data within a firm, with over 50 percent of time spent gathering tax data and less than 30 percent of time spent on strategic data analysis (PricewaterhouseCoopers (PwC) 2015). Difficulties in getting high-quality, timely tax information could negatively impact a firm’s tax compliance activities and leave few resources for tax planning. Following the absorptive capacity theory, we predict and find that ERP systems are associated with a greater degree of tax planning post-adoption, resulting in lower tax burdens. However, we also note increased firm discretion in tax planning, resulting in a larger amount of aggressive tax positions. Practically, our findings have important implications for the use of ERP systems both within the tax function and across other decision-making areas. JEL Classifications: O33; H26; D83.