The Effects of Technology Adoption on Firms, Supply Chains, and Rivals

Abstract

We study the effects of technological change and adoption timing on firms’ liquidity management practices and subsequent product market outcomes. We first posit that investment in Enterprise Resource Planning (ERP) software improves trade credit and inventory efficiencies between supply chain partners. We identify exogenous variation in the timing of a firm’s incentives to implement ERP by using a firm’s ex-ante exposure to the Year 2000 bug (Y2K). Our results show that a firm’s average accounts receivable collection period and inventory turnover improve following ERP implementation in the supply chain. Interestingly, this is due to adoption by either the focal firm or its key customer. ERP adoption also increases a firm’s subsequent market share, but only for non-early adopters. This pattern suggests that early adopters of transformational technologies bear higher implementation costs that spill over to the advantage of both trading partners and competitors. Documenting these mechanisms yields insight into the boundary conditions of first-mover advantage, particularly in the early years of a significant technological advance.