The Effect Of IT On Firm Risk To Financial Errors

Abstract

I investigate whether investments in IT impact the likelihood that a firm will restate its financial statements, and for firms that do have a restatement, whether the cause was due to fraud or error. I find that firms with higher investments in IT have a lower likelihood that they will restate their financial statements. Of the firms that do have a restatement, I do not find a significant relationship between investments in IT and the likelihood of the restatement occurring due to fraudulent activity rather than error. My results suggest that firms who significantly invest in IT benefit from the improved data accuracy and communication, which in turn reduces errors in reported financial data. My study contributes to IT and accounting literature by identifying an additional benefit that arises from IT’s data processing capabilities.