Title: Compliance-Induced Technology Investment: Evidence from ASC 606

Authors: Yinghua Li (Arizona State University), Ying Liang (Georgia State University), Yifei Liao (University of California, Irvine), Yibin Liu (National University of Singapore), Wenqiang Pan (Fudan University)

Abstract: We examine whether disclosure regulations prompt firms to invest more in information technologies by focusing on changes in enterprise resource planning (ERP) and artificial intelligence (AI) investments around the implementation of ASC 606. Using granular site-level data on corporate technology usage, we find that firms materially affected by ASC 606 increase both ERP and AI investments compared with other firms. Firms whose top executives and audit committee members have greater technological acumen are more likely to increase AI investments, while ERP investment is primarily linked to historical IT spending. We also find that investments in both types of technology contribute to improved compliance. Specifically, ERP and AI investments each independently reduce the likelihood of revenue-related restatements following the adoption of ASC 606. However, this compliance benefit of AI emerges only in the presence of increased ERP investment, implying that a well-established ERP infrastructure is a prerequisite for realizing the compliance potential of AI. Additionally, AI investment improves management revenue guidance accuracy and annual report readability, indicating its broader benefits to disclosure quality. Our study sheds light on how regulatory compliance shapes firms’ technology adoption decisions and highlights the positive spillover effects of such investments on financial reporting and disclosure practices.