Outsourcing and Market Value Relevance: Towards a Comprehensive Model

American Accounting Association, 2009

Posted: 2 Oct 2009 Last revised: 17 Dec 2012

See all articles by Pankaj Nagpal

Pankaj Nagpal

Case Western Reserve University; Central Connecticut State University

Andreas I. Nicolaou

Bowling Green State University - Accounting & Management Information Systems

Kalle J. Lyytinen

Case Western Reserve University - Weatherhead School of Management

Date Written: July 1, 2009

Abstract

Using organizational control theory and a related model of firm level outsourcing capabilities, we analyze the effects of buyer, contract, and vendor characteristics on abnormal stock returns among buyer firms that have announced large scale Information Technology (IT) and Business Process outsourcing (BPO) contracts. We draw upon a comprehensive dataset on outsourcing announcements for 2005-2007, augmented with data collected from public sources. Salient buyer factors examined include governance of IT-business integration and use of various organizational controls. On the vendor side, we examine the impact of vendor size, contract size and reputation. Our study shows that IT business integration, use of enterprise standards (negative), vendor reputation, and industry affect market value. For the focal firm, governance related factors such as IT business integration and use of social or clan controls are positively related to outsourcing success. An interesting finding is that buyers need to have different capabilities to succeed across IT and BPO outsourcing. While past research has been clouded by the lack of detailed categorization of outsourcing contracts, our study clarifies some conflicting results through a comprehensive examination of relevant factors affecting outsourcing success.

Keywords: IT Outsourcing, Business Process Outsourcing, Event study, Organizational controls

JEL Classification: C51

Suggested Citation

Nagpal, Pankaj and Nicolaou, Andreas I. and Lyytinen, Kalle J., Outsourcing and Market Value Relevance: Towards a Comprehensive Model (July 1, 2009). American Accounting Association, 2009, Available at SSRN: https://ssrn.com/abstract=1478196

Pankaj Nagpal (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Central Connecticut State University ( email )

1615 Stanley Street
New Britian, CT 06050
United States

Andreas I. Nicolaou

Bowling Green State University - Accounting & Management Information Systems ( email )

Bowling Green, OH 43403
United States
419-372-2932 (Phone)
419-372-2875 (Fax)

Kalle J. Lyytinen

Case Western Reserve University - Weatherhead School of Management ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

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