Outsourcing through Purchase Contracts and Firm Capital Structure

AFA 2015 Boston Meetings Paper

53 Pages Posted: 2 Jan 2014 Last revised: 4 Sep 2017

See all articles by S. Katie Moon

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 3, 2017

Abstract

We examine firm and industry characteristics associated with outsourcing and the relation between outsourcing and capital structure using a unique database of purchase contracts for a measure of firm outsourcing. We document firm, industry, and supplier characteristics that are significantly associated with outside purchase contracting. We find that supplier competition and distance impact the use of purchase contracts, along with firm growth options and value-added per worker. Examining the outside purchase contract and leverage decisions using simultaneous equations, we find that firms in competitive industries, with more growth options, that have suppliers farther away with higher competition are more likely to use purchase contracts but have less leverage. Our results are consistent with firms that choose to use purchase contracts using less leverage to mitigate the potential loss of relationship-specific investments of contacting parties that can occur with financial distress or bankruptcy.

Keywords: Capital Structure, Purchase Contracting, Supply Contracts, Outsourcing

JEL Classification: D23, G32, J41, L14, L22

Suggested Citation

Moon, Katie and Phillips, Gordon M., Outsourcing through Purchase Contracts and Firm Capital Structure (September 3, 2017). AFA 2015 Boston Meetings Paper , Available at SSRN: https://ssrn.com/abstract=2373793 or http://dx.doi.org/10.2139/ssrn.2373793

Katie Moon (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Gordon M. Phillips

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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