The Market's Perception of the Transactional Risks of Information Technology Outsourcing Announcements.

Author List: Oh, Wonseok; Gallivan, Michael J.; Kim, Joung W.;
Journal of Management Information Systems, 2006, Volume 22, Issue 4, Page 271-303.
Despite the fact that several event studies have investigated the market's reaction to information technology (IT) investment announcements, little is known about how specific transactional risks influence the market value of a firm. This study examines stock market data to assess investors' responses to various transactional risks associated with IT outsourcing. More specifically, we develop and test several hypotheses to understand how transactional risks that arise due to a range of factors (i.e., the size of outsourcing contracts, difficulties in performance monitoring, asset specificity of IT resources, vendor capability, and the lack of cultural similarity between client and vendor firms) influence investors' reactions to IT outsourcing announcements. Our results indicate that most of these factors indeed significantly influence investors' perceptions of the risks involved in IT outsourcing. We discuss these findings in a larger organizational context and offer implications for both research and practice. In particular, our study offers a theoretical rationale for why negative reactions to IT outsourcing announcements may occur, while providing practitioners with several means by which they can increase the informational value of outsourcing arrangements.
Keywords: agency theory; asset specificity; event study; industry similarity; information technology outsourcing; resource dependency; transaction cost economics; transactional risks; vendor capability
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#274 0.272 outsourcing transaction cost partnership information economics relationships outsource large-scale contracts specificity perspective decisions long-term develop requirements economic association factors hypotheses
#176 0.169 e-commerce value returns initiatives market study announcements stock event abnormal companies significant growth positive using methodology investments period time initiative
#271 0.105 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#116 0.086 research study influence effects literature theoretical use understanding theory using impact behavior insights examine influences mechanisms specifically context perspective findings
#51 0.082 results study research experiment experiments influence implications conducted laboratory field different indicate impact effectiveness future participants evidence test controlled involving
#108 0.079 model research data results study using theoretical influence findings theory support implications test collected tested based empirical empirically context paper
#264 0.072 risk risks management associated managing financial appropriate losses expected future literature reduce loss approach alternative mitigate failures failure cause mitigation