Contracting Efficiency and New Firm Survival in Markets Enabled by Information Technology.

Author List: Susarla, Anjana; Barua, Anitesh;

Information Systems Research, 2011, Volume 22, Issue 2, Page 306-324.

Application service providers (ASP), who host and maintain information technology (IT) applications across the Internet, emerged as an innovation in the way IT services are delivered to client firms. In spite of many potential benefits of this model, ASPs experienced business failure and high rates of exit. Drawing on agency theory, we argue that the efficiency of contracting arrangements between ASPs and client organizations is an important determinant of ASP survival. We test this prediction using a unique data set combining multiple sources that allows us to track an ASP from the year of founding through the beginning of 2006. Contractual misalignment, or adopting contracts mismatched with the underlying agency costs, significantly lowers the probability of survival of service providers in the ASP marketplace. The impact of misalignment is particularly severe when coupled with adjustment costs that impede the transition to aligned contracts. To account for potential heterogeneity in ASPs' knowledge of contracting, we test for endogenous self-selection of ASPs in the relationship between contractual misalignment and survival. Our results are robust to a variety of model specifications as well as alternate explanations of survival from multiple theoretical domains.

Keywords: agency theory; contractual misalignment; firm survival; propensity score matching

Algorithm:

List of Topics

#132	0.197	likelihood multiple test survival promotion reputation increase actions run term likely legitimacy important rates findings long short higher argue prior
#211	0.178	service services delivery quality providers technology information customer business provider asp e-service role variability science propose logic companies especially customers
#262	0.143	impact data effect set propensity potential unique increase matching use selection score results self-selection heterogeneity evidence measure associated estimate leads
#70	0.106	contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#168	0.075	firms firm financial services firm's size examine new based result level including results industry important account does suggests characterize limited
#229	0.065	alignment strategic business strategy performance technology value organizational orientation relationship information misalignment matched goals perspective fit firms executives argue need
#84	0.050	electronic markets commerce market new efficiency suppliers internet changes marketplace analysis suggests b2b marketplaces industry examine easy product making physical