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Introduction
Based on transaction cost theory, when a firm has already integrated its operational functions, the decision to outsource such functions to the market should be made if it is necessary to create or protect firm value. By outsourcing tasks to specialist organizations, firms may better focus on their most value-creating activities, thereby maximizing the potential effectiveness of those activities. In addition, as outsourcing increases, costs may decline, and investment in facilities, equipment, and manpower can be reduced. The rationale for outsourcing looks simple and compelling.
Outsourcing research can be divided into three areas: decision-, process- and result-oriented. [17] Jiang and Qureshi (2006) demonstrate that, during the last decade, most academic studies have focused on understanding outsourcing decision determinants and outsourcing process control (Table I [Figure omitted. See Article Image.]).
While contracting out is now broadly understood to be an attractive option, its specific impact on firms' performance, i.e. outsourcing result, has not yet been well confirmed by research. When executives are asked about the financial impact of their outsourcing initiatives, they often respond that it cannot be readily quantified ([9] Bryce and Useem, 1998). When researchers look to measure the financial impact, they have usually been forced to rely on managers' estimates in place of tangible metrics. As a result, much of the evidence is anecdotal and case study-oriented, often based on non-financial metrics.
These anecdotal accounts of outsourcing effects raise some fundamental questions for empirical research. In an age in which management carefully weighs the costs and benefits of every discretionary investment dollar, finding evidence of the results of outsourcing is critical. In particular, research considering the context surrounding an outsourcing decision's result is likely to be essential and useful to corporate outsourcing management. According to [17] Jiang and Qureshi (2006), thus far, there are only four archival financial data analysis studies of outsourcing impact on firm's performance. Although they provide hard evidence regarding outsourcing results, their contributions are limited to narrow areas. Table II [Figure omitted. See Article Image.] provides a summary of the limitations of the four studies.
Because most of the currently available evidence is based on perceptual or self-reported data, it is not clear how well the evidence correlates to actual performance. To address this gap, we use financial...