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Small Bus Econ (2010) 35:93112 DOI 10.1007/s11187-008-9149-3
Using Transaction Cost Economics to explain outsourcing of accounting
Patricia Everaert Gerrit Sarens Jan Rommel
Accepted: 28 July 2008 / Published online: 4 November 2008 Springer Science+Business Media, LLC. 2008
Abstract This study explores whether SMEs involved in the outsourcing of accounting tasks differ, in terms of transactional and personal (CEO) characteristics, from others that perform the same tasks within the company. We rely on the transaction cost economics (TCE) model, while controlling for age, educational background, and trust of the SME executive in the external accountant. A survey was developed to investigate the outsourcing by Belgian SMEs both of routine (entry of invoices, interim reporting) and non-routine (period-end accounting,
preparation of nancial statements) accounting tasks. For the routine accounting tasks, frequency was signicantly associated with outsourcing. Meanwhile, for non-routine accounting tasks, asset specicity and frequency were signicantly associated. High-frequency tasks were associated with lower levels of outsourcing. Similarly, higher asset specicity was associated with lower levels of outsourcing. Furthermore, the educational background of the CEO, as well as the CEOs level of trust in the external accountant, was signicantly associated with outsourcing, conrming the upper echelon theory. Having a more educated CEO was associated with lower levels of outsourcing, both for routine and non-routine accounting tasks.
Keywords Outsourcing Accounting
SME Transaction cost economics
JEL Classications C12 C24
C42 D23 M10 M41
1 Introduction
Outsourcing can be dened as the act of subcontracting out all or parts of some function in a rm to an external party. The transaction cost theory of the rm (TCE), introduced by Coase (1937), has become
P. Everaert (&)
Department of Accounting, Faculty of Economics and Business Administration, Ghent University, Kuiperskaai 55/E, 9000, Ghent, Belgiume-mail: [email protected]
G. SarensDepartment of Finance, Universit Catholique de Louvain, Place des Doyens 1, 1348, Louvain-la-Neuve, Belgiume-mail: [email protected]
G. SarensDepartment of Finance, University of Antwerp, Prinsstraat 13, 2000, Antwerp, Belgium
J. RommelPublic Management Institute, Katholieke Universiteit Leuven, Parkstraat 45 Box 3609, B-3000 Leuven, Belgiume-mail: [email protected]
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a standard framework to explain why some rms choose to organize a given function internally, while other rms decide to outsource that function to an external party. An extensive part of the empirical research on outsourcing adopts this...