برون سپاری فناوری اطلاعات و تغییر ساختار سازمانی: تبیین اثرات آنها بر ارزش شرکت

This paper draws from behavioral finance theory to provide an alternative explanation to the efficient market hypothesis that investor under- and overreactions occur by chance. Hypotheses propose relationships between information technology/systems outsourcing (hereafter IT/IS) decisions on short- and long-term abnormal returns, while exploring the potentially confounding effect of organizational restructuring events that frequently follow such decisions. Using event studies techniques, it is found that although IT/IS outsourcing announcements are positively related to short-term abnormal returns, restructuring charges after the announcement moderate the relationship between the short-term effect of such announcements and long-term abnormal returns, so that long-term returns become negative when followed by organizational restructuring efforts resulting from IT/IS outsourcing.

The outsourcing of information technology (IT) and information systems (IS) has transformed corporate strategy in the past 10 years. This technology-led phenomenon has given rise to a $100 billion industry and an expected market penetration of over 50% by 2006 (King, 2004). The unprecedented growth has not been without pain both for corporations and their shareholders. IT/IS outsourcing strategies have, in some instances, preceded costly restructuring efforts, failure to attain strategic goals, and loss of firm value. The purpose of this study is to examine the dual effect of IT/IS outsourcing decisions and organizational restructuring initiatives on firm market value. Traditionally, both types of decisions have been billed as cost-reducing, efficiency-enhancing efforts that allow the firm to focus on their core competencies and markets to improve performance. With either strategy, the firm's value is expected to increase, due to the intended fundamental changes to the firm's discounted future cash flows. However, while IT/IS outsourcing decisions are generally well received by investors (Hayes, Hunton, & Reck, 2000), organizational restructuring is not (Lopez, 2002 and Poon et al., 2001). Firms often pursue both strategies sequentially. That is, major outsourcing decisions are not uncommonly followed by a downsizing of related functions, sometimes even to the extent of transferring whole departments (including human and physical resources) from the firm to the service provider. Given the polar effects of IT/IS outsourcing announcements (a positive signal) and restructuring decisions (a negative signal) on investor reactions, it is important to understand how their sequential occurrence may in the aggregate affect firm value. The focus of this paper, therefore, is to explore the changes to firm value – both short-term and long-term – when both strategic initiatives are employed. To investigate these issues, we draw on market efficiency and behavioral finance research. According to the market efficiency hypothesis, anomalies in short- and long-term market returns happen by chance (Fama, 1998). Behavioral finance theory provides an alternative explanation. Emanating from cognitive psychology, this theory agrees that investors pay scant attention to the fundamentals of firm value, but proposes that investor decisions are influenced by cognitive biases (Barberis et al., 1998 and Daniel et al., 1998). Based on this theoretical approach, we develop a more complete explanation of short- and long-term firm value than that provided by the efficient market hypothesis. We further contribute to theory and practice through the focus on IT/IS outsourcing and restructuring decisions, an integration that is very common in technology management practice but has received little research attention. This approach provides a better understanding of the interaction effects of complex strategic decisions, and a better specified model of firm strategic behavior (Gilley & Rasheed, 2000, Gilley et al., 2000 and Lei & Hitt, 1995). Using event studies techniques, we test our hypotheses with a sample of IT/IS outsourcing announcements released from 1997 to 2003 by publicly traded firms. Event studies research has a long tradition in finance, economics, and management, examining the association between short- and long-term effects of corporate strategic announcements and abnormal market returns (Brown & Warner, 1985, McWilliams & Siegel, 1997, Neill et al., 2001, Park et al., 2004 and Shi, 1998). Consistent with prior research, our results show that investors generally respond well to IT/IS outsourcing announcements, as demonstrated by positive short-term abnormal returns. However, results also show that the long-term investor response to IT/IS outsourcing initiatives appears to be negative. Interestingly, the degree of restructuring that takes place after the outsourcing announcement influences the long-term impact of IT/IS outsourcing on firm market value. The following section briefly discusses the IT/IS outsourcing decision, outlines unanswered questions, and develops hypotheses to address these questions.

Based on behavioral finance theory we develop and test hypotheses that investigate the relationship between short- and long-term abnormal returns around a corporate decision that is generally viewed positively by investors (IT/IS outsourcing). We also introduce the effect of an event generally viewed negatively (organizational restructuring) occurring after the IT/IS announcement. Three related questions were posed at the outset of this study regarding the effect of these corporate-level decisions on firm value. Results shed interesting light on these issues. First, our study shows that while the announcement decision has a positive short-term impact, the intent behind IT/IS outsourcing as stated by management in the press releases, whether strategic or tactic, appears to have no impact on short-term firm value. Second, we find that extending the event window for analysis of complex and sequential strategies (i.e., IT/IS outsourcing and restructuring) is warranted and provides a better specified model of investor behavior and firm value over time. In contrast with market efficiency theory, investors do not anticipate corporate announcements, they do not seem to pay attention to recent performance, nor do they factor in the potential effects of restructuring initiatives resulting from the outsourcing decision. The finding that investors react positively immediately after the IS/IT announcement and then react negatively to restructuring charges provides support to this argument. Third, by integrating IT/IS outsourcing announcements with subsequent restructuring charges we provide a more complete explanation of the cumulative effect of both types of decisions on firm value than that provided by efficient market theory. The analysis of interaction provides an indication that the introduction of restructuring charges into the equation may explain the randomness of long-term abnormal returns suggested by efficiency theory. The interaction plot clearly shows that the long-term effect of IT/IS outsourcing decisions on the market value of firms is dependent on the degree of organizational restructuring that follows. This study provides initial evidence about perceived market values of IS outsourcing decisions. As a result, several limitations limit its generalizability and provide avenues for improvement in future studies. First, our results are limited to IT/IS outsourcing decisions reported in public sources and limited to those firms with financial information available in CRSP and COMPUSTAT databases. Second, we are unable to control for the length of the outsourcing arrangement because of the lack of publicly disclosed IT/IS outsourcing contract information. Given that outsourcing contract length may directly impact future cash flows, this information would provide additional insights. Third, we are also unable to capture the magnitude or size of the IS outsourcing arrangement. The size of outsourcing decisions (e.g., the magnitude of the outsourcing contracts) may impact market reactions to the IT/IS outsourcing announcements. Thus future studies could also benefit from such information. Finally, our sample size is small, yet it includes all announcements we were able to find in the Lexis-Nexis database for publicly-traded firms over the period 1997–2003. The small sample has prevented us from performing more complex analyses of an integrated model, as well as the use of additional control variables. On the other hand, the fact that we do find an interaction effect is promising. Given the newness of the IT/IS outsourcing phenomenon, an extension of the sample before 1997 would not substantially increase the sample size and could introduce additional confounding effects. Critics of event studies argue that researchers tend to analyze single event effects and ignore the potential confounding effects of other events occurring during the window of analysis (McWilliams & Siegel, 1997). We have addressed this issue for the short-term return window by deleting from the sample those firms that had additional confounding events during the period. For the long-term window, we have explored interactions between an event, short-term abnormal returns, and an alternative explanation, restructuring charges post-event. Other explanations may also be plausible for the long-term reversal in stock performance, for example, that the betas used to estimate returns could be biased (McNulty, Yeh, Schulze, & Lubatkin, 2002). A key consideration of efficiency theory is that well-informed investors anticipate events of this nature. We find no evidence to support this contention, and show support for the concept of investor bias. Some may argue that outsourcing strategies are at most tactical, hence easily copied by competitors, and whatever advantage they provide will be quickly eroded. Market efficiency proponents argue that such announcements will be understood as tactical by sophisticated investors and thus not bid up the stock (Lubatkin & Shrieves, 1986). Although our results reject these contentions, they are not conclusive. Thus, these issues provide interesting avenues for future research. Our findings provide clear guidance for managers. Restructuring charges send negative signals to investors and can revert the positive effects expected from IT/IS outsourcing announcements. From a long-term investor perspective, the study shows the need to understand whether or not IT/IS outsourcing announcements are in fact restructuring strategies in disguise. Managers should provide the necessary information to investors to avert such conclusions. This study also suggests that the objective analysis of firm value based on expected discounted future cash flows has little relationship with investor and market reactions to fundamental changes in corporate strategy. Although we do not contend that fundamentals are not important, it is clear from this study that investor behavioral biases must be considered and understood. Because there is limited empirical work related to IS outsourcing decisions, there are several avenues for future research. More information is needed to understand the actual benefits of IT/IS outsourcing arrangements. Research regarding the tangible and intangible benefits and costs associated with IT/IS outsourcing is needed. While this study provides additional information about restructuring charges, firm announced intents, and market reactions to outsourcing arrangements, more analysis of firm differences and contract specifics would provide greater insight about factors influencing shareholder and investor perceptions of management's decision to outsource IT/IS functions.