Impact on Firm Liquidity Arising from Outsourcing Decisions as Evidenced by Off-Balance-Sheet Disclosures

Garvan Whelan (), Paul Hanly, Vincent O’Connell, Oldřich Ludwig Dittrich and Naser Abu Ghazalah
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Garvan Whelan: Gulf University of Science and Technology
Vincent O’Connell: Gulf University of Science and Technology
Oldřich Ludwig Dittrich: Czech University of Life Sciences
Naser Abu Ghazalah: Gulf University of Science and Technology

International Advances in Economic Research, 2021, vol. 27, issue 1, No 2, 17-27

Abstract: Abstract Based on transaction-cost and resource-based theories (and other approaches), there is an extensive literature on the range of factors that are viewed as relevant to the outsourcing decision. However, this study’s investigations revealed a gap in the literature because the impact of outsourcing on liquidity has not been fully analysed. The study addressed this issue through an empirical investigation that identified a source of information on the amount of contractual purchase obligations arising from the outsourcing decision and demonstrated their significant impact on company liquidity. The data source was the United States Securities and Exchange Commission database that included each company’s annual return incorporating off-balance-sheet Sarbanes Oxley mandated disclosures. The study found that these disclosures as contractual purchase obligations can be used as a proxy for outsourcing activities and provided details of resulting future cash flows. The Wilcoxon signed-rank test was conducted to test for significant differences at the 5% confidence level between the results of three metrics before and after the inclusion of short-term purchase obligations. A null hypothesis of no difference between liquidity ratio mean ranks before and after the addition of purchase obligations

Keywords: Liquidity; Outsourcing; Purchase obligations; Sarbanes Oxley (search for similar items in EconPapers)
JEL-codes: L23 L24 M21 M41 O14 O33 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11294-021-09814-7

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