The Effects of Outsourcing Announcements on Market Values of Swiss Firms: An Event Study

Fabian S. Willi () and Gerhard F. Knolmayer ()
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Gerhard F. Knolmayer: University of Bern

A chapter in Information Systems Outsourcing, 2009, pp 201-214 from Springer

Abstract: The potential benefits of IT outsourcing are discussed very controversially. For determining the cost effects, cost data for providing the IT services internally must be available. However, this data is often not disposable in the necessary level of detail. For instance, the IT costs emerging in the business departments are typically not well documented. Furthermore, the value propositions of outsourced IT services such as higher quality customer service, streamlined business processes, and better and earlier information about IT innovations are difficult to quantify. A main paradigm of economists is that efficient markets provide correct valuations. Therefore, it seems appropriate to evaluate the external view on IT outsourcing by observing changes in stock prices after outsourcing announcement s. If rational investors value both the tangible and intangible effects of IT outsourcing, a change in stock price should reflect the contribution of the outsourcing engagement to the firm's value. And the paradigm presumes that the market's evaluation will be more correct than individual computations. Since 2000 a few event studies on the effects of announcing the outsourcing of IT systems were published. We summarize the results of these studies and replicate them for outsourcing decisions of Swiss companies.

Keywords: Stock Price; Abnormal Return; Event Study; Market Reaction; Event Window (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/978-3-540-88851-2_9

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