OUTSOURCING AND MARKET VALUE OF THE FIRM: TOWARD A COMPREHENSIVE MODEL

We analyze the effect of buyer, contract, and vendor characteristics on abnormal stock returns among firms that have announced large scale Information Technology (IT) and Business Process outsourcing (BPO) contracts. We draw upon a comprehensive dataset on outsourcing announcements, augmented with data from public sources. Salient buyer factors examined include use of a wide range of organizational controls. On the vendor side, we examine the impact of vendor size, contract size and reputation. Our study shows that use of behavior controls, outcome controls (negative), vendor reputation, and industry of buyer firm affect market value. When limited to buyer related factors, use of behavior and clan controls is positively related to abnormal returns around IT outsourcing announcements. An interesting finding is that IT and BPO success require different sets of controls. Copyright © 2014 John Wiley & Sons, Ltd.     

SMALL FIRM AND VALUE EFFECTS IN THE CANADIAN STOCK MARKET

We examine the relation among average returns, market beta, firm size, and book-to-market value for Canadian stocks during 1975–92. We document a negative relation between average return and the market capitalization of firms, but find no relation between average return and market beta. While the small firm effect is significant during a period of reduced capital gains tax, it is noticeably lower than during the period leading up to the change. We find that average returns are positively related to book-to-market value especially during the period of lower capital gains tax.