The Value Impact of Strategic Intent on Firms Engaged in Information Systems Outsourcing

While information systems outsourcing has been on the rise in recent years, empirical evidence about whether IS outsourcing is value creating for shareholders is limited. Little is known about what factors influence the relation between information systems outsourcing and firm value. This study examines the effect of information systems outsourcing announcements on firm value by analyzing whether equity market reactions are associated with the management's strategic intent for outsourcing and firm characteristics of the outsourcing firm. After examining 103 IS outsourcing announcements made during the period from 1996 to 2003, results suggest that value is created for firms outsourcing with short-term operational intent rather than for longer term strategic reasons. In addition, the increase in firm value from an IS outsourcing announcement is positively associated with the firm's operating asset efficiency and the firm being in a service industry