The Impact of ICT-Enabled Offshoring Announcements on Share Prices

Abstract

Purpose - To determine the impact of announcements regarding ICT-enabled offshoring on the share prices of public companies. Method approach – The study is carried out by means of an event study. Findings - The finding from this research is that investors do not tend to reward offshoring announcements. It is most likely that the value of the firm will be perceived as unchanged or if there is a reaction, it is most likely to reduce the value of the firm. A positive relation between size of firm and the size of the offshoring contract is found. Also, US investors are found to be more likely to react negatively than UK investors. Research implications – This study extends the use of event studies in the IS domain to ICT-enabled offshoring. Limitations – Due to the relatively nascent state of offshoring, and consistent with previous event studies, the data set used in this study is relatively modest. Practical implications – Managers in many types of organisations are currently undertaking or considering offshoring, this study will enable them to understand the possible reactions of shareholders and other stakeholders. Originality value – This study provides an empirical contribution by undertaking the first event study of offshoring announcements. It is also one of very few event studies that considers both UK and US-based companies. Its use of transaction cost economics (TCE) perspective also adds to the theoretical understanding of offshoring, by demonstrating that investors appear to consider increased transaction costs involved in offshoring will outweigh lower purchasing or production costs.

Keywords: offshoring, share price, event study