The Role of Performance Measure Noise in Mediating the Relation Between Task Complexity and Outsourcing

47 Pages Posted: 12 Mar 2010 Last revised: 10 Aug 2014

See all articles by Ge Bai

Ge Bai

Johns Hopkins University - Carey Business School

Freddy Coronado

Michigan State University - Department of Accounting & Information Systems

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems

Date Written: March 10, 2010

Abstract

This paper examines the effect of task complexity on a firm’s decision to outsource and the mediating role of performance measure noise. Using insights from agency and transaction cost economics theories, we predict that task complexity reduces the extent of outsourcing of the task. We further predict that one reason for the negative relation between task complexity and outsourcing is that task complexity increases the noise in performance measures. Noisy performance measures introduce problems in incentive contracting with external vendors and, hence, decrease the extent of outsourcing. Data from 305 in-patient and 1,255 ancillary and out-patient departments of for-profit hospitals provide support for our prediction that performance measure noise mediates the relation between task complexity and outsourcing.

Keywords: task complexity, incentive contracting, outsourcing, hospitals

JEL Classification: M46

Suggested Citation

Bai, Ge and Coronado, Freddy and Krishnan, Ranjani, The Role of Performance Measure Noise in Mediating the Relation Between Task Complexity and Outsourcing (March 10, 2010). Journal of Management Accounting Research, Vol. 22, p. 75-102, Available at SSRN: https://ssrn.com/abstract=1568278

Ge Bai

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Freddy Coronado

Michigan State University - Department of Accounting & Information Systems ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States
517-353-8114 (Phone)
517-432-1101 (Fax)

Ranjani Krishnan (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-353-4687 (Phone)
517-432-1101 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
189
Abstract Views
1,419
rank
189,799
PlumX Metrics