The Association of Future Profitability, Operating Cash Flows, and Market Assessments with Offshoring Arrangements of Technology Jobs

35 Pages Posted: 5 Jun 2007 Last revised: 31 Aug 2014

See all articles by Kimberly Dunn

Kimberly Dunn

Florida Atlantic University - School of Accounting

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Matthew J. Magilke

Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: June 4, 2007

Abstract

We investigate future profitability, operating cash flows, and value relevance of offshoring arrangements in the technology sector. Offshoring is the business practice of moving portions of a firm's business operations (and jobs) to another country usually to take advantage of lower labor costs or other production factors in developing countries. Offshoring carries political costs as local jobs are lost which may limit market-based realization of benefits. We find that offshoring firms in the technology sector report greater earnings and operating cash flows following an offshoring event substantiating the decision to offshore. Further, the market values offshoring beyond the impact recognized in the financial statements. However, the premium is constrained as firm size increases consistent with political cost arguments. We document both benefits and costs that are important for firms considering offshoring arrangements and their stakeholders.

Keywords: Offshoring, Technology Sector, Valuation

JEL Classification: M41, G12, G31, L86, M46

Suggested Citation

Dunn, Kimberly A. and Kohlbeck, Mark J. and Magilke, Matthew J., The Association of Future Profitability, Operating Cash Flows, and Market Assessments with Offshoring Arrangements of Technology Jobs (June 4, 2007). Journal of Information Systems, Vol. 23, No. 2, Fall 2009. Available at SSRN: https://ssrn.com/abstract=991346

Kimberly A. Dunn

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States
561-297-3643 (Phone)

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Matthew J. Magilke

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

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