The Impact of Outsourcing on Firm Value: New Insights‪.‬

With 82% of large and mid-size firms outsourcing all or parts of activities, calculating the effects of outsourcing on firm value would seem an obvious need. Previous research generally has determined that outsourcing decisions are driven by opportunities to reduce costs or gain strategic advantages. The effects of each motivation on firm value have been examined, but not the effects of both combined. To help fill this gap using the CARs measure (cumulative abnormal returns of stock prices), outsourcing announcements were analyzed for a 14-year period ending in 2004 to assess stock price movements vis a vis the announced outsourcing rationale. Results showed that announcements citing both cost reduction and strategic motives positively affected firm value, and that citing a desire to focus on core competence further increased firm value. Delivering long- and short-term results at the same time is what it's all about. (Welch and Welch, 2007)