Financial Performance, CEO Compensation, and Large-Scale Information Technology Outsourcing Decisions

Abstract The inherent riskiness of large-scale information technology (IT) outsourcing led us to investigate what motivates large-scale IT outsourcing decisions. We employed fixed-effects logistical regressions to examine publicly available data for 51 firms that announced their decisions to outsource all or a large portion of their IT function during the 1993-2001 period. Results suggest that incentives created by CEO stock options and overall compensation mix significantly influence decisions to outsource. We thus provide the first evidence of a relationship between managerial self-interest and IT outsourcing. Additional results suggest that poor overall firm performance, poor cost control, and short-term cash needs also drive large-scale IT outsourcing, but provide no evidence that firms outsource IT to reduce leverage. Overall, we conclude that CEOs consider several personal and firm-level financial factors, including factors unrelated to IT cost and performance, when making large-scale IT outsourcing decisions. Our conclusion has numerous implications regarding long-term IT performance, long-term firm performance, CEO contracting and financial reporting. Keywords: CEO compensationincentive compensationinformation systems outsourcinginformation technology outsourcingstock options

• 저널Journal of Management Information Systems · 22(1) · 193–221
• 토픽Outsourcing and Supply Chain Management · Management Information Systems
• DOI10.1080/07421222.2003.11045838
• 저자James Hall