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Outsourcing flexibility under financial constraints

Choi, Jongmoo Jay; Ju, Ming; Trigeorgis, Lenos; Zhang, Xiaotian Tina


Jongmoo Jay Choi

Ming Ju

Xiaotian Tina Zhang


We posit that outsourcing flexibility helps overcome financial constraints and provide evidence concerning the role of financial constraints and its interaction with operational flexibility on the likelihood and market value of outsourcing. We find that the likelihood of outsourcing is higher the greater the firm's financial constraints prior to outsourcing and that the effect of financial constraints on the likelihood of outsourcing is greater the lower the ex-ante operational flexibility, suggesting partial substitution between financial and operational flexibility. We further show that the market value impact of outsourcing announcements is predominantly positive confirming net flexibility gains positively related to ex-ante financial constraints. Our findings suggest that outsourcing is a vehicle for flexibility acquisition and that financial constraints play a prominent role.


Choi, J. J., Ju, M., Trigeorgis, L., & Zhang, X. T. (2021). Outsourcing flexibility under financial constraints. Journal of Corporate Finance, 67, Article 101890.

Journal Article Type Article
Acceptance Date Jan 5, 2021
Online Publication Date Jan 14, 2021
Publication Date 2021-04
Deposit Date Feb 14, 2023
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 67
Article Number 101890
Public URL