Outsourcing flexibility under financial constraints

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

Abstract

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.

Citation

Choi, J. J., Ju, M., Trigeorgis, L., & Zhang, X. T. (2021). Outsourcing flexibility under financial constraints. Journal of Corporate Finance, 67, Article 101890. https://doi.org/10.1016/j.jcorpfin.2021.101890

• 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
• DOI: https://doi.org/10.1016/j.jcorpfin.2021.101890
• Public URL: https://durham-repository.worktribe.com/output/1180671