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Human Resource Outsourcing: Market and Operating Performance
Maureen G Butler, University of South Florida
Carolyn M Callahan, University of Arkansas - Fayetteville
ABSTRACT. Firms are outsourcing their human resource (HR) business processes in record numbers, arguably to increase efficiency and decrease costs in an effort to improve operating and market performance. Yet, the sparse research relating human resource outsourcing (HRO) to firm performance is methodologically limited and does not investigate market effects or establish a profitability linkage. In contrast to the prior largely survey and case studies, we use archival data for a sample of 164 firms announcing HRO contracts, 1994-2004 to investigate the capital market and long run operating performance of firms that contract out HR services. Our empirical results indicate that the market responds positively to HRO contract announcements. Further, in contrast to the limited prior research, we document that HRO is also linked to long run operating performance. Taken together, our results provide evidence that HRO is value enhancing for firms that contract out HR services.
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