Human resource outsourcing: Market and operating performance effects of administrative HR functions

• Published in: Journal of business research Vol. 67; no. 2; pp. 218 - 224
• Main Authors: Butler, Maureen G., Callahan, Carolyn M.
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01.02.2014; Elsevier Sequoia S.A
• Subjects: Administrative human resource outsourcing; Capital market; Capital market reaction; Capital markets; Decision making; Endogeneity; Event study; Human resource management; Human resources; Operating performance; Outsourcing; Regression analysis; Return on assets; Statistical analysis; Studies; Subcontracting; Administrative human resource outsourcing; Operating performance; Capital market reaction; Event study; Endogeneity
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2012.09.026

Using event study methodology and two-stage regression analysis on a sample of firms announcing human resource outsourcing (HRO) contracts, this study tests the association between administrative HRO and firm-level capital market and long run operating performance, with archival financial data controlling for endogeneity and outsourcing decision optimality. The results demonstrate that the equity capital market responds positively to client firms announcing administrative HRO, particularly service firms and those outsourcing transactional HR tasks. Additional statistical analysis shows that suboptimal outsourcing is negatively associated with long run operating performance measured as return on assets and operating return on assets. This study contributes to outsourcing literature by more precisely quantifying outsourcing performance through archival financial data and employing capital market empirical tests. Further, it controls for outsourcing decision optimality in examining long run operating performance effects. This research focuses on HR, a critical function within the firm and value enhancing to the firm.