Prasad Padmanabhan

Stock Market Reaction to Domestic Outsourcing Announcements by U.S. Based Client and Vendor Firms

Abstract Recently, there has been tremendous debate over job losses associated with corporate outsourcing of U.S. jobs. Although outsourcing is not a new phenomenon, the recent concern is fuelled in part by the fact that jobs are now outsourced to foreign countries, and for the first time, white-collar jobs are involved. Some support outsourcing on the grounds that it is beneficial to the U.S. economy; others vehemently oppose it, since workers may pay a heavy price as a consequence. In this paper, we examine the market reaction to outsourcing announcements for both client and vendor firms. The study examines a sample of U.S. based firms involved in outsourcing announcements over the 1991-2005 periods. Using a well-established event study methodology, the stock market reactions to such announcements are measured. The market appears to be neutral regarding the effect of outsourcing on client firms and the economy as a whole. The market does however react favorably to outsourcing with respect to vendor firms.

Global ITO and BPO: Issues and Opportunities for Displaced Professionals

The Fifth Annual International Smart Sourcing Conference was held in Los Angeles, California, September 2123, 2006. The conference contains many interesting papers and panel presentations designed to attract academics and practitioners alike. Client f m s learned about the proper way to outsource their information technology (IT) related fimctions, and about the need to develop a proper relationship with vendor f m s . Many presented papers that detailed their experiences with the outsourcing function, and case histories of successful and unsuccessful outsourcing ventures. Still other papers discussed the socio-economic implications of global outsourcing. One important social issue relates to the plight of displaced professionals in the client country. In this short preface article, we address the associated critical issues and present possible solutions to alleviate this problem.

Sequential capital investment decision making under extreme cash fl ow situations: evidence using Monte Carlo simulation

Uncertainty influences a decision makers choices when making sequential capital investment decisions. With the possibility of extremely negative cash inflows, firms may need to curtail operations significantly. Traditional Net Present Value analysis does not allow for efficient management of these problems. In addition, firm managers may behave irrationally by accepting negative Net Present Value projects in the short term. This paper presents a Monte Carlo simulation based model to provide policy insights on how to incorporate extreme cash flows and manager irrationality scenarios into the capital budgeting process. This paper presents evidence that firms with irrational managers and experiencing extremely negative cash flows may, under certain conditions, reap long term rewards associated with the acceptance of negative Net Present Value projects in the short term. These benefits are largest if cost ratios (discount rates) are small, or investment horizons are high. We argue that acceptance of short term negative Net Present Value projects implies the purchase of a long term real option which can generate positive long term cash flows under certain conditions.

Mitigating the Impact of Managerial Anchoring: The Case for Management by Committee for Major Corporate Financial Decisions

Today, firms are facing a globally competitive environment. Against this backdrop, firms can ill afford to make mistakes in their capital budgeting and acquisition decisions. When making major decisions, firms may be faced with additional costs associated with managerial anchoring. Using simulation results, it is shown that firms making off-shoring decisions can be better off using two or more managers when managerial anchoring can lead to significant cost increases. This paper shows the conditions under which management by committee can involve higher incremental costs, but are offset by decreased anchoring costs if managers anchor in different directions. It is also shown that firms cannot completely eliminate the impact of anchoring even if they hire an infinite number of managers. Firms should consider hiring additional managers in instances where major decisions are involved, if the incremental cost of hiring the additional manager is offset by decreased anchoring costs.