The market for information technology outsourcing has seen significant growth in the last decadern(GartnerGroup, 1998). Companies use IT outsourcing to increase the efficiency of their globalization process,rnwhile maintaining core competency strength. As a result, the ability to manage effective IT outsourcingrnprojects is of utmost important to the success of IT managers (Sambamurthy & Zmud, 2000). In addition, thernability to make an informed decision when buying and IT outsourcing is seen as a core capability for ITrnmanagers (Feeny and Wilcocks, 1998). However, the proper metrics to use to assess the decision to initiate anrnIT outsourcing engagement are still somewhat undefined. While the cost savings reaped through ITrnoutsourcing are often attractive, traditional accounting measures may underestimate potential improvementsrnin economic output brought about by an outsourcing engagement, such as streamlined business processes,rnbetter quality customer service, and a wider range of knowledge on technological offerings. One wayrninformation systems (IS) researchers can assess the business performance of IT outsourcing investments is byrnusing market-based measures such as stock prices. This study addresses the question: Do IT outsourcingrninvestment announcements affect the market value of the firm, and if so, how does the effect differ across thernservice industry versus the IT industry, and across project type? To answer these questions, we analyze thernimpact of IT outsourcing investment announcements on the common stock prices of publicly traded firms.
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