The decision to outsource risk management services

Abstract

We apply transaction cost economics to identify factors influencing companies’ decision to internally generate or outsource risk management services. A unique sample is used which combines publicly available data with private information supplied by 281 Austral ian listed companies. We find that expenditure on research and development, greater technological uncertainty, more competitive environments, more overseas sales and transaction frequency are associated with less outsourcing of risk management services. Uncertainty due to environmental diversity is associated with more outsourcing of risk management services. Companies that outsource risk management services also have lower staff turnover and provide more specialised training and longer contracts for risk management suppliers.