Accounting and Information Systems

Application service providers (ASP), who host and maintain information technology (IT) applications across the Internet, emerged as an innovation in the way IT services are delivered to client firms. In spite of many potential benefits of this model, ASPs experienced business failure and high rates of exit. Drawing on agency theory, we argue that the efficiency of contracting arrangements between ASPs and client organizations is an important determinant of ASP survival. We test this prediction using a unique data set combining multiple sources that allows us to track an ASP from the year of founding through the beginning of 2006. Contractual misalignment, or adopting contracts mismatched with the underlying agency costs, significantly lowers the probability of survival of service providers in the ASP marketplace. The impact of misalignment is particularly severe when coupled with adjustment costs that impede the transition to aligned contracts. To account for potential heterogeneity in ASPs' knowledge of contracting, we test for endogenous self-selection of ASPs in the relationship between contractual misalignment and survival. Our results are robust to a variety of model specifications as well as alternate explanations of survival from multiple theoretical domains.

The complexity and scope of outsourced information technology (IT) demands relationship-specific investments from vendors, which, when combined with contract incompleteness, may result in underinvestment and inefficient bargaining, referred to as the holdup problem. Using a unique data set of over 100 IT outsourcing contracts, we examine whether contract extensiveness, i.e., the extent to which firms and vendors can foresee contingencies when designing contracts for outsourced IT services, can alleviate holdup. While extensively detailed contracts are likely to include a greater breadth of activities outsourced to a vendor, task complexity makes it difficult to draft extensive contracts. Furthermore, extensive contracts may still be incomplete with respect to enforcement. We then examine the role of nonprice contractual provisions, contract duration, and extendibility terms, which give firms an option to extend the contract to limit the likelihood of holdup. We also validate the ex post efficiency of contract design choices by examining renewals of contracting agreements.

This paper examines renegotiation design in contracts for outsourced information technology (IT) services. While prior literature in information systems (IS) has highlighted the likelihood of ex post rent seeking engendered by renegotiation, we build upon literature on incomplete contracts to posit that renegotiation can be Pareto improving by incorporating contingencies revealed ex post. Research on contract renegotiation has been hampered by two sets of challenges: the lack of appropriate data and empirical challenges in identification. We circumvent this problem both by appropriate data collection and by employing an identification strategy to address alternate causal explanations. We propose a measure, Pareto Improving Amendments, to assess renegotiation outcomes that enhance the value from outsourcing by hazard equilibration and by incorporating learning. Using a unique sample of 141 IT outsourcing contracts, we examine the role of decision rights delineated ex ante in enabling Pareto improving amendments and in resolving the tradeoff between adaptation and rent seeking. We find that flexibility provisions, termination rights and contractual rights whereby vendors are granted rights to reuse knowhow are associated with Pareto improving amendments. The results are robust to potential endogeneity of contractual provisions when parties have feasible foresight, and the possibility of adverse selection in the sample. We also examine alternate explanations from the literature on contractual breach. Implications for practitioners and researchers are discussed.

Abstract We augment existing studies of spot procurement contracts by introducing relational contracting. We first show that at intermediate interest rates, the form of procurement contract affects the parties' reneging temptation on a given relational contract, and hence affects the best relational contract that is sustainable. We also show that relational contracts make contracts less complete and complexity plays a lesser role in the choice between fixed-price versus cost-plus contracts with relational contracting.

With its user-friendly interface and the growth in popularity of online video, YouTube has catapulted to a dominant position on the Internet. While this model is extremely attractive for marketers and content creators, recent work has recognized the relatively ephemeral nature of popularity of videos on YouTube, where only a tiny fraction of videos managed attract most views.

Abstract The discussions in the literature on contracting mostly refer to situations where the agent has to perform a single task. The standard incentive predictions do not hold when there are multiple tasks to be undertaken by the agent and there is interaction between tasks. The link between incentives and contracting can be understood by an exploration into the complementarity of the tasks and the nature of contract.

Abstract We augment existing studies of spot procurement contracts by introducing relational contracting. We first show that at intermediate interest rates, the form of procurement contract affects the parties' reneging temptation on a given relational contract, and hence affects the best relational contract that is sustainable. We also show that relational contracts make contracts less complete and complexity plays a lesser role in the choice between fixed-price versus cost-plus contracts with relational contracting.

Abstract Which applications are organizations outsourcing to ASPs? What did they hope to gain? And what are the critical success factors for organizations using ASPs? To assess these issues we cosponsored a study to assess organizational attitudes and adoption metrics for ASPs. Our survey garnered 256 usable responses from businesses regarding their use of ASPs. The study indicated that a significant number of respondents believed ASPs offer a fast-track way of implementing IT projects.

Application service providers (ASP), which host and maintain information technology (It) applications across the Internet, offer an alternative to traditional models of It service for user firms. we build on prior literature in transaction cost economics (tCE) to argue that the contract design should address ex post transaction

A pplication service providers (ASP), who host and maintain information technology (IT) applications across the Internet, emerged as an innovation in the way IT services are delivered to client firms. In spite of many potential benefits of this model, ASPs experienced business failure and high rates of exit. Drawing on agency theory, we argue that the efficiency of contracting arrangements between ASPs and client organizations is an important determinant of ASP survival. We test this prediction using a unique data set combining multiple sources that allows us to track an ASP from the year of founding through the beginning of 2006. Contractual misalignment, or adopting contracts mismatched with the underlying agency costs, significantly lowers the probability of survival of service providers in the ASP marketplace. The impact of misalignment is particularly severe when coupled with adjustment costs that impede the transition to aligned contracts. To account for potential heterogeneity in ASPs' knowledge of contracting, we test for endogenous self selection of ASPs in the relationship between contractual misalignment and survival. Our results are robust to a variety of model specifications as well as alternate explanations of survival from multiple theoretical domains.