Transaction attributes and software outsourcing success: an empirical investigation of transaction cost theory

Abstract. In recent years, an increasing amount of attention has been paid to information systems (IS) outsourcing by practitioners as well as academics. However, our understanding of the factors that affect outsourcing success is hardly complete. By adopting transaction cost theory (TCT) as the theoretical foundation, this study analyses the implications of transaction attributes on the consequences of customized software outsourcing practice. The research model includes three exogenous variables (contractor reputation, asset specificity and uncertainty) and two endogenous variables (post‐contractual opportunism and outsourcing success). The moderating effects of asset specificity on the relationships between uncertainty and the endogenous variables are also examined. Based on data collected in Taiwan, a research model is constructed to test the hypotheses derived from the theory. The empirical evidence is generally supportive of the theory but with some important exceptions. In particular, contractor reputation and uncertainty have the predicted effects on the contractor’s post‐contractual opportunism perceived by the client and outsourcing success, but asset specificity shows a negative effect on post‐contractual opportunism and a positive effect on outsourcing success, which are opposite to the typical predictions of TCT. Thus, in addition to the supportive findings of the theory, this study also raises an important research question regarding the effects of asset specificity on outsourcing for future research to explore.