| A well-designed contract is critical for the success of an information technology outsourcing (ITO). However, there has been considerably less attention paid to actual contract structures used in IT outsourcing. Examining contracts yields important insights into how the contracting parties structure the governance provisions and how the incentive mechanisms can be designed to mitigate the ITO risk exposure. Based on insights from prior literature, from practicing legal experts and through in-depth content analysis of actual ITO contracts retrieved from SEC database, I develop a comprehensive coding scheme that capture major contract provisions to study actual design of ITO contracts. Drawing on economic contract theories I investigate three research questions: What are the underlying structures of ITO contracts? What factors explain why some contracts have very extensive term-specificity while others do not? How do incentive mechanisms designed in a contract mitigate intellectual property (IP) risk in ITO? The dissertation consists of three essays. In the first essay, I examine the basic structures and the major clauses incorporated in 112 ITO contracts. In particular, I study the effects of transactional and relational characteristics on two dimensions of ITO contract structures: term-specificity and flexibility. The results yield interesting insights about contract structures of ITO. IT outsourcing contracts are more term-specific and flexible when firms have had prior interactions, or when firms enter into exclusive relationships. In the second essay, using 118 software development agreements (81 domestic and 37 offshore), I empirically analyze how firms use incentive mechanisms (including right-sharing and restrictive covenants) and modular task design to mitigate IP risks. The results show that firms tend to share IP rights and restrict vendors' business activities when they see the hazard of IP loss is high and when their partner are based in countries with weak IP protection. I also find that modular task design is substitutive for incentive mechanisms in contracts. In Essay... |
