We investigate the impact of Information Technology (IT) outsourcing on firm performance from

several dimensions, including changes in labor productivity, improvements in financial and

operational performance variables, and stock market valuation of IT outsourcing initiatives as

measured by Tobin’s q. While our main objective is to better understand the economics of IT

outsourcing, we also aim to contribute to the literature on the business value of IT in general. Our

research contributes to the relevant literature from the following perspectives: (i) the change in the

performance levels of firms due to IT outsourcing is measured against that of firms not outsourcing at

all, (ii) panel data regression model is utilized in order to capture both cross-sectional and time-series

differences among firms, (iii) the diversity of IT outsourcing initiatives is explicitly considered in the

model, and (iv) a comprehensive data set covering the period between 1984 and 2007 is used..