The decision to internally generate or outsource risk management activities

This study uses transaction cost economics (TCE) to identify factors influencing Australian Securities Exchange (ASX) companies’ decision to internally generate or outsource activities required to manage risk. Limited research has been conducted in TCE and risk management with most in the accounting discipline concentrating on internal audit. Increasing our understanding of risk management practices benefits organisations, accounting professionals and regulators concerned with governance practice and enables policy development to be based on informed research. Applying TCE expands the scope of the theory’s application and contributes to the body of knowledge. Using a unique data set obtained from a survey sample of 281 listed ASX companies in 2009 combined with archival data hypotheses are operationalised and analysed using multivariate and logistic regression. Broadly in line with the TCE propositions, results indicate outsourcing risk management activities are positively associated with uncertainty measured by volatile sales, environmental diversity measured by industry competition, number of subsidiaries, recent organisational changes, new management and leverage. A negative association exists between outsourcing and expenditure on research and development, environmental uncertainty measured in terms of technological change and transaction frequency.