The decision to outsource risk management services

We apply transaction cost economics to identify factors influencing companies’ decision to internally generate or outsource risk management services. Assessing and evaluating an entity’s risk management system is fundamental to the audit process and we use a unique sample combining publicly available data with private information supplied by 281 Australian listed companies. We find that expenditure on research and development, environmental uncertainty, behavioural uncertainty and transaction frequency are associated with less outsourcing of risk management services. Uncertainty due to environmental diversity is associated with more outsourcing of risk management services. Companies that outsource risk management services also have lower overseas sales, lower staff turnover and provide more specialised training and longer contracts for risk management suppliers.