A Final Word on Edith Penrose

ABSTRACT Rugman and Verbeke (2002 ) established that Edith Penrose's contribution to the resource‐based view in strategic management has been misunderstood by many scholars in the field. The present paper augments this analysis, and demonstrates that Penrose did not view the pursuit of rents as a worthwhile endeavour. Penrose did build on a number of conceptual foundations of neo‐classical economics, and accepted the profit‐maximizing assumption as largely consistent with the pursuit of an optimal growth path. But optimal growth, not the pursuit of rents, was the focus of her analysis. In addition, Edith Penrose's real normative agenda was the increase of societal welfare at the macro‐level through innovation at the firm‐level. Penrose's work on multinational enterprises shows that she had a strong preference for eliminating rents that would accrue to large multinational firms at the expense of local firms in host countries.     

Edith Penrose's Contributions to the Resource-based View: An Alternative Perspective

ABSTRACT Edith Penrose's work has been widely acknowledged to have played a central role in providing the intellectual foundations of the resource‐based view. This position, however, was recently challenged in a paper by Rugman and Verbeke (2002 ). In this paper we address the three main arguments of Rugman and Verbeke and, by drawing on her writings, demonstrate that their arguments are materially incorrect. While readily conceding that Penrose's primary goal was to explain the growth of firms, we show that her analysis of path‐dependent firm evolution anticipated many key propositions of the resource‐based view.     

The Inside Track: On the Important (But Neglected) Role of Customers in the Resource‐Based View of Strategy and Firm Growth*

abstract This paper argues for the important role of customers as a source of competitive advantage and firm growth, an issue which has been largely neglected in the resource‐based view of the firm. It conceptualizes Penrose's (1959 ) notion of an ‘inside track’ and illustrates how in‐depth knowledge about established customers combines with joint problem‐solving activities and the rapid assimilation of new and previously unexploited skills and resources. It is suggested that the inside track represents a distinct and perhaps underestimated way of generating rents and securing long‐term growth. This also implies that the sources of sustainable competitive advantage in important respects can be sought in idiosyncratic interfirm relationships rather than within the firm itself.     

Market structure and the value of growth

In line with theory suggested by Miller and Modigliani (1961), this paper finds generally positive and statistically significant effects of growth on the current market value of the firm over the 1974–90 period. This intuitive result is not surprising, but the lack of a simple link between the valuation effects of growth and market structure considerations is noteworthy. Importantly, the value of future growth options appears to be closely tied to the firm's ongoing investment in advertising and R&D intangible capital. On the other hand, high current market share does not appear to offer any clear advantage in terms of a firm's ability to expand upon current success. © 1997 John Wiley & Sons, Ltd.     

Does organization capital matter? An analysis of the performance implications of CEO power

Chief executive officer (CEO) power reflects the ability of the CEO to influence the firm's decision-making. Whether the CEO of the firm could manage the firm’s investment assets to support maximizing the efficiency of resource allocation is an important issue. As previous studies found, organization capital is a key intangible asset that improves the firm’s production efficiency and affects long-term performance. This study explores how CEO power affects organization capital investments and how it further affects the efficiency of firm resource allocation. We use the following three variables to measure CEO power: CEO founder, CEO-only insider and CEO duality. Our results indicate that the level of CEO power can influence a firm’s value by controlling the organization capital. When the firm’s CEO is also the founder, the CEO will attempt to increase investments in organization capital to create growth opportunities for the firm, which will therefore increase the firm's value. Specifically, when the company is in financial distress, the powerful CEO's increasing in organizational capital investment will expose the company to greater risk of loss of intangible assets. This result may further increase the company's price volatility.     

Corporate sustainability and financial performance: Collective reputation as moderator of the relationship between environmental performance and firm market value

Markets value superior corporate sustainability performance in part because investors use a firm's environmental performance as a signal of desirable but difficult-to-observe attributes, such as the firm's integrity capacity. Yet a signaling conflict can arise when a firm belongs to an organizational form that has a collective reputation for being unethical. In such circumstances, the firm's environmental performance may no longer credibly signal its underlying integrity capacity, leading markets to adjust downward the value they would otherwise place on the firm's environmental performance. Using longitudinal data on South Korean firms, we find that improvements in firm environmental performance lead to smaller increases in market values for firms belonging to a poorly reputed organizational form. However, firms can partially recover lost value by adopting firm features that reduce the signaling conflict, thereby restoring the notion of corporate sustainability performance driving firm market values.     

Do institutional investors monitor management? Evidence from the relationship between institutional ownership and capital structure

We examine the dynamic relations between institutional ownership and a firm's capital structure. We find that a firm's leverage decreases when institutional ownership increases. This result implies that a firm reduces its debt level as institutional investors substitute for the monitoring role of debt. More importantly, we find that a firm's suboptimal leverage decreases when the institutional ownership increases, and institutional ownership decreases when a firm's suboptimal leverage increases. This finding shows that institutions not only effectively monitor a firm's capital structure but they also passively sell their shares when dissatisfied with it. In addition, we find that the monitoring evidence on a firm's leverage and suboptimal leverage are more pronounced when the institutional investors are less likely to have business relationships with a firm or the information asymmetry is high in the market.     

The Survival of Unique Corporate Cultures

In this paper we identify two situations that can lead a firm to hire an executive who supports a corporate culture that differs from the firm's current culture. In the first case, there is a similarity between the firm's culture and that of the candidate, and in the second case, executives who support the firm's culture constitute a minority of the available candidates. In both cases the firm prefers to hire an available candidate, rather than risk a prolonged vacancy. We show how these scenarios can lead to the eradication of unique cultures and to the perpetuation of more common cultures. Copyright © 2016 John Wiley & Sons, Ltd.     

The revision frequency of earnings forecasts and firm characteristics

This study investigates how the revision frequency of earnings forecasts affects firm characteristics. Previous studies generally focus on the number of analysts following a firm to measure a firm's information environment. The frequency with which news is updated is often defined as an analyst's effort. Analysts provide more information to investors if they update news more frequently. This study examines whether the frequency of information updating for a particular firm affects the firm's performance. We apply three proxies for firm performance: stock liquidity, the cost of equity capital, and firm value. Our findings indicate that the analysts’ effort as measured by the frequency of news updating is effective in providing additional power beyond the number of analysts to represent the information environment of a firm. Therefore, this study suggests that combining both the number of analysts following a firm and the frequency of news updating can be a better proxy for assessing a firm's information environment.     

The competitive determinants of a firm's environmental management activities: Evidence from US manufacturing industries

Environmental management (EM) issues have received substantial attention in operations management. While the link between EM practices and firm performance has been well studied, little is known about the competitive drivers of a firm's EM activities. In this research, a Schumpeterian economics perspective is adopted to investigate competitive interactions among leader and challenger firms in the domain of EM, with a particular focus on operational EM activities. Using econometric methods, the empirical analysis of panel data from a broad cross-section of US manufacturing firms reveals that such rivalry does exist and that the effect of a rival's past EM activity on a focal firm's EM activity is greater for more profitable and smaller firms. In addition, firm characteristics such as market leadership, firm size and firm profitability are found to significantly affect the magnitude of a firm's EM activities. This study presents theoretical and empirical evidence of rivalrous behaviors in the domains of EM and OM and, thus, has interesting implications for operations management research and practice.     

Entrepreneurial human capital,equity concentration and firm performance: Evidence from companies listed on China's Growth Enterprise Market

In this work, a sample of firms listed on China's Growth Enterprise Market (GEM) is employed to investigate the impact of human capital and equity concentration on firm performance. It shows that entrepreneurs' education level, industry experience and technical professional background have a positive impact on firm performance. Moreover, the higher the equity concentration, the better a firm's performance. Entrepreneurs with rich industry experience and a technical professional background tend to collect and condense equity, thereby increasing equity concentration. These findings reveal the relationship between entrepreneurial human capital and ownership concentration and enrich research on firm performance.     

Boards and Sustainability: the Contingent Influence of Director Interlocks on Corporate Environmental Performance

This paper highlights the importance of a firm's board with respect to sustainability issues by analysing the relationship between director interlocks, i.e. directors who simultaneously belong to the boards of directors of several companies, and a firm's environmental performance. The previous literature has focused on the influence of firm‐level resources on corporate environmental performance. This study utilizes insights from a resource‐based view and research on social capital to demonstrate that the environmental performance of a firm is also influenced by the difficult‐to‐imitate capabilities that are embedded in the network relationships of its directors. Our results support a contingency perspective of the social capital theory that finds that director interlocks are positively connected with the environmental performance of a firm in two specific situations: (1) when the firm is linked to a larger parent company and (2) in cases of low and high levels of interlock diversity. Copyright © 2013 John Wiley & Sons, Ltd and ERP Environment.     

The impact of HR configuration on firm performance in Singapore: a resource-based explanation

This study investigates how the characteristics of a firm's human resource practices and processes (HRPPs) are associated with firm performance. The results found that the extent to which HRPPs can be substituted by information technology or codified in employee manuals, made them easy to be imitated and were therefore associated with an attenuation of the firm's financial performance. On the other hand, constant positive investments into a firm's HRPPs were associated with enhanced firm performance. No significant relationships were found between the embeddedness of HRPPs with information technology or the uniqueness of the firm's HRPPs and firm performance. The results are explained in terms of the resource-based view of the firm.     

Costs and goals of the multiproduct firm

A profit-maximizing multiproduct firm's optimum production and pricing decision rules are different if the firm's fixed resources are fully employed than if they are underutilized. If they are fully employed, the opportunity cost of using a fixed input affects the firm's pricing decisions. The way for a multiproduct firm to maximize profit is to lose money on a product if large volume and low price of that product increases sales or reduces cost for other products sufficiently. Decision rules are different for a revenue-maximizing firm than for a profit-maximizing one.     

Assessing the impact of green supply chain practices on firm performance in the Korean manufacturing industry

As a growing number of customers tend to view corporate social responsibility (CSR) as a key purchase decision criterion, demands for CSR including environmental sustainability have accelerated in today's business world. To meet such demands, many firms consider embracing environment-friendly business practices. However, many firms are still hesitant to implement those practices due to sceptical views about their real managerial benefits. Although the previous literature confirms the positive link between a firm's commitment to environmental sustainability and its performance, the varying degree of impact of different kinds of environment-friendly supply chain practices on the firm's operational performance is still unknown. To fill the void left by prior research, this paper aims to classify various types of green supply chain management (GSCM) practices and then assess the impact of each of these distinct types on the firm's operational performances (especially manufacturing and marketing performance). Also, this paper examines how the firm's organisational profiles such as firm size affect the particular firm's choice of GSCM practices. Our experimental results reveal that the chosen type of GSCM practices influences the firm's performance differently.     

Talent management,absorptive capacity,and firm performance: Does it work in China and Russia?

This article investigates the relationship between talent management (TM), absorptive capacity (AC), and firm performance. We build a theoretical framework and examine the mediating role of a firm's AC in TM–performance relationships in the contexts of China and Russia. We use a sample of 120 Chinese and Russian firms to provide empirical evidence of our hypotheses. Our results show for both Chinese and Russian firms, a well‐developed TM system positively influences a firm's ability to acquire, assimilate, and exploit knowledge as well as increase the overall level of a firm's AC. We also found support for the argument that TM has an indirect positive effect on firm performance through its AC; moreover, the effect is stronger for Chinese firms, specifically, within the link between AC and performance.     

Edith Penrose's (1959) Contributions to the Resource-based View of Strategic Management

ABSTRACT We argue that Rugman and Verbeke (2002 ) underestimate the importance of Penrose's (1959 ) contributions to the modern resource‐based view of the firm. In particular, we take issue with Rugman and Verbeke's (2002 ) arguments concerning Penrose's (1959 ) contributions to our knowledge of: (1) the creation of competitive advantage, (2) sustaining competitive advantage, (3) isolating mechanisms, and (4) competitive advantage and economic rents. In our response, we show that Penrose (1959 ) has both directly and indirectly influenced the modern resource‐based view of strategic management.     

Firm Productivity Moderated Link Between Human Capital and Compensation: The Significance of Task‐Specific Human Capital

The human capital of a firm as manifested by employee knowledge and experience represents a key resource of a firm's capabilities. Prior empirical studies have found that firms composed of high levels of human capital experience superior firm performance. Human capital theory proposes that an individual's general or firm‐specific human capital is positively related to compensation. However, empirical studies examining firm‐specific human capital's association with higher employee compensation have been inconclusive. The current study proposes that firm‐specific human capital be categorized as task‐specific and non‐task‐specific. Employees accumulate task‐specific human capital through duties conducted in their current position. Non‐task‐specific human capital represents experiences gained in prior positions to an employee's current job within the firm. Utilizing human capital data from 38,390 employees representing 76 firms in the IT sector, this study examines the association between forms of human capital and employee compensation at different levels of firm productivity. Results show that task‐specific human capital is associated with higher employee compensation. In addition, firm productivity moderates this association.     

Effectiveness of quality standards regulation considering the behavior of government and firms

We construct an analysis framework consisting of the central government, a local government, a representative firm, and consumers. This study analyzes how the local government's enforcement, the firm's compliance, and their interaction influence the effectiveness of regulation after the central government has established policies regarding quality standards. We construct three scenarios: perfect enforcement, imperfect enforcement, and collusion. We show that when the local government imperfectly enforces the regulation, the firm's utility and the local government's utility are higher, whereas the degree of the firm's compliance, consumers' utility, and the level of social welfare are lower. When there is collusion between the local government and the firm, the firm's utility and the local government's utility are the highest, but the degree of the firm's compliance, consumers' utility, and the level of social welfare are the lowest among the different scenarios. This study proves that the behavior of governments and firms plays a vital role in the effectiveness of quality standards regulation.     

Crisis spillover of corporate environmental misconducts: The roles of perceived similarity,familiarity, and corporate environmental responsibility in determining the impact on oppositional behavioral intention

Negative impact of a firm's environmental misconduct can spread to other firms under the same category due to stakeholders' categorization. Such problem implies a sociocognitive process that has yet to be explored. Therefore, this study extends the current literature by exploring how interfirm similarity affects the spillover effects through stakeholders' engagement. We propose that interfirm similarity can be perceived by stakeholders as a categorization standard, which can lead to their opposition to other firms. Spillover of misconduct is caused by the decreasing stakeholders' trust, wherein the negative effect is contingent upon stakeholders' perceptions. A questionnaire study is conducted to investigate how people resist an innocent firm in China when a chemistry firm experienced an explosion accident. Our findings confirm that interfirm similarity increases stakeholders' opposition to the innocent firm by decreasing their trust. However, the negative effect is alleviated when the innocent firm is perceived as highly environmentally responsible. Our work contributes to the crisis spillover literature and carries important implications for the management of innocent firms that may lose from an industry peer's misconduct.