Rethinking the effectiveness of asset and cost retrenchment: The contingency effects of a firm's rent creation mechanism |
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Authors: | Dominic S. K. Lim Nikhil Celly Eric A. Morse W. Glenn Rowe |
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Affiliation: | 1. Faculty of Business, Brock University, St Catharines, Ontario, Canada;2. School of Business, The University of Hong Kong, Pokfulam, Hong Kong;3. Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada |
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Abstract: | This paper posits that the efficacy of different retrenchment strategies depends upon the firm's core rent creation mechanism. We focus on two distinct mechanisms of rent creation: Ricardian rent creation based on the exploitation of resources and Schumpeterian rent creation based on explorative capabilities. We argue that cost retrenchment may have detrimental effects on firms with a relatively high Schumpeterian rent focus. On the other hand, asset retrenchment may erode the basis for future rent creation for firms with a higher Ricardian rent focus. Our findings based on a sample of large nondiversified Japanese firms highlight the differing degrees of fragility and recoverability of the two rent creation mechanisms in the context of different retrenchment strategies. Copyright © 2012 John Wiley & Sons, Ltd. |
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Keywords: | retrenchment Ricardian rent Schumpeterian rent resource‐based view capabilities |
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