The Penrose effect: “Excess” expatriates in multinational enterprises

Abstract

Penrose’s (1959) theory of firm growth argues that firm knowledge and experience gives rise to “excess” resources which can be (re)deployed to explore and exploit productive opportunities leading, ultimately, to the achievement of firm goals. We examine this key insight on organizational slack in the context of expatriate managers within multinational enterprises (MNEs). Expatriates are not only a viable way of examining the Penrosian concept of slack but, as an unique element of MNE management, expatriates also provide an opportunity to develop new insights into international business theory. Using a large sample of MNE subsidiaries, we found that when host country experience is comparatively low, subsidiaries with “excess” expatriate managers are more likely to experience inferior performance. Alternatively, expatriate slack is associated with a higher likelihood of superior performance in the context of comparatively high host country experience.