Firm-specific Knowledge Research Articles

Slack Resources and the Rent-Generating Potential of Firm-Specific Knowledge

We examine how two types of slack resources relevant to knowledge employees—human resource slack and financial slack at the R&D functional level—influence the rent-generating potential of firm-specific knowledge resources. According to the resource- and knowledge-based views of the firm, firm-specific knowledge resources are critical for generating economic rents for a firm. However, without motivated knowledge employees investing in the corresponding specialized human capital in the process of absorbing and deploying firm-specific knowledge resources, the resource potential for rent generation would be greatly discounted. We argue that human resource slack among knowledge employees and financial slack available for R&D activities affect the rent-generating potential of firm-specific knowledge resources by influencing knowledge employees’ incentives to invest in specialized human capital. In particular, while financial slack facilitates rent generation of firm-specific knowledge resources by increasing employee incentives to invest in specialized human capital, human resource slack hinders it by reducing such incentives. Empirical results based on longitudinal R&D employment data, U.S. patent data, and Compustat support these arguments.

Exogenous Increase in Takeover Protection and Firm Knowledge Accumulation Strategy

The development and deployment of firm-specific knowledge (vis-à-vis general knowledge) are likely to require the firm's top managers to invest in a higher level of the corresponding specialized managerial skills. Managers may be concerned about engaging in such efforts if the firm is prone to takeover threats, because they are more likely to be replaced, and the value of their specialized skills is at greater risk. Thus, we argue that an exogenous increase in takeover protection may mitigate managers' concerns and lead to a firm's strategic shift toward accumulating more firm-specific knowledge. Moreover, with an increase in takeover protection, firm-specific knowledge may have a greater impact on a firm's financial performance. Our analysis of a large set of panel data supports these arguments. This study contributes to the resource-based view of the firm and corporate governance literatures by showing how they may be integrated to provide a better understanding of a firm's knowledge accumulation strategy and the governance effectiveness of market for corporate control.

Supply Portfolio Concentration in Outsourced Knowledge-Based Services

In the extant vertical integration literature, the question of how a firm's portfolio of outsourced work is managed across suppliers has been relatively understudied. We seek to advance this area of research by examining factors that influence how concentrated the firm's outsourcing is among its set of suppliers. Using data on the outsourcing of patent legal services, we find empirical evidence that outsourced knowledge-based service work is concentrated in the hands of fewer suppliers when (1) it requires greater firm-specific knowledge, (2) there is a higher level of interrelatedness across outsourced projects, (3) the firm's reliance on outsourcing is high, (4) its outsourced projects are focused on a narrower (capability) domain, and (5) the technological dynamism of this domain is low. Our study suggests that examining portfolio-level phenomena in outsourcing is a useful complement to the predominant focus on transaction-level outcomes in prior research because it provides insights into how firms manage trade-offs across their entire set of outsourced projects.

Beyond Window-Dressing: Antecedents And Consequences Of “Independent” Directors Selection

The passing of the Sarbanes-Oxley Act has witnessed the increasing of board independence among U.S. companies as they respond to the regulatory change by adding independent directors on their board. While supporters of Sarbanes-Oxley Act view the regulatory change as a positive step, skeptics perceive the rise of outsider representation on boards are nothing more than window dressing, as managers could appoint directors who comply to the definition of independent but are still under the management’s influence. We examine a panel of 2,736 U.S. public listed firms over 1999 to 2010 and found strong evidence that such “independent” directors selection is driven by the board’s need for control and advice in complex high information firms. The results suggests that firms respond to regulatory pressures while balancing the need for directors with firm-specific knowledge by appointing outside directors with prior ties to the incumbent board.

Are high-status firms more likely to be brokers?

When are high-status firms likely to bridge structural holes? Prior research has reported mixed findings on this important yet ambiguous relationship. Drawing on the motivation-opportunity-ability (MOA) framework, we contend that high-status firms may have both greater opportunity and ability to span structural holes, but often lack the motivation to do so. Specifically, we investigate motivation factors at multiple levels: firm-specific knowledge resources, portfolio technological diversity, and industry network density. Analyses of 330 firms in the US computer and pharmaceutical industries suggest that high-status firms will likely forgo brokerage opportunities when they own firm-specific knowledge resources, develop a diversified alliance portfolio, or are situated within a dense industry network.

The Resource-Based View of IT Business Value: Complementary Investments or Embedded Knowledge?

This paper tests a primary postulate of the Resource-Based View (RBV) of Information Technology (IT) business value. From this perspective, IT is not rare but pervasive, and it is only the combination of investments with other resources that makes the investment inimitable. Therefore, the effect of IT on firm performance cannot be direct effects, but rather firm performance can only be affected when IT expenditures are combined with other investments. This study tests this theory using panel data of large firms spanning seven years. Firm-level data is gathered from Compustat and matched to Information Systems (IS) Budget data. The results do not support the RBV postulate that IT Expenditure cannot have direct competitive advantage but must be combined with expenditure on other assets to effect firm performance. Instead, the results support the opposing hypotheses: IT expenditure and capital expenditures have independent, direct effects on firm revenue as well as firm profit, even in the presence of the interaction variable. The results imply that IT investments may be a source of direct competitive advantage, unlike the postulate of the RBV theorists. This may be because an IT system has embedded knowledge and creates knowledge, making it rare and imperfectly imitable. Rather than investing in generic IT systems and trying to obtain uniqueness from investments in complementary resources, firms can try embedding firm-specific knowledge when designing or modifying their systems and using their systems to create knowledge. This is the first study to test the RBV postulate that value from IT comes only with the combination of IT investments and investments in other assets and not from direct effects. By disproving this postulate, this study opens the door to new hypotheses based on knowledge in and from IT systems.

Organisational Support and Employee Commitment in Sri Lanka

AbstractThis study explores employees’ perceptions of organisational support, commitment, job satisfaction and turnover intentions in Sri Lanka Telecom (SLT). Organisational support involves the provision of valued financial benefits along with employees’ perceptions of support from supervisors and co-workers, and procedural fairness in decision-making. We found strong evidence that high levels of organisational support lead to employee reciprocity via increased affective commitment and job satisfaction and reduced turnover intentions. We also found evidence, albeit weaker, of a positive relationship between economic exchange and continuance commitment, where employees may be dissatisfied but stay because they have too much invested in firm specific knowledge and skills. The firm provided above average compensation and benefits and with limited alternative job opportunities in the formal economy in Sri Lanka the costs of leaving the organisation are likely to have outweighed the costs of staying.

Firm performance and knowledge spillovers from academic, industrial and foreign linkages: the case of China

Firm performance may be enhanced by linkages with academic institutions, other firms, and foreign markets that confer knowledge spillovers as well as internal R&D that creates firm-specific knowledge. In particular, firm productivity and innovation may be enhanced by positive externalities from knowledge and technology produced by universities and research institutions (URIs) and diffused to the domestic economy. Productive contributions from such linkages might be particularly expected in China, where policy measures have explicitly supported and facilitated connections between URIs and firms to stimulate economic development and competitiveness. In this paper, we measure the performance impact of such knowledge spillovers in Chinese firms by using a variety of specifications, estimators, and robustness checks, including an “instrumental variable” specification that controls for endogeneity. We find more patent activity in Chinese firms with URI connections and enhanced firm productivity particularly from linkages with research institutions (RIs). Introduction of new products, processes, and new businesses is also positively associated with linkages with research institutions, as well as with linkages with other firms.

Relazioni sistemiche tra imprenditorialità interna e gemmazione d’impresa: una ricerca empirica sulla natura cognitiva delle nuove imprese

The management of knowledge is increasingly considered as a main source of competitive advantage for corporations. It is argued that companies enjoy a competitive advantage if they know how to expand, disseminate and exploit organizational knowledge internally. Moreover, to achieve those goals the executive body is required to encourage knowledge sharing, flexibility, and adaptation to change, by spreading the entrepreneurial learning throughout all the levels of the organization. Although this attitude has positive results as it favours a better circulation of know-how within the company, on the other hand it may also generate upsetting behaviours leading to hostile spin off processes, as a result of the employees’ stratification of tacit knowledge and of cognitive maps. Then, this study assumes and empirically tests the possible relationships between firm specific knowledge stratification and corporate spin offs. By the way, spin off is assumed to be an adequate instrument for the spontaneous or induced transfer outside the parent company of tacit behavioural models, apparently similar to organizational routines, but as a matter of fact much more complex and refined: the cognitive scripts.

Supply Portfolio Concentration in Outsourced Knowledge-Based Services

In the extant vertical integration literature, the question of how the firm's portfolio of outsourced work is managed across suppliers has been relatively understudied. We seek to advance this area of research by examining factors that influence how concentrated the firm's outsourcing is among its set of suppliers. Using data on the outsourcing of patent legal services, we find empirical evidence that outsourced knowledge-based service work is concentrated in the hands of fewer suppliers when: (1) it requires greater firm-specific knowledge; (2) there is a higher level of interrelatedness across outsourced projects; (3) the firm's reliance on outsourcing is high; (4) its outsourced projects are focused on a narrower (capability) domain; and (5) the technological dynamism of this domain is low. Our study suggests that examining portfolio-level phenomena in outsourcing is a useful complement to the predominant focus on transaction-level outcomes in prior research because it provides insights into how firms manage tradeoffs across their entire set of outsourced projects.

Industrial Design as a Source of Innovation of the Firm: Knowledge, Linkages and Dynamic

Exploring the sources of innovation of the firm has central in the economics of innovation research. While both internal and external sources of innovation have been addressed, R&D activity is regarded as the main internal source of innovation and learning. Using a multiple case study approach, this articles investigates the role of industrial design as an internal source of innovation and learning of the firm. It arises that innovation activity in industrial design is characterized by firm-specific knowledge and learning processes, as well as intra-functional linkages within the firm and outside it. Also, industrial design stimulates not only product innovation, but also process innovation.

Board structure and price informativeness

We develop and test the hypothesis that stock price informativeness affects the structure of corporate boards. We find a negative relation between price informativeness and board independence. This finding is robust to the inclusion of many firm-level controls, including firm fixed effects, and to the choice of the measure of price informativeness. Consistent with the hypothesis that price informativeness and board monitoring are substitutes, this relation is particularly strong for firms more exposed to both external and internal governance mechanisms and for firms in which firm-specific knowledge is relatively unimportant. Our results suggest that firms with more informative stock prices have less demanding board structures.

Breaking the boardroom gender barrier: the human capital of female corporate directors

Although there is a paucity of female corporate directors in Canada, women are slowly managing to break the gender barrier of all-male boards of directors. Using resource dependency theory a model is developed that identifies the human capital characteristics that contribute to a woman being appointed to an all-male board. The model is tested on a sample of 193 Canadian firms that appointed women to their boards of directors between 1996 and 2004. The results show that women who are appointed to all-male boards have specialized knowledge skills; either they have firm-specific knowledge as insiders, or they are support specialists with a specific financial or legal expertise.

TOO SICK TO START: ENTREPRENEUR'S HEALTH AND BUSINESS ENTRY IN TOWNSHIPS AROUND DURBAN, SOUTH AFRICA

Unlike large firms with management teams, small businesses are usually run by one key person, the owner-entrepreneur, who bears almost all of the risks and makes almost all of the decisions related to the business. Because the owner-entrepreneur also embodies most of the firm-specific knowledge capital, health of the owner-entrepreneur is an important factor in the production process. Following a cohort of respondents in townships around Durban, South Africa, over a three-year period, we examined the relationship between an individual's physical health and the decision to start a business. Our results suggest that respondents who were recent business entrants were in better health than respondents who did not start new businesses. Moreover, respondents without a business at the beginning of the study who later opened businesses during the three-year study interval were significantly more likely to have better baseline health than those respondents who never started a new business. Hence, good health among entrepreneurs seems to be an important prerequisite to small business entry.

The Rise in Executive Compensation - Consequence of a ‛War for Talents‛?

The rise in executive compensation has triggered a great amount of public controversy and academic research. Critics have referred to the salaries paid to managers as “pay without performance”, while defenders have countered that the large salaries can be explained by a “war for talents”. This research tests whether a war for talent provides an explanation. The rise in executive compensation in recent years is explained by the assumption that, over the past decades, general managerial skills have become more important relative to firm-specific knowledge for the production of managers. A shift toward transferable managerial skills requires higher compensation, particularly in large firms, to attract and retain managerial talents. Relying on an internationalized and deregulated managerial labor market, i.e. the Swiss banking sector, the empirical findings confirm that a shift toward transferable managerial skills in large firms is indeed an explanation for the rise in executive compensation. However, the shift towards transferable managerial skills in large firms does not improve firm performance, giving no supporting evidence for a war for talent. It is discussed how transferable managerial skills may used to legitimize higher compensation at the top, e.g. by promulgating definitions of talent in elite labour markets.

Knowledge, Learning and Competitive Advantage: Implications for the Management Profession

Developing and effectively using firm-specific, idiosyncratic knowledge in a firm is becoming fundamental for the formation of sustainable competitive advantages. The issue unavoidably touches upon learning and management topics (motivation, compensation, etc.) A central one has to do with how to adequately compensate employees who make a learning effort to develop knowledge which, to the extent that is firm-specific, is of no value outside their firm. We argue that economic compensation is not enough because firm specific knowledge is by nature so close to the firm's own core that it deters employees' values in dimensions that can't be reduced to purely economic terms. An incentives-based approach to confront the problem reveals significant implications for the management profession which, in turn, suggest requirements for management education.

CEO Appointments and the Loss of Firm-Specific Knowledge - Putting Integrity Back into Hiring Decisions

A rarely studied trend in corporate governance is the increasing tendency to fill CEO openings through external hires rather than through internal promotions: Kevin J. Murphy and Jan Zabojnik (2004) show that the proportion of outside hires has doubled and their pay premium almost quadrupled over the last thirty years. Assuming that general managerial skills are becoming more important relative to firm-specific skills, the authors conclude that competition in the managerial labor market establishes optimal contracts. In our model and our empirical analysis we question this explanation by assuming that over the past decades the dishonesty of the predecessor has become relatively more important for the appointment decisions of firms. We conclude that outside hires are a suboptimal trend because external candidates even step up the regression of integrity in firms: As nobody has an incentive to invest in firm-specific knowledge, not only the performance of firms drops, but also the remaining integrity.

R&D intensity, value appropriation and integration patterns within organizational boundaries

Complementary insights from Transaction Cost Economics (TCE) and the Resource-Based View (RBV) of the firm are combined to predict the relationship between firm specific technological knowledge and patterns of integration within organizational boundaries. The findings show that the level of Research and Development (R&D) intensity (representing the creation of firm specific technological knowledge) has an inverted U-shaped relationship with the propensity of firms to integrate activities within organizational boundaries. At low levels of R&D intensity, firms’ propensity to integrate their activities is low, but increases with escalating levels of R&D intensity in order to avoid the misappropriation of value generated by technological knowledge. However, beyond a certain R&D intensity level, the propensity to integrate activities declines, since the level of technological knowledge is high enough to prevent imitation by third parties. As expected we further find that firms which follow this integration pattern outperform those which do not. As the level of R&D intensity increases, the integration of production and marketing activities enables firms to improve performance until a certain R&D intensity threshold, after which such integration negatively affects performance.

Labor Hoarding in Russia: Where Does it Come From?

The paper focuses on the labor hoarding problem in Russia. We studied two forms of hoarding: unpaid leaves and short-time work. Our research is based on the Russian Longitudinal Monitoring Survey (RLMS) database. The paper exploits individual panel data between 1994 and 1996. We show that unpaid leaves and short-time work do not represent a form of hidden unemployment. Both types of labor hoarding reflect the nature of employees' professional competencies. First, unpaid leaves concern primarily the employees with firm-specific knowledge, while short-time work affects strongly unskilled workers. Second, external mobility is mostly related to young people and unskilled blue-collar workers while employees with specific competencies do not change jobs so much. The paper insists on significant internal adjustments which are taking place through unpaid leaves and short-time work. This explains why there has been no massive unemployment in Russia until now. In conclusion, Russian labor market is characterized rather by internal flexibility than by labor hoarding.

Opening services markets within Europe: Modelling foreign establishments in a CGE framework

Foreign direct investment (FDI) in services is often more important to supply foreign markets than cross-border trade. A complete analysis of services liberalization therefore requires the modelling of FDI. This paper presents the treatment of FDI in our CGE model WorldScan based on the ideas of Petri [Petri, P.A., 1997. Foreign direct investment in a computable general equilibrium framework. Paper Prepared for the Conference, Making APEC work: Economic Challenges and Policy Alternatives, March 13–14. Keio University, Tokyo] and Markusen [Markusen, J.R., 2002. Multinational Firms and The Theory of International Trade. MIT Press] that firms which establish affiliates abroad also transfer firm-specific knowledge. Consequently, capital owned by suppliers from home and foreign countries are not perfect substitutes. We apply this model to the proposals of the European Commission to open up services markets. Even when FDI in services could increase by 20% to 35%, the overall economic impact is limited. Our assessment suggests that GDP in the EU25 could increase up to 0.4%. These effects could be up to 0.8% higher if foreign capital also increases the overall productivity of the services sector.