The Dynamics of Japanese Firm Growth in U.S. Industries: The Penrose Effect

Zusammenfassung

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This paper proposes that multinational firms that are more capable in developing new managerial resources are less vulnerable to the Penrose effect in the process of international expansion. The paper hypothesizes that firms were more capable to achieve growth in consecutive time periods when they send more expatriates to the local operations and when they have greater home experience before entering into the local market. The empirical results based on a sample of Japanese investments in the US support the arguments.

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Auszug

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The Dynamics of Japanese Firm Growth in U.S. Industries: The Penrose Effect

Introduction

In the seminal research book of resource-based theory, The Theory of the Growth of the Firm, Penrose (1959) submits that a lack of managerial resources is typically the major obstacle that impedes the growth rate of a firm. Growth does not take place automatically, but must be planned strategically and implemented effectively by managers who have firm-specific experiences internal to the firm (Penrose 1959, Kor/Mahoney 2000, Pitelis 2002, Mahoney 2005). Because such managers must be developed within the firm and cannot be hired from the outside, the capacities of internally experienced managers set a limit to the expansion projects that a firm can undertake in any period of time (Rubin 1973, Slater 1980). Accordingly, a firm that expands rapidly in one time period is likely to incur managerial problems and consequently the firm's growth may stagnate in the subsequent time period. The logic here is essentially that the firm is not likely to be able to adjust timely its managerial resources to the desired level to deal with the increased organizational complexity that is typically associated with a rapid rate of firm-level expansion, leading to time compression diseconomies (Dierickx/Cool 1989) and dynamic adjustment costs (Lucas 1967, Treadway 1970, Mortensen 1973, Slater 1980).

The economic impact of managerial constraints on the rate of growth of the firm is cited as the Penrose Effect in the research literature (Marris 1963, Shen 1970, Hay/Morris 1991). A limited number of research studies have empirically examined whether the Penrose Effect exists (Shen 1970, Gander 1991, Thompson 1994, Shane 1996, Orser/Hogarth-Scott/Riding 2000, Tan 2003). In general, these research studies provide supportive, but not robust empirical evidence for the Penrose Effect, and the strength of the Penrose Effect varies with the types of expansion, and the firms considered in the samples (Tan/Mahoney 2005).

While these research studies improve our understanding of the economic impact of managerial constraints on the rate of the growth of the firm, at least two researc...

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