Slack resources and the rent-generating potential of firm-specific knowledge

• Main Authors: WANG, Heli, CHOI, Jaepil, WAN, Guoguang, DONG, John Qi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2016
• Subjects: firm-specific knowledge resources; financial slack; human resource slack; employee incentives; specialized human capital investments; firm performance; Corporate Finance; Human Resources Management; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3578; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4577/viewcontent/Slack_resources_and_the_rent_generating_av.pdf
• Institution: Singapore Management University

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.