This article analyzes the role of top management as a key resource in obtaining sustained, competitive advantage for thefirm. The nature of managerial skills is examined and linked to isolating mechanisms and firm rents. The article aims to refocus attention on the importance of managerial expertise as a rent-generating firm resource and implies greater alignment of top management-shareholder interests than in many applications of agency theory to the firm.

Managerial resources, defined as the skills and abilities of managers, are important contributors to the entire bundle of firm resources that enable some firms to generate rents. Here we build on our original analysis (Castanias & Helfat, 1991) and present an expanded classification of managerial resources, elaborate on how this classification relates to the fundamental resource-based characteristics of value, scarcity, inimitability, and difficulty of substitution, and highlight the issue of appropriability of rents from managerial resources. We then move well beyond the original analysis to examine a large number of empirical implications of our model, including many contingency factors, and discuss recent empirical research. Finally, we suggest extensions of the model to include managerial cognition and social capital, and draw implications for resource-based theory more generally.

This study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis. The alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments. Based upon the cross‐sectional implications of the tax shelter‐bankruptcy cost hypothesis, an alternative test of the irrelevance hypothesis is performed. The test examines the relationship between failure rates and leverage ratios for 36 lines of business. The results are inconsistent with the irrelevance hypothesis.

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Traditionally, economists have viewed social relations as "friction" or "impediments" to exchange and have excluded social relations from their analyses by assuming autonomous actors. Recently, however, a number of scholars-economists, sociologists, anthropologists, and other social scientists-have begun to discuss the numerous ways in which social arrangements both prompt and channel economic activity. Rational choice theory, social capital and network analysis, and agency and game theory, are among those approaches that consider the effects of social relations on economic action. In this paper we extend that discussion by arguing that social relations can function as "collateral" or assurance that an economic transaction will proceed as agreed by the parties involved. We review recent microeconomic theories and conjecture how they might be developed following this observation, which is derived from sociological and anthropological studies of economic action and organization.