Firm performance, rent appropriation, and the strategic resource divestment capability

Abstract

Dynamic capabilities manifest the organizational capacity to purposefully create or modify the firm's resource base. In this paper, we consider resource divestment an important firm-level resource management capability that manifests a two-step organizational change routine. Firms must first be motivated to engage in resource divestment, and then decide which resources should be 'sold off.' In exploring this firm-level capability, we employ factor market theory to consider the 'seller side' of the market, and provide a useful framework for conceptualizing how firms generate competitive advantage through resource divestment. We test our model of the resource divestment capability with a dataset of professional baseball franchises during the period 1969-83.

How do Firms Adapt? A Fuzzy-Set Analysis of the Role of Cognition and Capabilities in U.S. Defense Firms’ Responses to 9/11

“…The literature on cognition (e.g., Nadkarni & Barr, 2008) builds on Chakravarthy's account to emphasize the role of managerial attention to predict the occurrence-and nature-of firms' responses to environmental shifts (Barr, 1998;Fiol, 1990). A related stream on capabilities (Bradley & Aldrich, 2011;Peteraf & Reed, 2007) furthers Hrebiniak and Joyce's agenda, and examines how strategic choice, manifest in asset reconfigurations implemented in response to environmental change, affects firms' long-term adaptation to industry conditions (Moliterno & Wiersema, 2007). Below, we briefly review these two literatures before making the case for an integrative framework.…”

“…Rooted in the notion of "dynamic capability," this literature has focused on the Asset Reconfiguration → Adaptation link, and has looked at such asset reconfigurations as mergers and acquisitions (Karim & Mitchell, 2000), divestitures (Moliterno & Wiersema, 2007), and business unit reorganizations (Danneels, 2010). The profound influence of the resource-based view (Barney, 1991;Wernerfelt, 1984) on this research stream led to the working hypothesis that, by leveraging capabilities to reconfigure assets in a unique fashion, firms could perform certain tasks in superior ways and thereby gain an edge over competitors (Leiblein, 2011).…”

Virtuous or vicious cycles? The role of divestitures as a complementary Penrose effect within resource‐based theory

“…The related dynamic capabilities lens suggests that firms can change their resource base in efforts to maintain or renew competitive advantages (Helfat et al, 2007;Makadok, 2001;Teece, Pisano, & Shuen, 1997). Together, these arguments suggest that ongoing changes in the resource base can both help firms address low performance and create new competitive advantages (Helfat & Eisenhardt, 2004;Karim and Capron, 2015;Moliterno & Wiersema, 2007). The dynamic capabilities literature has examined how performance is affected by different modes of change, including acquisitions (Capron & Mitchell, 2009;Hennart & Park, 1993;Karim & Mitchell, 2000;Moatti, Ren, Anand, & Dussauge, 2015), internal development (Capron & Mitchell, 2009;Karim & Mitchell, 2004), alliances (Anand & Khanna, 2000;Castañer, Mulotte, Garrette, & Dussauge, 2014;Das & Teng, 2000;Dussauge, Garrette, & Mitchell, 2000;Kale, Dyer, & Singh, 2002;Kale & Singh, 2007), and -to a lesser extent -divestitures (e.g., Capron, Mitchell, and Swaminathan, 2001).…”

“…The mixed results highlight the need to investigate contingencies that shape the relationship. Building on recent suggestions concerning the conceptual relevance of performance feedback (e.g., Moliterno & Wiersema, 2007;Vidal & Mitchell, 2015), we focus on prior firm performance as a key contingency.…”

“…More recent studies suggest that high-performing firms also use divestitures to free up resources that can be reinvested in new opportunities (Kaul, 2012). Building on discussions of performance feedback (e.g., Gaba & Joseph, 2013;Greve, 1998), Vidal and Mitchell (2015) view this as a response to pressure for higher-performance firms to maintain their superiority, complementing performance feedback based on low performance (Moliterno & Wiersema, 2007). Thus, both low-and high-performing firms can use divestitures to free resources, but we have only limited understanding of how divestitures by low-and high-performing firms might affect subsequent performance.…”