Underutilized Productive Resources and National Institutions of Corporate Governance: Effects on Firm Innovation Strategy

University of Minnesota Ph.D. dissertation. July 2013. Major: Business Administration. Advisors: Alfred Marcus, Paul Vaaler. 1 computer file (PDF); ix, 187 pages.I investigate the role of underutilized firm resources in motivating firm efforts to innovate. Building on ideas originally articulated by Edith Penrose in The Theory of the Growth of the Firm (1959), I argue that the intensity with which firms engage in innovation development is influenced by heterogeneity in human and physical resource levels within the firm. Moreover, the strength of these relationships is contingent on variation in firm- and country level factors. Penrosian resources motivate firm innovation effort more strongly in firms with more extensive financial slack and during periods of slowing growth. At the national level, I argue that the extent to which Penrosian resources motivate innovation effort is contingent on the strength of national regulatory institutions that shape corporate governance. I test these arguments on a sample of more than 3,000 firms from 18 countries over the 1996 to 2005 time period. Arguments regarding the effects of national corporate governance institutions (NCGIs) are tested using a two-stage estimated dependent variable regression methodology that is novel to International Management research. Empirical tests reveal support for the main arguments. This dissertation contributes to management research by operationalizing Penrosian concepts of underutilized human and physical resources and demonstrating how levels of non-financial resources shape firm innovation strategy. At the same time, I establish links between home-country regulatory institutional structures and firm-level innovation strategy. When the rights of either minority shareholder or employee stakeholders are more protected by NCGIs, firm decision making with regard to the management of underutilized resources is constrained, moderating the strength with which Penrosian resources motivate innovation effort. Implications for managers and policy makers are provided