Working Papers Home


2014 Working Papers
2013 Working Papers
2012 Working Papers
2011 Working Papers
2010 Working Papers
2009 Working Papers
2008 Working Papers
2007 Working Papers
2006 Working Papers
2005 Working Papers
2004 Working Papers
2003 Working Papers
2002 Working Papers
2001 Working Papers
2000 Working Papers


Search All Papers


JEL Classification


Past Working Papers (Prior to 2000)


Office of Research
Home Page



Information on
Submitting a Paper



 
 
"Examining the penrose effect in an international business context: the dynamics of japanese firm growth in u.s. industries"

Danchi Tan and Joseph T. Mahoney

 

First Author :

Danchi Tan
National Chengchi University
64, Chih-nan Rd., Sec. 2
Wenshan, Taipei 11623
Taiwan

886 2 2939-3091 ext 81139
886 2 2938-7699 (Fax)

dctan@nccu.edu.tw


Second Author :

Joseph T. Mahoney
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Room 339 Wohlers Hall
Champaign, IL 61820
USA

217-244-8257
217-244-7969 (Fax)

josephm@uiuc.edu

http://www.business.uiuc.edu/faculty/mahoney.html

 
 
Abstract :
 
Penrose (1959) theoretically developed the research proposition that the finite capacities of a firm’s internally experienced managers limit the rate at which the firm can grow in a given period of time. One empirical implication that follows logically from this line of reasoning is that a fast-growing firm will eventually slow down its growth in the subsequent time period because its firm-specific management team, which is posited to be inelastic at least in the short run, is unable to handle effectively the increased demands that are placed on these internally experienced managers due to increased complexity as well as the time and attention that the new managers require from these internally experienced managers. Consequently, inefficiency in the firm’s current operations will follow if the firm maintains its high rate of growth. The research proposition that a firm cannot remain operationally effective if it maintains high rates of growth in successive time periods, and that consequently those firms with foresight typically will slow down their growth in the subsequent time period is known as the “Penrose effect” in the research literature, and this effect of dynamic adjustment costs has been examined and corroborated in a few empirical research studies. However, researchers have not yet examined the Penrose effect in an international business context.

The current paper examines the Penrose effect in an international business context by exploring whether Japanese firms achieve high growth in consecutive time periods in the entered U.S. industries. The empirical results indicate that, consistent with Penrose’s (1959) resource- based theory prediction, in general, Japanese firms did not maintain high employment growth in two consecutive time periods following their entry into U.S. industries. We also find empirically that for Japanese multinational firms that entered in U.S. industries where the extent of knowledge tacitness, globalization, and unionization was high, rapid expansion growth in one time period had negative impacts on growth in the subsequent time period. Thus, dynamic adjustment costs limit the rate of the growth of the firm and the development of dynamic capabilities in this international business context, which suggests that the Penrose effect may be widely applicable to international business and corporate strategy.
 
 
Keywords :
 
dynamic adjustment costs, dynamic capabilities, The Penrose effect
 
 
Footnotes & Acknowledgements :
 
We are grateful to Richard Levin, Alvin Klevorick, Richard Nelson, and especially Sidney Winter for providing us with the data from their paper in Brookings Papers on Economic Activity (1987).
 
 
Manuscript Received : 2003
Manuscript Published : 2003
 
 
This abstract has been viewed 2530 times.
Click here to view the full text of this paper.