Strategic Management Review > Vol 5 > Issue 1-2

Agency Theory and Slack Resources: A Penrosean Analysis of Innovation Strategy

Ram Mudambi, Frank M. Speakman Professor of Strategy, Fox School of Business, Temple University, USA, , Tim Swift, Professor, Strategic Management, Director, Pedro Arrupe, SJ Center for Business Ethics, Haub School of Business, Saint Joseph's University, USA,
Suggested Citation
Ram Mudambi and Tim Swift (2024), "Agency Theory and Slack Resources: A Penrosean Analysis of Innovation Strategy", Strategic Management Review: Vol. 5: No. 1-2, pp 75-90.

Publication Date: 08 Apr 2024
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Innovationslack resourcesagency theoryPenrose


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In this article:
Penrose and Contemporaneous Work 
More Recent Views of Penrose 
The Way Forward: A Penrosean Model of Innovative Activity 
Concluding Remarks 


Starting from roots in the Austrian School of Economics, Edith Penrose's work rejected some of the key assumptions of neoclassical economics. She argued that firms are heterogenous and that they each rely on an idiosyncratic bundle of resources in order to invest and grow. Over the years, many scholars have traced the resource-based view of the firm to her work, while a significant number dispute the extent of this intellectual connection. Her work also raised many questions that remain core to this day. In this paper, we describe the precise nature of Penrose's unique contribution and how it has been modified and improved over time in the specific context of innovation strategy. We develop an analytical model integrating her insights with agency theory. In so doing, we demonstrate that agency theorists' advocacy of strong corporate governance (to curb managerial opportunism) and minimization of slack have opportunity costs. These costs arise as restrictions on managerial freedom of action and access to liquid resources may simultaneously inhibit innovation efforts.



Strategic Management Review, Volume 5, Issue 1-2 Special Issue in Honor on Edith Penrose and The Theory of the Growth of the Firm
See the other articles that are part of this special issue.