Rethinking the effectiveness of asset and cost retrenchment: The contingency effects of a firm's rent creation mechanism
Article first published online: 12 JUN 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 1, pages 42–61, January 2013
How to Cite
Lim, D. S. K., Celly, N., Morse, E. A. and Rowe, W. G. (2013), Rethinking the effectiveness of asset and cost retrenchment: The contingency effects of a firm's rent creation mechanism. Strat. Mgmt. J., 34: 42–61. doi: 10.1002/smj.1996
- Issue published online: 29 NOV 2012
- Article first published online: 12 JUN 2012
- Accepted manuscript online: 29 MAY 2012 10:22AM EST
- Manuscript Revised: 23 MAY 2012
- Manuscript Received: 2 APR 2010
- Ricardian rent;
- Schumpeterian rent;
- resource-based view;
This paper posits that the efficacy of different retrenchment strategies depends upon the firm's core rent creation mechanism. We focus on two distinct mechanisms of rent creation: Ricardian rent creation based on the exploitation of resources and Schumpeterian rent creation based on explorative capabilities. We argue that cost retrenchment may have detrimental effects on firms with a relatively high Schumpeterian rent focus. On the other hand, asset retrenchment may erode the basis for future rent creation for firms with a higher Ricardian rent focus. Our findings based on a sample of large nondiversified Japanese firms highlight the differing degrees of fragility and recoverability of the two rent creation mechanisms in the context of different retrenchment strategies. Copyright © 2012 John Wiley & Sons, Ltd.