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How do resource attributes affect firm boundaries? Examining the differential impact of asset specificity and firm specificity on activity governance (RV of 2005/60/ENT/ACGRD)

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We develop a theory of firm boundaries that considers: (i) the asset specificity of the resources that enable an activity; (ii) their firm specificity; and (iii) the firm's endowment with these resources. Our theoretical framework, which synthesizes and bridges transaction-cost and resource-based perspectives, leads to new predictions about activities that should be outsourced (market governance) versus those that should be undertaken within firm boundaries (hierarchical governance). For example, in the case where a firm is endowed with firm-specific resources and asset specificity is low, our theory suggests that a hierarchal form of governance is preferred. In another case where the firm is not endowed with the activity-enabling resources, asset specificity is high, and firm specificity is low, our theory suggests that a market form of governance is more likely when the ex ante opportunity costs of the resources are high.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2006/2006-32.pdf

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Copyright INSEAD. All rights reserved