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Abstract
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This paper investigates why some firms make more effort to innovate than others. Building on ideas articulated by Edith Penrose in The Theory of the Growth of the Firm (2009), I develop a theoretical framework articulating how the intensity with which firms engage in innovation development to heterogeneity in levels of human and physical resource that motivate such activities. The distinction between these forms of absorbed slack and unabsorbed slack, allows us to integrate a Penrosian logic on innovation-motivating forms of slack with a logic on slack-enabled innovation articulated in the behavioral theory of the firm research tradition (Cyert & March, 1992). Empirical tests examining the R&D intensity of 2, 231 US manufacturing firms between 2000 and 2014 provide support for the arguments. Greater levels of human and physical resource slack are associated with increased firm innovation effort. These effects are magnified when firms simultaneously possess more extensive unabsorbed financial slack.
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