Concluding Remarks
This paper provides evidence of the association between organization capital and FLC. Extant studies suggest that organization capital (e.g., business practices, processes, systems, designs and unique corporate culture) develops the resource base for the firm, and serves as a source of sustainable competitive advantage. Building on these studies, we hypothesize that firms with more organization capital are likely to be in the introduction (and decline) stage as these firms focus more on developing sustainable competitive advantage, either to deter potential entrants or to deepen organizational practice, process or culture. On the other hand, firms with less organization capital are likely to be in the growth and mature stage as these firms are more concerned with maximizing benefits from their existing stock of organization capital. Our empirical results confirm these predictions. Our analysis also shows that firms that invest more in organization capital are less likely to move to unfavorable life cycle stages: i.e., the introduction, shake-out or decline stages, in subsequent years. These results concur with the findings of Lev et al. (2009) that organization capital is a source of future benefit and that it is associated with future firm performance. We triangulate our results by using different measures of organization capital and FLC proxies, and eventually find that they are robust. Overall, our empirical evidence contributes to the growing body of literature that focuses on organization capital. Our primary contribution is to extend this body of research by documenting the association of organization capital with the FLC and its progression, confirming the long-held view among economists that firm life cycle is driven by organization capital. Our findings strongly support the RBV of competitive advantage as well as FLC theory.
