Organizational Slack, International Expansion, and Firm Profitability

International expansion is a viable growth strategy for firms operating in an increasingly competitive business environment. Understanding the relationship between international expansion and firm performance has been a significant concern for theory development in the strategy and international business literature. The extant literature, however, has paid insufficient attention to the tradeoff between firm growth and profitability that may imply the existence of an optimal rate of growth. Drawing from the Penrosian perspective that emphasizes the role of resources in firm growth, this study investigates whether and how firm slack resources affect the tradeoff between international expansion and profitability. Specifically, this study argues that there is an inverted-U shaped curvilinear relationship between international expansion and firm profitability, and uses resource-based view and agency theories to hypothesize how human and financial slacks affect the relationship.