INTRODUCTIONAccording to the resource-based view of the firm, a firm's ability to achieve and sustain a competitive advantage is directly related to the strength of 'isolating mechanisms' that protect the firm's valuable and rare resources from imitation by rivals (Mahoney and Pandian, 1992;Rumelt, 1984). An important isolating mechanism is the firmKeywords: Firm-specific knowledge resources; employee human capital; employee governance mechanisms; resource-based view of the firm *Correspondence to: Heli C. Wang, Department of Management of Organizations, School of Business and Management, Hong Kong University of Science and Technology, Kowloon, Hong Kong. E-mail: mnheli@ust.hk specificity of resources. Resources with such a feature are not easily tradable or redeployable outside the firm (Dierickx and Cool, 1989), making it difficult for rivals to imitate them. Resourceand knowledge-based research generally maintains that among the types of firm-specific resources examined, firm-specific knowledge has the greatest potential to serve as a source of sustainable competitive advantage (Coff, 1997;Grant, 1996;Kogut and Zander, 1992).A firm's knowledge base is the information inputs, know-how, and capabilities that organizational members draw on when searching for innovative solutions (Dosi, 1988). Firm-specific knowledge often results from a search for, and accumulation of, new solutions that build upon