The Definition of Strategic Liabilities, and their Impact on Firm Performance* Richard J. Arend University of Nevada, Las Vegas  Strategic Liabilities are processes and tangible and intangible holdings that are firm-specific, context-specific and create competitive disadvantage. They are scarce, inconvertible, costly, and appropriated. The concept of Strategic Liabilities contrasts and complements the resource-based view’s Strategic Assets. A firm is likely to possess Strategic Liabilities at some time because these liabilities can originate from endowments, from bad luck, from Strategic Assets, from rival actions, and from unfavourable changes in context. They represent the other side of the firm’s ledger often implicitly ignored in the strategy literature. Thus, the formal definition and analysis of Strategic Liabilities is warranted. INTRODUCTION Recent literature has done much to add to our understanding of the resource- based view (RBV) of the firm (Barney, 1986, 1989, 1991, 2001; Penrose, 1959; Teece et al., 1997; Wernerfelt, 1984). Scholars have both praised it (Conner, 1991) and criticized it (Priem and Butler, 2001). Scholars have also put effort into clari- fying its requirements (Peteraf, 1993), its applicability (Amit and Schoemaker, 1993; Mahoney and Pandian, 1992) and its span (Dierickx and Cool, 1989; Kor and Mahoney, 2004; Lockett and Thompson, 2004; Rugman and Verbeke, 2004). Several of the most recent re-examinations of the RBV focus on the issue that the RBV only tells half the story; the RBV considers only factors that positively con- tribute to sustained performance (Powell, 2001; West and DeCastro, 2001). This paper begins to tell the other half of the story, starting by bringing together the substantial amount of work that already focuses on factors that detract from a firm’s performance. The reason and importance for such analyses are self-evident; analysis of performance without considering negative causes is akin to model mis- Journal of Management Studies 41:6 September 2004 0022-2380 © Blackwell Publishing Ltd 2004. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. Address for reprints: Richard J. Arend, College of Business, University of Nevada, Las Vegas, 4505 Maryland Parkway, Box 456009, Las Vegas, Nevada 89154-6009, USA (Richard.Arend@ccmail. nevada.edu).