AN EMPIRICAL EXAMINATION OF MODERATING INFLUENCES OF ORGANIZATIONAL SLACK ON THE ASSOCIATION BETWEEN TMT CHARACTERISTICS AND THEIR FIRMS’ DEGREE OF SEARCH RISK-TAKING

Abstract

One remaining challenge in research on variable risk-taking by organizations is to reconcile mutually contradictory arguments on associations between organisational slack and organisational degree of risk-taking. We focus on moderating (rather than moderated) influences of organisational slack to argue that slack governs the strength of the association by unleashing the discretion of top management teams (TMTs), while the direction of the association depends on the characteristics of TMTs. Accordingly, as slack increases, organizations led by TMTs characterised by high-risk preference pursue risky search initiatives more aggressively, while decisions by TMTs characterised with low-risk preference grow more risk-avoiding. Our empirical examination of the Japanese electronic appliances industry from 2006 to 2017 empirically supports the argument with endogeneity robust inference on the coefficient of the slack variable. Organisational slack alleviates concerns over constraints on decisions, thereby unleashing discretion to pursue as well as to avoid search risk-taking.