Abstract
Slack is a resource held by a firm but exceeds its needs. It is crucial for a firm to raise more attention on slack when facing environmental shocks, which are one of the causes of unsustainability. Based on agency theory and behavioral theory, this paper analyzes the buffer effect of slack on market performance under different periods and degrees of environmental shocks. Taking two major earthquakes that occurred in China as the natural experimental background and the listed firms in hit areas as the sample, we find that environmental shock is exposed to acts as a positive contingency for the impact of unabsorbed slack on market performance, and as a negative contingency for absorbed slack’s effect. The severity of environmental shock promotes the unabsorbed slack to act as a buffer in the immediate post-shock period and absorbed slack in the during-shock period. These findings contribute to answering the question of how to configure slack to protect firms and even achieve sustainable development when facing environmental shock.
Highlights
Slack is a resource held by a firm but exceeds its needs
4, which argues that the severity of environmental shock positively moderates the effect of absorbed slack on market performance, receives partial support
Taking the Wenchuan earthquake and Ya’an earthquake as the natural experimental investigation, our findings confirm that the buffer effects of two types of slack are different for market performance after environmental shock
Summary
Slack is a resource held by a firm but exceeds its needs. It is crucial for a firm to raise more attention on slack when facing environmental shocks, which are one of the causes of unsustainability. Taking two major earthquakes that occurred in China as the natural experimental background and the listed firms in hit areas as the sample, we find that environmental shock is exposed to acts as a positive contingency for the impact of unabsorbed slack on market performance, and as a negative contingency for absorbed slack’s effect. The severity of environmental shock promotes the unabsorbed slack to act as a buffer in the immediate post-shock period and absorbed slack in the during-shock period. These findings contribute to answering the question of how to configure slack to protect firms and even achieve sustainable development when facing environmental shock. Extant studies have put forward various arguments and evidence to explain slack’s effects on managers’ behaviors and firms’ performances, especially on financial performance [5,12,13,14] and innovation performance [4,15,16,17], but seldom on market performance
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