How organizational slack affects new venture performance in China: a contingent perspective

Abstract

PurposeThe purpose of this paper is to investigate the relationships between organizational slack, environmental characteristics, and new venture performance in China. The paper focuses on how different types of organizational slack, such as absorbed slack and unabsorbed slack, impact Chinese new venture performance. And it also examines the moderating effects of environmental characteristics, such as munificence and dynamism, on the slack‐performance linkage in Chinese transitional context.Design/methodology/approachA literature review on organizational slack and institutional environment characteristics provides the model and hypothesis. Using a sample of 91 Chinese new ventures, the authors conduct the examination on the theoretical model and hypotheses.FindingsThe results show that the relationship between absorbed slack and new venture performance is negative and unabsorbed slack has an inverse U‐shaped effect on new venture performance. Furthermore, the institutional environments, such as munificence and dynamism in transitional economies have different moderating effects on the relationship between organizational slack and new venture performance.Research limitations/implicationsThis study focuses on the new ventures of China, which is context specific. It is necessary to replicate this research in other transitional economies because of some specific differences between China and other transitional economies.Practical implicationsThe results of the study suggest that new ventures should strengthen the management of resources and decrease absorbed slack in order to reduce the managerial cost, and then raise the level of resource utilization. In addition, how the new ventures make better utilization of organizational slack to deal with institutional environment uncertainty would be a core task in future business operations.Originality/valueThe paper is original in its investigation of the effect of organizational slack on new venture performance in contingent transitional environments. The paper explains the relationship between different types of organizational slack and new venture performance from a contingent perspective, thus extending the extant research.