Abstract
We address the puzzle of why in times of plenty, entrepreneurial firms do not uniformly invest their slack resources in R&D to sustain growth and competitiveness over time. We argue that understanding the slack-R&D investment relationship is incomplete without accounting for different types of slack, their trajectories (accumulation trendlines and change over time), and the institutional instability of firms’ operating contexts. Depending on internal and external uncertainties, slack can buffer defensively against these threats or be deployed proactively to support R&D. We test our hypotheses in the world’s largest emerging market by using a sample of 106 Chinese entrepreneurial firms operating from 2010 to 2015. By developing new theoretical perspectives regarding the dynamic nature of slack trajectories and institutional contexts in which slack-based investments are made, our results help reconcile mixed findings reported in prior research and illustrate the challenges firms confront when they commit slack to long-term, risky R&D investments.
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