Abstract
This study draws on upper echelons theory, the resource based view, and Penrose's theory of firm growth to show that slack resources, specifically financial and human slack, are essential to the research and development (R&D) strategies of organizations. We also suggest that both Chief Executive Officer (CEO) tenure and CEO compensation positively moderate the slack-innovation relationship. The empirical design compromised of panel regression analysis. We tested our hypotheses using all US publicly traded firms between 1993 and 2011. The research results show that firms with excess financial resources are more likely to have higher R&D investments, and to completely understand this relationship we must study CEO tenure and compensation. This study sheds light on central antecedents of firm innovation, it further extends our understanding by investigating the impact of CEO tenure and compensation on the slackinnovation relationship, and it applies a longitudinal design which answers previous calls to investigate this topic in more depth by offering enhanced stability to the results while allowing for different economic scenarios.
Highlights
This study enhances our understanding of the impact of organizational resources on firm innovation
We suggest that both Chief Executive Officer (CEO) tenure and CEO compensation positively moderate the slack-innovation relationship
This study sheds light on central antecedents of firm innovation, it further extends our understanding by investigating the impact of CEO tenure and compensation on the slackinnovation relationship, and it applies a longitudinal design which answers previous calls to investigate this topic in more depth by offering enhanced stability to the results while allowing for different economic scenarios
Summary
This study enhances our understanding of the impact of organizational resources on firm innovation. Excess resources may decrease efficiency, resulting in performance below the full potential of the available resources (Williamson 1963) These scholars argue that slack may interrupt the entrepreneurial process (Mosakowski 2002) and negatively impact entrepreneurial management (Bradley et al 2011). Building on the literature in the two broad categories of financial and human slack (e.g., Cooper et al 1994; Mishina et al 2004), we argue that slack is crucial to facilitating and sustaining innovation in organizations and suggest that such resources impact growth (Mishina et al 2004), and directly impact firm innovation. Do financial resources aid the R&D process from an operational point of view, they are essential to the acquisition of equipment, technology, new research labs, and the hiring of scientists
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