Organizational Slack, National Institutions, and Innovation Effort

Abstract

Research grounded in the behavioral theory of the firm (BTF) has elaborated on the role slack plays in supporting efforts to innovate in firms, but the BTF fails to account for moderating effects that national corporate governance institutions (NCGIs) may have on this firm-level relationship when studied on a cross-country basis. In response, we develop a cross-level theoretical framework assuming that countries differ in their NCGI protections related to two firm stakeholders — shareholders and employees — and that such NCGI protections moderate the firm-level relationship between different types of slack and innovation effort in firms. We test predictions derived from our framework using a sample of more than 7,000 firms from 29 countries observed from 1991-2005. 2-stage firm- and country-level estimated dependent variable analyses of these slack types and their impact on firm RD but 2) stronger NCGI employee protections magnify positive HR slack effects on R&D intensity consistent with the logic that more influential employees induce managers to increase commitment effects promoting innovation effort. Cross-country research on the relationship between firm slack and innovation effort can and should account for substantial differences in country-level NCGIs that show little tendency toward convergence in the near term.