The Influence of Financial Slack on Firm Innovativeness: The Moderating Role of Board Size

Abstract

This study aims to investigate the influence of financial slack on firm innovativeness, with board of commissioners and the board of directors as moderating variables. The population of this study consists of 61 companies listed in the Indonesian Stock Exchange, but during the course of the research, some companies were eliminated due to incomplete relevant data from year 2016 to 2021. After the statistical analysis and modelling, this study found that financial slack does not influence firm innovativeness. Similarly, the moderating variables, board of commissioners and the board of directors, also do not moderate the influence of financial slack on firm innovativeness. Hence, the results contradict the hypothesized relationships. This study argues that these findings might be influenced by the economic conditions in Indonesia at that time of the COVID-19 pandemic. As a result, companies shifted their focus and priorities, placing a higher emphasis on the financial health and risk management of the company rather than using excess resources to enhance corporate innovation. While this study is limited to the available sample size, as not all companies allocate their funds for innovation activities, its novelty lies in the inclusion of the board of commissioners and the board of directors as moderating variables in examining the influence of financial slack on firm innovativeness. As such, the research model and findings contribute to the diversity of existing research outcomes on similar topics.