Abstract
This paper investigates the effect of both FS and HR slack together on firm performance and how different levels of these slack resources affect performance of private-owned enterprises (POEs) and state-owned enterprises (SOEs). Hypotheses are tested using a longitudinal data set of 11,985 listed Chinese companies from 2000 to 2009. Findings reveal that the unabsorbed-financial slack and HR slack show an inverse U shape relationship on firm performance for both POEs and SOEs. However, a less-negative interaction occurs for unabsorbed-financial and HR slacks for POEs. The absorbedfinancial and HR slacks also shows an inverse U shape relationship on performance and this relationship does not have a significant negative effect on SOE’s performance. The article concludes with theoretical contributions and practical implications of the findings.
Highlights
Resource slack is potentially utilizable resources, which can be diverted or redeployed for the achievement of organizational goals (George, 2005)
Using a longitudinal data set, we investigate the levels of financial slack (FS) and HR slack influence on firm performance and study how different levels of these slack resources affect performance of private-owned enterprises (POEs) and state-owned enterprises (SOEs)
We find some preliminary evidence suggest that FS and HR slack show positive associations with performance
Summary
Resource slack is potentially utilizable resources, which can be diverted or redeployed for the achievement of organizational goals (George, 2005). Agency theorists have cautioned that slack engenders agency problems; it causes inefficiencies in operations, hampers risk-taking, and reduces performance (Fama, 1980; Jensen & Meckling; 1976). To balance these two contrasting views, prior slack theorists suggested an inverse U-shaped slack–performance relationship (Bourgeois, 1981; Sharfman et al, 1988). In this relationship, the slack resource positively increases the firm performance up to a certain level. The financial slack (FS)– performance relationship shows an inverse U-shape for firms in developed countries
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