Organizational Slack Research Articles

Performance Outcomes of Investing Slack Resources in Corporate Social Responsibility

Our study examined relationships among slack resources, investment in corporate social responsibility (CSR) and firm performance, finding that accounting and market returns respond differently to investments of slack in CSR. Although accounting returns to both financial and organizational CSR investment were positive, equity markets reward organizational slack but punish financial slack investments. Moreover, distinguishing among forms of CSR indicates that both accounting and market returns respond much more positively to investment in stakeholder protection than to investment in stakeholder improvement. Finally, risk, strategy, and governance are mediating mechanisms partially explaining CSR effects but not to the extent we expected.

Firm ownership structure impact on corporate social responsibility: evidence from austerity U.K.

ABSTRACT Corporate social responsibility (CSR) has become an increasingly important sustainable development issue in U.K. The main contribution of this study is to examine how firm ownership structure impacts good corporate governance and CSR in U.K. during austerity conditions. Following the financial crisis of 2007–2008, the U.K. government introduced austerity conditions which impacted firm CSR activities. From the initial sample of more than 250 firms, 50 consistently remain listed on the FTSE4good index during 2008–2012 and are analysed. The definition of CSR distinguishes voluntary and mandatory CSR construct. Findings indicate Board ownership structure and satisfactory firm performance impact on the level of voluntary CSR. Board ownership results suggest increased institutional and non-CEO shareholdings support a higher level of voluntary CSR engagement, whilst increased CEO shareholdings lead to a lower level of investment in voluntary CSR. In terms of satisfactory firm performance, results suggest positive attainment discrepancy supports a higher level of voluntary CSR, whereas greater potential organisational slack leads to a lower level of voluntary CSR investment. Effective governance and voluntary CSR association is more pronounced under conditions of high attainment discrepancy and low organisational slack. The findings suggest implications for adapting firm decision-making latitude and government policy between austerity and prosperity conditions.

The mixed gamble of internationalization in family and nonfamily firms: The moderating role of organizational slack

Research Summary: The unique preferences of family firms may lead to internationalization strategies that differ from those of nonfamily firms. Furthermore, heterogeneity among family firms may lead to variation in internationalization. From the mixed gamble perspective, we examine the internationalization of different types of family firms (weak family owned, strong family owned, and family owned and managed), as well as nonfamily firms, considering how differences in family involvement alter the perceptions of potential gains and losses to socioemotional and financial wealth. We also highlight the varying sensitivities of nonfamily firms and types of family firms to the effects of available and recoverable slack. Our findings underscore differences in internationalization strategies among family and nonfamily firms and demonstrate that slack alters the mixed gamble calculus of internationalization for the different types of firms.Managerial Summary: Whether family firms internationalize more or less than nonfamily firms is debated. We aim to reconcile this debate by investigating the extent and breadth of internationalization and home region orientation. We propose that inconsistent results regarding family firms’ internationalization are due to their heterogeneity whereby family ownership and management lead to different preferences. Study results support our framework by demonstrating that while nonfamily firms exhibit the highest levels of internationalization, there is much variance among family firms. Additionally, we demonstrate that financial slack further explains differences between family and nonfamily firms. Our study therefore offers a richer understanding of family and nonfamily firms’ internationalization and reveals significant differences among family firms that suggest family owners and managers view the risks of internationalization differently.

Uncovering moderators of organisational ambidexterity: evidence from the pharmaceutical industry

Our manuscript advances the growing literature on organisational ambidexterity by arguing that organisational ambidexterity more positively influences organisational performance when there are more learning obstacles to pursue both exploitation and exploration. Extending this argument, we identify five conditions under which organisational ambidexterity more positively influences long-term organisational performance. The conditions include the degree of environmental dynamism, competition, organisational size, organisational slack and organisational senescence. An empirical analysis of 50 pharmaceutical firms’ new product development characteristics and financial performance over a 20-year period supports our argument. Our findings inform future research on organisational ambidexterity by more specifically explaining the way in which organisational ambidexterity enables organisational survival and prosperity.

Does strategic planning help firms translate slack resources into better performance?

AbstractIs organizational slack good or bad for firm performance? Research addressing this question has obtained mixed results. Such studies have focused mainly on the impact of environmental conditions on the slack–performance relationship. In this study, instead of focusing on the uncontrollable external environment, we consider actions determined by firms internally, in particular strategic planning. Using data from 183 US firms, we explore the connection between organizational slack and firm performance with different levels of strategic planning. The results suggest that at low levels of strategic planning the slack–performance relationship is linear, while at high levels of strategic planning this relationship is inverse U shaped. We discuss the theoretical and practical implications of these findings.

Enabling or constraining? Unraveling the influence of organizational slack on innovation

We employ theories of organizational search and agency costs to propose a contingency perspective that reconciles mutually contradictory prior findings on the relationship between organizational slack and innovation. First, we argue that influences of organizational slack depend on whether we consider exploitative innovation or exploratory innovation. Further, absorbed slack and unabsorbed slack differ in their forms of relationship with innovation. The ways in which a certain type of innovation is enabled by organizational slack are conditioned by distinct modes of organizational search associated with alternative types of innovation, as well as by the extent to which effective shareholder monitoring is disturbed by different types of organizational slack. An empirical analysis of 37 Japanese pharmaceutical firms’ new product developments over a 20-year period supports our argument.

Procurement with Asymmetric Information About Fixed and Variable Costs

We investigate optimal rationing of resources and organizational slack when a principal procures from an agent with private information about fixed and variable costs. We study the problem in a two‐period setting with persistent types and investigate how the optimal rationing and slack depend on whether production increases or decreases over time. We find that rationing in a dynamic model with persistent types is extra costly, since the types that are eliminated in period 1 might have been attractive in period 2. The cost of rationing increases with the variability of production. If production levels are increasing (decreasing), the principal will be cautious when eliminating types with low variable (fixed) costs in period 1, since these types are particularly profitable in period 2. When production is more stable over time, harsher rationing can be applied in period 1, followed by less harsh rationing, if any, in period 2.

Moderating Effect of Organizational Slack on Organizational Renewal: The Dynamic Capabilities Approach

Moderating Effect of Organizational Slack on Organizational Renewal: The Dynamic Capabilities Approach

Big Egos Can Be Green: A Study of CEO Hubris and Environmental Innovation

AbstractThis paper examines whether and to what extent CEO personal traits (hubris, in particular) affect firm environmental innovation. Using the overarching theoretical framework of upper‐echelons theory, the paper builds on the insights from the corporate strategy, innovation, and corporate social responsibility literatures. We also examine the moderating role of firm‐specific features (e.g. organizational slack) and the external environment (e.g. market uncertainty) in this context. Based on a sample of UK companies operating in sensitive industries, we find that CEO hubris facilitates the engagement in green innovative projects. We also find that CEO hubris does not have a uniform effect: its effect on environmental innovation increases with the organizational slack, but weakens with the extent of environmental uncertainty. Our findings suggest that availability of resources per se is not enough to produce environmental innovation. Instead, it requires a stable external environment that enables the CEO with a hubristic personality to make a correct use of them.

Ambidextrous search and product innovation: moderating effects of resource and structural attributes

This study examines how ambidextrous search strategy that conjointly pursuing technology search and market search affects innovation, as well as under what circumstances this relationship would be improved. In particular, we develop a model suggesting that a firm’s resource and structural attributes significantly shape the relationship between ambidextrous search and innovation. Using a data set composed of 233 firms, this study finds that ambidextrous search in terms of the interaction between technology search and market search plays a negative role in product innovation. Further, the relationship between ambidextrous search and innovation is positively moderated when the firm has more slack resources, or is less formalized. In particular, the firm characterized by high organizational slack and low formalization is the best at gaining innovation benefits of ambidextrous search. The findings enrich the discipline’s knowledge on the implications of search patterns especially regarding the question of how to maximize their contributions to product innovation.

Pengaruh Struktur Kepemilikan, Pelanggan dan Slack Organisasi Terhadap Pengungkapan Tanggungjawab Sosial Perusahaan (Studi Empiris Pada Perbankan Indonesia Yang Terdaftar di BEI Tahun 2013 – 2015)

The purpose of this study was to test the effect of ownership structure, customer and organizational slack on the disclosure of corporate social responsibility in the annual report of the Indonesian banking sector in 2013 through 2015 are listed in the Indonesia Stock Exchange (BEI). This research is quantitative using simple random sampling method. The data used in this study secondary data, banking 2013-2015 annual report. Sources of data obtained through the website of the Stock Exchange data using eviews with OLS regression.The results of the study hypothesis for H1a, H1b, and H1c which influence the structure of ownership (concentrated ownership, government, and foreign) on the disclosure of corporate social responsibility, is accepted. As for the hypothesis H2 and H3 that influence customer and organizational slack on the disclosure of social responsibility, rejected. This study found that organizational slack regarded as costs by the company not as a source of additional power while the customer does not care about social responsibility then this may affect the disclosure of CSR in the banking sector.

Knowledge creation through joint venture investments: The contingent role of organizational slack

Drawing on the literature on joint venture learning, we propose that a parent company’s investment in joint ventures (JVs) is central to understanding knowledge learning and the firm’s consequent performance. This study suggests that there is an inverse U-shaped relationship between the number of JV investments and knowledge creation. Moreover, a parent company’s absorbed slack, unabsorbed slack and experience with JVs suppress the negative effects of higher JV investments on knowledge creation. Poisson, negative binomial and generalized two-stage least squares regressions are used to test the hypotheses in a panel data of 2734 firm-year cases. The findings support our predictions.

Ambidextrous Strategy and Firm Performance: The Moderating Effects of Organizational Slack and Organizational Life Cycle

The relationship between ambidexterity and firm performance holds a prominent place in the literature. However, studies that examine the conditions under which ambidexterity leads to success are relatively scarce. Based on a sample of 226 firms in China, this study examines the moderating effects of organizational slack and organizational life cycle on the relationship between balance dimension of ambidexterity and combined dimension of ambidexterity and firm performance. The empirical results reveal that pursuing a high level of combined dimension of organizational ambidexterity is only beneficial to firms with a high level of organizational slack or firms in maturity stage, while pursuing a high level of balance dimension of organizational ambidexterity is only beneficial to firms in growth stage, but not to firms in maturity stage.

Resource availability, international acquisition experience, and cross-border M&A target search

PurposeThe purpose of this study is to explain how factors relating to resource availability affect managerial risk-taking with regard to the geographic and institutional proximity of cross-border merger and acquisition (M&A) targets. The paper further considers the impact of organizational learning by testing the moderating effect of the acquiring firms’ prior international M&A experience.Design/methodology/approachThis study uses linear regression with robust standard errors to account for dependence among clustered observations at the firm level. The authors used country and industry fixed-effects specifications to account for unobserved heterogeneity.FindingsThe results suggest that when internal and external resources are more abundant, firms pursue cross-border M&As that are more geographically and institutionally distant. The findings further indicate that a firm’s prior international M&A experience positively moderates the aforementioned relationships..Research limitations/implicationsExtending the behavioral theory of the firm beyond organizational slack resources, the results highlight the importance of taking a multi-level, open-systems perspective of the strategic impact of resource availability. The authors’ theory and findings also provide a more nuanced view of the critical role organizational learning plays in the relationship between resource availability and organizational outcomes.Originality/valueThis is the first study to the authors’ knowledge that develops and tests a theoretical model exploring the impact of both internal (organizational slack) and external (environmental munificence at both the industry and home-country levels) resource availability, as well as prior organizational experience on an important multinational business practice.

The effects of slack resources on firm performance and innovation in the Korean pharmaceutical industry

ABSTRACTOrganizational slack is intentionally held and managed by corporate firms today. However, there is no consensus on the effects of slack resources on organizations. Accordingly, this study examined the effects of organizational slack resources on firm performance of Korean pharmaceutical companies. Specifically, we classified slack resources into available slack, recoverable slack, and potential slack and verified the relationship between each slack and firm performance. For the empirical analysis, we used the six-year panel data of 53 listed pharmaceutical companies in Korea from 2010 to 2015 and used the feasible generalized least squares (FGLS) regression model considering the issues of heteroscedasticity and autocorrelation in the panel data. The results indicated that recoverable slack had a negative effect on firm performance. The results also indicated that available slack and potential slack had inverted U-shaped relationships with firm performance. We discuss the implications of the study’s findings for the effects of slack resources on firm performance.

Effects of corporate environmental responsibility on financial performance: The moderating role of government regulation and organizational slack

Accompanied with rapid economic growth in the emerging economies is the severe ecological deterioration. As major pollution makers and main energy consumers, enterprises are expected to be responsible to the natural environment. However, it's still in dispute whether and when it pays to be green. Based on institutional theory and agency theory, this paper explores the impact of corporate environmental responsibility (CER) on corporate financial performance (CFP) and studies the moderating effect, as well as the co-moderating effect, of external government regulation and internal organizational slack on the relationship. With the data of 1179 observations of Chinese energy-intensive listed companies in 2012–2014, empirical results show that CER significantly positively influences CFP, and that the moderating effect of government regulation is significantly positive, i.e., stringent government regulation significantly reinforces the positive influence of CER on CFP, while organizational slack has a negative moderating effect, i.e., the firms with abundant organization slack are less likely to gain a higher financial performance from undertaking environmental responsibility. In addition, the moderating effect of organizational slack also depends on the degree of government regulation, that is to say, stringent government regulation weakens the negative moderating effect of organizational slack between CER and CFP. The results demonstrate that it pays to be green, especially those lean firms with few slacks under stringent government regulation.

Organizational slack, national institutions and innovation effort around the world

We develop and test a cross-level theoretical framework assuming that countries differ in national corporate governance institutions (NCGIs) protecting firm shareholders and employees, and that such NCGI protections moderate the firm-level relationship between organizational slack and innovation effort, that is, the purposeful allocation of firm resources toward the development of new products and services (as distinct from the new products and services themselves). We find support for framework predictions in two-stage estimated dependent variable analyses of organizational slack and institutional protections of shareholders and employees at more than 7000 firms from 29 countries observed from 1991 to 2005. Stronger shareholder protections diminish while stronger employee protections magnify slack effects on innovation effort. Our findings contribute to IB research investigating how country-level governance institutions influence firm-level behavior and performance.

Global and Regional Strategies of Multinational Enterprises: A Behavioral Theory Perspective

Multinational enterprises (MNEs) tend to focus their international activities within their home region, which has been explained through internalization theory. We provide a different perspective on this regional/global discussion by relying on behavioral theory to explore the firm-level contextual factors that influence internationalization activities. The behavioral theory lens allows to understand under what conditions firms may tend to favor their home region, but also when firms may be motivated to break out of this tendency and pursue a global orientation. Following behavioral theory fundamental arguments, we contend that performance relative to aspirations can motivate either a home region orientation or a global orientation depending on whether the firm is performing above or below the aspiration level, respectively. Distance from bankruptcy will motivate a global orientation. We contend that organizational slack will have varying effects depending on the type of slack, as well as the level of slack. Available slack will be associated with a home region orientation, particularly at low to moderate levels. Recoverable slack is likely to motivate expanding outside of the home region, with moderation at higher levels of slack. Empirical analysis of our sample of 1,135 U.S. firms from 2003-2014 indicates support for our arguments related to distance from bankruptcy, and recoverable slack, as well as available slack at low to moderate levels. Our findings offer important insights into the internationalization of firms, highlighting a set of boundary conditions that help us to understand the pursuit of regional versus global strategies.

The Implications of CEO Power on the Relationship between Firm Resources and Innovation

We examine the link between firm resources and firm innovation intensity. Specifically, we focus on the drivers of innovation and organizational slack. We extend the organizational slack and innovation literature by examining its interplay with CEO power and industry level constraints on that power. We specifically focus on the influence of human resources slack, CEO power, and industry concentration on R&D intensity. Our study examines all publicly traded US firms over a ten-year period, giving us over 13,400 firm years to look at. Our results indicate that organizations with excess human capacity do on average show higher investments in R&D. It seems that managers not only understand and appreciate the importance of innovation, but given the chance, they do allocate more resources to this cause. However, we also find that in concentrated industries, where CEOs are less constrained by competitive pressure, powerful CEOs do interfere in this strategic choice and weaken the slack-innovation relationship. Therefore, while CEO’s may have slack resources to allocate, when given the opportunity due to their own power and industry structure, they appear inclined to reallocate such resources to different purposes other than innovation.

Slack as an Antecedent to the Entry of Large Firms into the Base of the Pyramid Product Markets

There is a growing interest in examining the various entry strategies of firms in the previously under-served “base of the pyramid” (BoP) markets. Studies so far have investigated the factors that can help the firm to overcome the resource gaps between its existing resource bundles and the demands of the BoP markets, ex-post to their entry decisions. In this study, we investigate the heterogeneity in the BoP entry decisions of firms by examining the influence of flexible resources, namely, organizational slack, accumulated ex-ante to its BoP entry. We conduct the study using a unique hand-collected dataset comprising of the BoP market entry choices made by 316 Fortune 500 Global firms in the time period 2000–2014. The results of the study suggest that recoverable and potential slack, both provide options to the firm to exercise a range of strategies that can help the firm scale the entry barriers posed by demand uncertainty and resource constraints in the BoP markets.