An empirical analysis of the curvilinear relationship between slack and firm performance

Abstract

This study performs an in-depth analysis of the curvilinear relationship between slack and future firm performance. Using a sample of US firms, we analyze the influence of three indicators of absorbed and unabsorbed slack on the two commonest dimensions of firm performance: profitability and sales growth. Although the relationship between most slack variables and firm performance is curvilinear, the inflection points (for both maximums and minimums) lie mainly outside the distribution range of the slack variables and, consequently, the curvilinear relationships between slack and performance are, in fact, neither U-shaped nor inverted U-shaped. Therefore, the influence of slack on performance can be positive or negative: linear for certain variables, but concave/convex for most variables analyzed in our study. An additional important finding is that the influence of slack on future profitability is usually the opposite of its influence on future sales growth: negative and positive, respectively, for absorbed slack; positive and negative, respectively, for financial slack. Results are robust to different lagged periods of the independent variables. The effects of equity and cash slacks on future performance are mainly negative, especially for longer time periods.

Influência da folga financeira no desempenho econômico de empresas industriais brasileiras e mexicanas

“…As contribuições teóricas e práticas se estabelecem por inúmeros fatores. De acordo com o recente estudo de Argilés-Bosch et al (2018), visando a ampliação de conhecimento acerca do tema, pesquisas futuras devem considerar uma variedade maior de ambientes (Argilés-Bosch et al, 2018). Nesse sentido, esta pesquisa contribui fornecendo subsídios de que o nível ótimo (ideal) de folga financeira, a fim de maximizar o desempenho corporativo, é sumariamente diferente considerando ambientes diversos.…”

“…Apesar de inúmeras facetas existentes na literatura, a relação entre folga financeira e desempenho é mais complexa do que conota. De acordo com Argilés-Bosch, Garcia-Blandón, Ravenda e Martínez-Blasco (2018), é desejo atual de diversas partes, como gestores, acionistas e acadêmicos, investigar o dilema da relação positiva, negativa ou de um nível desejável de folga para maximizar o desempenho (Argilés-Bosch et al, 2018), o que traz questionamentos acerca do tema.…”

“…De fato, o processo evolutivo de conhecimento direciona à existência de relações não lineares do fenômeno em questão. Além disso, pautados em levantamento, Argilés-Bosch et al (2018) defendem que pesquisas futuras devem considerar uma variedade maior de ambientes (Argilés-Bosch et al, 2018), visto que condições econômicas e sociais podem afetar a relação de interesse, sobretudo quanto ao nível ideal de folga a se manter.…”

The dynamic slack‐performance relationship from an efficiency perspective

“…For decades, organisational slack has constituted an important concept in the literature on management (Bourgeois, 1981;Cyert & March, 1963) and continues to attract the interest of researchers today (Argilés-Bosch, Garcia-Blandón, Ravenda, & Martínez-Blasco, 2018;Bentley & Kehoe, 2020;Carnes, Xu, Sirmon, & Karadag, 2019). However, and despite the extensive literature regarding the possible utility and effect of "unused productive services" (Penrose, 1959), the results achieved to date remain inconclusive (Argilés-Bosch et al, 2018;Carnes et al, 2019;Daniel, Lohrke, Fornaciari, & Turner, 2004;Guo, Zhou, Zhang, Hu, & Song, 2018). The existence of a multitude of approaches and measurements to answering this question reflects the disparity in the empirical results found (Argilés-Bosch et al, 2018;Carnes et al, 2019;Daniel et al, 2004).…”

“…However, and despite the extensive literature regarding the possible utility and effect of “unused productive services” (Penrose, 1959), the results achieved to date remain inconclusive (Argilés‐Bosch et al, 2018; Carnes et al, 2019; Daniel, Lohrke, Fornaciari, & Turner, 2004; Guo, Zhou, Zhang, Hu, & Song, 2018). The existence of a multitude of approaches and measurements to answering this question reflects the disparity in the empirical results found (Argilés‐Bosch et al, 2018; Carnes et al, 2019; Daniel et al, 2004). In this respect, the theories show both complementary and opposing views that are a result of the complexity of the phenomenon under study.…”