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

Josep M. Argilés-Bosch (), Josep Garcia-Blandón (), Diego Ravenda () and Monica Martinez-Blasco ()
Additional contact information
Josep M. Argilés-Bosch: Universitat de Barcelona
Josep Garcia-Blandón: IQS School of Management, Universitat Ramón Llull
Diego Ravenda: Toulouse Business School, University of Toulouse, Campus Barcelona

Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, 2018, vol. 29, issue 3, No 6, 397 pages

Abstract: 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.

Keywords: Profitability; Sales growth; Slack; Non-linear relationship; Absorbed slack; Unabsorbed slack (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s00187-018-0270-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jmgtco:v:29:y:2018:i:3:d:10.1007_s00187-018-0270-4

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/187

DOI: 10.1007/s00187-018-0270-4

Access Statistics for this article

Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung is currently edited by Thomas Günther

More articles in Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().