Mobilizing potential slack and firm performance: Evidence from French SMEs before and during the COVID-19 period

Vivien Lefebvre

Journal of Small Business Management, 2024, vol. 62, issue 4, 1719-1748

Abstract: No-debt SMEs have potential slack in that they can raise financial resources to face external shocks or explore new business opportunities. This study compares the performance implications of potential slack mobilization during and before the COVID-19 context by building on arguments from the behavioral theory of firms and corporate finance. The disruptions caused by the COVID-19 crisis theoretically amplify the stabilizing and adaptive functions of potential slack and thus represent an interesting and promising field of investigation. Based on a sample of French SMEs, the empirical results show that the mobilization of potential slack is positively associated with profitability during the COVID-19 crisis but not before it. Slack mobilization is negatively associated with profitability outside the COVID-19 period when SMEs mobilize important amounts of potential slack. Overall, this study sheds light on the process of slack resource mobilization by SMEs and the central moderating role of the economic environment.

Date: 2024
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DOI: 10.1080/00472778.2023.2182440

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