The moderating role of innovation capability on the relationship between slack and firm performance

Abstract

The impact of organizational slack on firm growth always attracts a great academic concern. however, the investigation about the external factor that will affect the above-mentioned relationship can be barely found. This study undertakes an empirical analysis with regards to the moderating effect of innovation capability on the relationship between organizational slack and future firm growth. We applied a sample of 280 firms in Europe and 2520 years observation from 2011-2019. The result from fixed-effect model shows that unabsorbed slack positively affects future firm growth, also innovation capability can positively moderate the relationship between unabsorbed slack and firm growth. However, we didn’t find any evidence to support our same hypothesis in terms of absorbed slack. Additionally, we find that PP&E investment will promote the firm growth while the firm size has negative effect on firm growth.