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

ABSTRACT

Organizational 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.

KEYWORDS:

• Slack resources
• firm performance
• innovation
• pharmaceutical companies

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Beum-Nyun Kim completed his M.Sc. research on the relationship between firm performance and slack resources and currently works for a pharmaceutical firm in S. Korea.

Nam S. Lee is Assistant Professor of Strategy and International Business with special interest in strategic alliance and cooperative strategy in the global automotive industry employing an ethnographic methodology.

Jong-Hyon Wi is Professor of Strategic Management specialised in game industry.

Jong-Keon Lee is Professor of Human Resources Management.