Paper on the Causal Relationship in Organizational Levels of Slack, Risk, and Financial Performance by Manufacturing Companies

Abstract:     
The purpose is to investigate the existence of a causal relationship in organizational levels of slack, risk, and corporate performance. The starting point is the assumption that the amount of organizational slack is a determining factor of risk reflected by the company, as well as of its performance. To test this relationship, we have considered the data of 218 manufacturing companies from 2001 to 2007, a part of these grouped through factorial analysis in such a way as to compose the three kinds of organizational slack under consideration: available, recoverable, and potential. The data were then placed in panel form and analyzed with the GMM. The results obtained confirm the assumption that organizational slack has a non-linear influence on performance.

Number of Pages in PDF File: 44

Keywords: Organizational slack, Risk, Financial performance, the Generalized Moments Method (GMM)

JEL Classification: A12, B21, D01

working papers series