Financial Slack and Firm's Performance: Does Ownership Structure Matters?
University of Central Punjab Lahore Pakistan
University of Chitral, Chitral Pakistan
Financial slack resources are un utilized assets and capabilities. According to Resource-Based View, such resources are concealed energies and can boost the financial performance of an organization. On the other hand, Agency theory believes that slack resources are redundant cost and need minimisation. The present study investigates the influence of one of the corporate governance factor ownership structure as a moderating variable on the relation between financial slack (available and potential) and firm performance. The study expands the scope of agency theory to incorporate the interest of owners. Dynamic generalized method of moments regression results and fixed effects generalized least square results show a positive linear relationship between financial slack and firm performance. Findings of study support Resource-based view and behavioural theory of the firm. Moreover, the findings show that the identity of the owners matters in shaping the relationship, high level of slack resources benefit firm, the level of slack is important rather than fungibility of slack resources, who the owner is matters and, national corporate governance system as well as firm-level corporate governance system influence investment horizon of outside investors
Keywords: Financial Slack, Performance, Corporate Governance, Ownership Structure, GMM regression, Fixed Effect Model