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

Organizational slack is intentionally held and managed by corporatefirms today. However, there is no consensus on the effects of slackresources on organizations. Accordingly, this study examined theeffects of organizational slack resources on firm performance ofKorean pharmaceutical companies. Specifically, we classified slackresources into available slack, recoverable slack, and potentialslack and verified the relationship between each slack and firmperformance. For the empirical analysis, we used the six-yearpanel data of 53 listed pharmaceutical companies in Korea from2010 to 2015 and used the feasible generalized least squares(FGLS) regression model considering the issues ofheteroscedasticity and autocorrelation in the panel data. Theresults indicated that recoverable slack had a negative effect onfirm performance. The results also indicated that available slackand potential slack had inverted U-shaped relationships with firmperformance. We discuss the implications of the study’s findingsfor the effects of slack resources on firm performance.