What are you accumulating for? Managing slack resources in the face of a generalized economic downturn

Abstract

Research to date has shown that a company can accumulate slack resources for a variety of reasons. But how do managers use this excess of resources in a general economic crisis? This study aims to ascertain how companies apply these resources when faced with a financial crisis and economic meltdown, in order to provide answers to the underexplored questions regarding the ways in which firms consume their slack resources. Through the analysis of a sample of 449 Spanish industrial companies during the 2006-2017 period, and the application of Latent Growth Modelling, the evolution of the different slack and performance indicators is observed for the identification of disparate behaviour between companies with high and low initial endowments of slack resources. The results also show that each type of slack serves a different purpose and, therefore, their consumption or use shows clear divergences.

Keywords

• Earnings
• Economic crisis
• Re-investment