Corporate Governance and Organizational Slack in the IT Industry

This study fills an important gap in the financial slack and board of director's literatures by focusing on how different directors apportion financial slack into R&D investments under alternative environmental contingencies. We draw inspiration from both Agency theory (AT) and Stewardship theory (ST) and argue that both executives and independent directors remain important in allocating financial slack into R&D investments in high-tech IT-intensive service industries. Consistent with our theory we find in R&D intensive IT industries the boards control role, high proportion of independent directors, remains important in ensuring financial slack is distributed into R&D investments. However, in the presence of cash flow disruptions we find too much emphasis on strict controls can jeopardize R&D investments. The board's collaborative role, a board composed with a high proportion of executives remains indispensible in preserving R&D investments in the presence of cash flow volatility.