Organizational slack and firm performance during institutional transitions

The conflicting views about the impact of organizational slack on firm performance call for more powerful theoretic lens to explore this link. This study finds that institutional theory is insightful to add a deeper and finer-grained understanding on what is behind the relationship between organizational slack and firm performance during institutional transitions. As a replication with extension of the research of Tan and Peng (Strategic Management Journal, 24: 1249–1263, 2003), this study not only replicates the impact of organizational slack on firm performance in a broader and more recent context, but also extends previous work by advocating and enriching the impact of institutional transitions on this link. Using a large sample of Chinese listed firms, we find that unabsorbed slack is critical for firms to sustain their competitive advantages. Further, such a positive impact is especially likely to be profound for firms confronting resource scarcity and environmental dynamism caused by institutional transitions.