Financial Slack, Operational Slack and Firm Performance during Episodes of Financial Crises: A Panel Data Analysis

Under the unstable environments, firms should have well-prepared slack resources to meet future investment opportunities, and cushion impacts of changing external environments, especially financial crises. The study tries to investigate the effect of financial slack and operational slack on firm performance (ROA) by using samples of 125 listed real estate companies. The study also examines the moderating effect of episodes of financial crises on relationship between slack resources and ROA. The empirical results of the study show that financial slack has U-shape relationship with ROA, whereas operational slack has no relationship with ROA. Secondly, the subprime financial crisis of 2008-2009 causes inhibiting effect on relationship between of financial slack and ROA, while the crisis causes facilitating effect of operational slack and ROA. In addition, the European debts crisis causes facilitating effect on relationship between financial slack and ROA.