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Financial slack, capital intensity and firm performance: evidence from global listed firms
(1) University of Surabaya
(2) University of Surabaya
(3) University of Surabaya
(*) Corresponding Author
Abstract
Financial slack may preserve operating continuity and investment capacity, but excess resources can weaken financial discipline. This study examines the within-firm association between financial slack and firm performance and formally tests whether it varies with capital intensity and growth opportunities. We construct a pooled-standardized, equally weighted Financial Slack Index from cash holdings, liquidity, and unused debt capacity for 4,832 firm-year observations from 524 listed firms in 21 countries during 2016-2025. Firm and year fixed-effects models are complemented by country-year effects, country-exclusion and equal-weighting checks, wild-country bootstrap inference, COVID-period tests, alternative index construction, and omitted-variable sensitivity analysis. Financial slack is positively associated with return on assets (b = 0.0170, p < .001) and market-to-assets. Capital intensity is negatively associated with performance, whereas the continuous financial-slack-by-capital-intensity interaction is insignificant. Formal slope comparisons show weak evidence of a stronger association among high-capital-intensity firms (p = .099), but strong evidence among high-growth firms (p < .001). The financial-slack slope does not differ across pre-COVID, COVID, and post-COVID periods. Results remain positive under country-year effects and after excluding the two dominant countries. The evidence supports financial slack as conditional financial flexibility, especially for growing firms, while remaining associative rather than causal.
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DOI: https://doi.org/10.24123/mabis.v25i3.1247
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This work is licensed under a Creative Commons Attribution 4.0 International License. ISSN: 1412-3789. e-ISSN: 2477-1783.
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