Exploring the role of organizational slack in the COVID-19 pandemic: an empirical study of the manufacturing industry

• DOI: https://doi.org/10.1108/CG-09-2020-0401
• Published date: 06 May 2021
• Date: 06 May 2021
• Pages: 996-1010
• Subject Matter: Strategy,Corporate governance
• Author: Zonghui Li

Exploring the role of organizational slack

in the COVID-19 pandemic: an empirical

study of the manufacturing industry

Zonghui Li

Abstract

Purpose –Drawing on the behavioraltheory of the firm (BTF), this study aims to understandthe role of

organizationalslack in the manufacturing industryduring the COVID-19 pandemic.

Design/methodology/approach –Using panel data of publicly traded manufacturing firms in the USA

over a 12-quarter time period, this study uses generalized least squares modeling to test the hypothesized

relationships.

Findings –Results show that the COVID-19 pandemic has a negative impact on manufacturing firms’

performance and organizational slack weakens the negative relationship between the COVID-19

pandemicand firm performance. In addition, when a positiveperformance aspirational gap (PAG)exists,

the negative relationshipbetween COVID-19 pandemic and firm performance in firms with high levelsof

organizationalslack is further weakened.

Originality/value –This study contributes to organizational studies by investigating the contingent

impact of organizational slack in the setting of COVID-19 pandemic. This study also contributes to the

BTF by investigatinghow firm PAG, combined with the abundance of organizationalslack, moderates the

impactof COVID-19 pandemic on firm performance.

Keywords Firm performance, Organizational slack, COVID-19 pandemic, Performance aspirationalgap

Paper type Research paper

Introduction

The COVID-19 pandemic has caused vast economic breakdown across the world, and the

slowdown in economic activities is having a devastating impact on firm productivity and

profitability. For instance, the gross domestic product has dropped 1.3% and 9.5% in the first

and the second quarter of 2020 in the USA (OECD, 2020). Manufacturing is one of the most

severely affected sectors in the pandemic (Rapaccini et al., 2020). Firms in this sector are

experiencing a sharp decline in their revenues and performance, caused by both supply chain

disruption and decreased personal consumptions (Hassan et al., 2020). As the severity of

COVID-19 persists, researchers and managers are exploring what resources can help firm

mitigate the negative impacts of the pandemic. Organizational slack, referring to “the disparity

between the resources available to the organization and the payments required to maintain the

coalition” (Cyert and March, 1963, p. 36), may help firms stabilize their performance in this

turbulent environment.

Organizational slack denotes a pool of resources that is in excess of the minimum necessary to

produce a given level of organizational output (Cyert and March, 1963;Nohria and Gulati, 1996).

Drawing on the behavioral theory of the firm (BTF), researchers argue that organizational slack

acts as a buffer necessary for organizational adaptation, allowing a firm to absorb environmental

variations and disruptive environmental shifts (Bourgeois, 1981;Geiger and Cashen, 2002).

Zonghui Li, PhD, is an

Assistant Professor of

Management at the Davis

College of Business,

Jacksonville University,

Jacksonville, Florida, USA.

Received 11 September 2020

Revised 30 January 2021

13 February 2021

Accepted 1 March 2021

PAGE 996 jCORPORATE GOVERNANCE jVOL. 21 NO. 6 2021, pp. 996-1010, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-09-2020-0401