Reacting to a Generalised Crisis. A Theoretical Approach to the Consumption of Slack Resources in Family Firms
Abstract
Research to date has shown that companies can accumulate resources over those strictly needed in order to overcome the uncertainty associated to a crisis. But the usage, redeployment, or consumption of this excess of resources when facing an adverse environment is yet underexplored. As suggested by the literature, the condition of family business can exert an important effect in such behaviour. This paper proposes a theoretical framework, focused on family business, about how firms manage the different slack resources when facing a general crisis. We make a call on family business scholars to leverage our propositions and the existing literature on slack resources to develop a guidance for family owners when facing an economic downturn.
References
Aaker, D. A., & Mascarenhas, B. (1984). The need for strategic flexibility. The Journal of Business Strategy, 5(2), 74. DOI: https://doi.org/10.1108/eb039060
Agusti, M., Galan, J. L., & Acedo, F. J. (2020). Saving for the bad times: slack resources during an economic downturn. Journal of Business Strategy. In press DOI: https://doi.org/10.1108/JBS-05-2020-0099
Alessandri, T. M., Cerrato, D., & Eddleston, K. A. (2018). The mixed gamble of internationalization in family and nonfamily firms: The moderating role of organizational slack. Global Strategy Journal, 8(1), 46-72. DOI: https://doi.org/10.1002/gsj.1201
Amato, S., Basco, R., Ansón, S. G., & Lattanzi, N. (2020). Family-managed firms and employment growth during an economic downturn: does their location matter?. Baltic Journal of Management. DOI: https://doi.org/10.1108/BJM-07-2019-0260
Arslan-Ayaydin, Ö., Florackis, C., & Ozkan, A. (2014). Financial flexibility, corporate investment and performance: evidence from financial crises. Review of Quantitative Finance and Accounting, 42(2), 211-250. DOI: https://doi.org/10.1007/s11156-012-0340-x
Bassanini, A., Breda, T., Caroli, E., & Rebérioux, A. (2013). Working in family firms: Paid less but more secure? Evidence from French matched employer-employee data. ILR Review, 66(2), 433-466. DOI: https://doi.org/10.1177/001979391306600206
Block, J. (2010). Family management, family ownership, and downsizing: Evidence from S&P 500 firms. Family Business Review, 23(2), 109-130. DOI: https://doi.org/10.1177/0894486509360520
Bourgeois, L.J. (1981), “On the Measurement of Organizational Slack.”, Academy of Management Review, 6 (1): 29–39. DOI: https://doi.org/10.5465/amr.1981.4287985
Boyne, G. A., & Meier, K. J. (2009). Environmental change, human resources and organizational turnaround. Journal of Management Studies, 46(5), 835-863. DOI: https://doi.org/10.1111/j.1467-6486.2008.00813.x
Bradley, S.W., Shepherd, D.A. & Wiklund, J. (2011), “The importance of slack for new organizations facing ‘tough’ environments”, Journal of Management Studies, 48 (5): 1071–1097. DOI: https://doi.org/10.1111/j.1467-6486.2009.00906.x
Campello, M., Giambona, E., Graham, J.R. & Harvey, C.R. (2011), ‘Liquidity management and corporate investment during a financial crisis’, The Review of Financial Studies, 24 (6): 1944–1979. DOI: https://doi.org/10.1093/rfs/hhq131
Campopiano G., De Massis A. & Kotlar J. (2019) Environmental Jolts, Family-Centered Non-economic Goals, and Innovation: A Framework of Family Firm Resilience. In: Memili E., Dibrell C. (eds) The Palgrave Handbook of Heterogeneity among Family Firms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-77676-7_28 DOI: https://doi.org/10.1007/978-3-319-77676-7_28
Casillas, J. C., Moreno, A. M., & Barbero, J. L. (2010). A configurational approach of the relationship between entrepreneurial orientation and growth of family firms. Family Business Review, 23(1), 27-44. DOI: https://doi.org/10.1177/0894486509345159
Casillas, J. C., Barbero Navarro, J. L., & Moreno Menéndez, A. M. (2013). Reestructuración y tipo de propiedad en empresas en crisis. Diferencias entre empresas familiar y no familiares. European Journal of Family Business, 3(1), 7-20. DOI: https://doi.org/10.24310/ejfbejfb.v3i1.4037
Casillas, J. C., Moreno-Menéndez, A. M., Barbero, J. L., & Clinton, E. (2019). Retrenchment strategies and family involvement: The role of survival risk. Family Business Review, 32(1), 58-75. DOI: https://doi.org/10.1177/0894486518794605
Cennamo, C., Berrone, P., Cruz, C., & Gomez–Mejia, L. R. (2012). Socioemotional wealth and proactive stakeholder engagement: Why family–controlled firms care more about their stakeholders. Entrepreneurship Theory and Practice, 36(6), 1153-1173. DOI: https://doi.org/10.1111/j.1540-6520.2012.00543.x
Chakravarthy, B. S., & Lorange, P. (1984). Managing strategic adaptation: Options in administrative systems design. Interfaces, 14(1), 34-46. DOI: https://doi.org/10.1287/inte.14.1.34
Cheng, J. & Kesner, I. 1997. Organizational Slack and Response to Environmental Shifts: The Impact of Resource Allocation Patterns. Journal of Management, 23, 1- 18. DOI: https://doi.org/10.1177/014920639702300101
Chrisman, J. & Patel, P. 2012. Variations in R&D Investments of Family and Nonfamily Firms: Behavioral Agency and Myopic Loss Aversion Perspectives. Academy of Management Journal, 55, 976-997. DOI: https://doi.org/10.5465/amj.2011.0211
Chrisman, J.J., Chua, J.H, & Kellerman, F. (2009): Priorities, resource stocks, and performance in family and nonfamily firms, in: Entrepreneurship Theory and Practice, 33, 739-760. DOI: https://doi.org/10.1111/j.1540-6520.2009.00324.x
Crespí, R. & Martín‐Oliver, A. (2015): Do family firms have better access to external finance during crises?, in: Corporate Governance: An International Review, 23, 3, 249-265. DOI: https://doi.org/10.1111/corg.12100
Daniel, F., Lohrke, F.T., Fornaciari, C.J. & Turner, R.A. (2004), “Slack resources and firm performance: A meta-analysis”, Journal of Business Research, 57 (6): 565–574. DOI: https://doi.org/10.1016/S0148-2963(02)00439-3
De Massis, A., Frattini, F., Majocchi, A., & Piscitello, L. (2018). Fs. Global Strategy Journal, 8(1), 3-21. DOI: https://doi.org/10.1002/gsj.1199
De Massis, A., Kotlar, J., Mazzola, P., Minola, T., & Sciascia, S. (2016). Conflicting selves: Family owners’ multiple goals and self-control agency problems in private firms. Entrepreneurship Theory & Practice, 42(3), 362-389. DOI: https://doi.org/10.1111/etap.12257
Deb, P., David, P. & O’Brien, J. (2017), “When is cash good or bad for firm performance?”, Strategic Management Journal, 38 (2): 436–454. DOI: https://doi.org/10.1002/smj.2486
Dewitt, R. L. (1998). Firm, industry, and strategy influences on choice of downsizing approach. Strategic Management Journal, 19(1), 59-79. DOI: https://doi.org/10.1002/(SICI)1097-0266(199801)19:1<59::AID-SMJ934>3.0.CO;2-2
Donada, C., & Dostaler, I. (2005). Relational antecedents of organizational slack: an empirical study into supplier-customer relationships. M@ n@ gement, 8(2), 25-46. DOI: https://doi.org/10.3917/mana.082.0025
Dougherty, D., & Bowman, E. H. (1995). The effects of organizational downsizing on product innovation. California Management Review, 37(4), 28-44. DOI: https://doi.org/10.2307/41165809
Evans, J. S. 1991. Strategic Flexibility for High Technology Manoeuvres: A Conceptual Framework. Journal of Management Studies, 28, 69-89. DOI: https://doi.org/10.1111/j.1467-6486.1991.tb00271.x
Fiegenbaum, A., & Karnani, A. (1991). Output flexibility—a competitive advantage for small firms. Strategic management journal, 12(2), 101-114. DOI: https://doi.org/10.1002/smj.4250120203
Francis, J. D., & Pett, T. L. (2004). Retrenchment in Declining Organizations: Towards an Integrative Understanding. Journal of Business and Management, 10(1).
Geiger, S. W., & Cashen, L. H. (2002). A multidimensional examination of slack and its impact on innovation. Journal of Managerial issues, 68-84.
George, G. (2005), “Slack resources and the performance of privately held firms”, Academy of Management Journal, 48 (4): 661–676. DOI: https://doi.org/10.5465/amj.2005.17843944
Gomez-Mejia, L. R., Cruz, C., Berrone, P., & De Castro, J. (2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management Annals, 5(1), 653-707. DOI: https://doi.org/10.5465/19416520.2011.593320
Guthrie, J. P., & Datta, D. K. (2008). Dumb and dumber: The impact of downsizing on firm performance as moderated by industry conditions. Organization Science, 19(1), 108-123. DOI: https://doi.org/10.1287/orsc.1070.0298
Hardin, W. G., Highfield, M. J., Hill, M. D., & Kelly, G. W. (2009). The determinants of REIT cash holdings. The Journal of Real Estate Finance and Economics, 39(1), 39-57. DOI: https://doi.org/10.1007/s11146-007-9103-1
Jung, C., Foege, J. N., & Nüesch, S. (2019). Cash for contingencies: How the organizational task environment shapes the cash-performance relationship. Long Range Planning. In press. DOI: https://doi.org/10.1016/j.lrp.2019.05.005
Kellermanns, F. W. (2005). Family firm resource management: Commentary and extensions. Entrepreneurship Theory and Practice, 29(3), 313-319. DOI: https://doi.org/10.1111/j.1540-6520.2005.00085.x
Kim, C., & Bettis, R. A. (2014). Cash is surprisingly valuable as a strategic asset. Strategic Management Journal, 35(13), 2053-2063. DOI: https://doi.org/10.1002/smj.2205
Kim, H., Kim, H., & Lee, P. M. (2008). Ownership structure and the relationship between financial slack and R&D investments: Evidence from Korean firms. Organization Science, 19(3), 404-418. DOI: https://doi.org/10.1287/orsc.1080.0360
Klingebiel, R., & Adner, R. (2015). Real options logic revisited: The performance effects of alternative resource allocation regimes. Academy of Management Journal, 58(1), 221-241. DOI: https://doi.org/10.5465/amj.2012.0703
Kotlar, J., & De Massis, A. (2013). Goal setting in family firms: Goal diversity, social interactions, and collective commitment to family–centered goals. Entrepreneurship Theory and Practice, 37(6), 1263-1288. DOI: https://doi.org/10.1111/etap.12065
Kulkarni, S. P., & Ramamoorthy, N. (2005). Commitment, flexibility and the choice of employment contracts. Human Relations, 58(6), 741-761. DOI: https://doi.org/10.1177/0018726705057170
Laffranchini, G., & Braun, M. (2014). Slack in family firms: evidence from Italy (2006-2010). Journal of Family Business Management, 4(2), 171-193. DOI: https://doi.org/10.1108/JFBM-04-2013-0011
Latham, S. F., & Braun, M. R. (2008). The performance implications of financial slack during economic recession and recovery: observations from the software industry (2001-2003). Journal of Managerial Issues, 30-50.
Lavie, D. (2012). The case for a process theory of resource accumulation and deployment. Strategic Organization, 10(3), 316-323. DOI: https://doi.org/10.1177/1476127012452822
Le Breton-Miller, I., Miller, D., & Lester, R. H. (2011). Stewardship or agency? A social embeddedness reconciliation of conduct and performance in public family businesses. Organization science, 22(3), 704-721. DOI: https://doi.org/10.1287/orsc.1100.0541
Lecuona, J.R. & Reitzig, M. (2014), “Knowledge worth having in ‘excess’: The value of tacit and firm-specific human resource slack”, Strategic Management Journal, 35 (7): 954–973. DOI: https://doi.org/10.1002/smj.2143
Lee, J. (2006): Family firm performance: further evidence, in: Family Business Review, 19, 2, 103-114. DOI: https://doi.org/10.1111/j.1741-6248.2006.00060.x
Lim, D. S., Celly, N., Morse, E. A., & Rowe, W. G. (2013). Rethinking the effectiveness of asset and cost retrenchment: The contingency effects of a firm's rent creation mechanism. Strategic Management Journal, 34(1), 42-61. DOI: https://doi.org/10.1002/smj.1996
Lim, E. N. & Mccann, B. T. (2013). The influence of relative values of outside director stock options on firm strategic risk from a multiagent perspective. Strategic Management Journal. 34(13): 1568-1590. DOI: https://doi.org/10.1002/smj.2088
Liu, Y., Chen, Y. J., & Wang, L. C. (2017). Family business, innovation and organizational slack in Taiwan. Asia Pacific Journal of Management, 34(1), 193-213. DOI: https://doi.org/10.1007/s10490-016-9496-6
Liu, Y., Lin, W. T., & Cheng, K. Y. (2011). Family ownership and the international involvement of Taiwan's high-technology firms: The moderating effect of high-discretion organizational slack. Management and Organization Review, 7(2), 201-222. DOI: https://doi.org/10.1111/j.1740-8784.2011.00220.x
Love, E.G. & Nohria, N. (2005), “Reducing slack: The performance consequences of downsizing by large industrial firms, 1977-93”, Strategic Management Journal, 26 (12): 1087–1108. DOI: https://doi.org/10.1002/smj.487
Lozano, M. B. (2015). Strategic decisions of family firms on cash accumulation. Revista de Administração de Empresas, 55(4), 461-466. DOI: https://doi.org/10.1590/S0034-759020150409
Machek, O. (2017): Employee Compensation and Job Security in Family Firms: Evidence from the Czech Republic, in: Journal for East European Management Studies, 22, 3, 362-373. DOI: https://doi.org/10.5771/0949-6181-2017-3-362
Machek, O., Hnilica, J., & Lukeš, M. (2019). Stability of family firms during economic downturn and recovery. JEEMS Journal of East European Management Studies, 24(4), 566-588. DOI: https://doi.org/10.5771/0949-6181-2019-4-566
Mahto, R. V., & Khanin, D. (2015). Satisfaction with past financial performance, risk taking, and future performance expectations in the family business. Journal of Small Business Management, 53(3), 801-818. DOI: https://doi.org/10.1111/jsbm.12088
Marlin, D. & Geiger, S.W. (2015), “A reexamination of the organizational slack and innovation relationship”, Journal of Business Research, 68 (12): 2683–2690. DOI: https://doi.org/10.1016/j.jbusres.2015.03.047
Meier, I., Bozec, Y. & Laurin, C. 2013. Financial Flexibility and the Performance During the Recent Financial Crisis. International Journal of Commerce and Management, 23, 79-96. DOI: https://doi.org/10.1108/10569211311324894
Nordqvist, M., & Melin, L. (2010). Entrepreneurial families and family firms. Entrepreneurship & Regional Development, 22(3-4), 211-239. DOI: https://doi.org/10.1080/08985621003726119
Mellahi, K. & Wilkinson, A. (2010), ‘A study of the association between level of slack reduction following downsizing and innovation output’, Journal of Management Studies, 47 (3): 483–508. DOI: https://doi.org/10.1111/j.1467-6486.2009.00872.x
Miller, D., Le Breton-Miller, I. & Lester, R.H. (2012), “Family firm governance, strategic conformity, and performance: institutional vs strategic perspectives”, Organization Science, Vol. 24 No. 1, pp. 189-209. DOI: https://doi.org/10.1287/orsc.1110.0728
Morrow Jr, J. L., Johnson, R. A., & Busenitz, L. W. (2004). The effects of cost and asset retrenchment on firm performance: the overlooked role of a firm’s competitive environment. Journal of Management, 30(2), 189-208. DOI: https://doi.org/10.1016/j.jm.2003.01.002
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have informationthat investors do not have (No. w1396). National Bureau of Economic Research. DOI: https://doi.org/10.3386/w1396
Nadkarni, S., & Narayanan, V. K. (2007). Strategic schemas, strategic flexibility, and firm performance: The moderating role of industry clockspeed. Strategic management journal, 28(3), 243-270. DOI: https://doi.org/10.1002/smj.576
Naldi, L., Nordqvist, M., Sjöberg, K., & Wiklund, J. (2007). Entrepreneurial orientation, risk taking, and performance in family firms. Family business review, 20(1), 33-47. DOI: https://doi.org/10.1111/j.1741-6248.2007.00082.x
Namiki, N. (2013). The Impact of Slack Reduction on Performance Turnaround during the Great Recession: The Case of US Electronics Companies. Rikkyo Rusiness Review, 6, 56-62.
Namiki, N. (2015). The Role of Slack Reduction on Performance Turnaround during the Great Recession: The Case of Japanese Machinery Companies. Rikkyo Rusiness Review, 8, 74-80.
Namiki, N. 2016 Financial Slack, Financial Slack Reduction and Firm Performance during the Great Recession: The Case of Small-sized Japanese Electronics Companies. Rikkyo Rusiness Review, 9, 3-12.
Nason, R. S., & Patel, P. C. (2016). Is cash king? Market performance and cash during a recession. Journal of Business Research, 69(10), 4242-4248. DOI: https://doi.org/10.1016/j.jbusres.2016.03.001
Nordqvist, M., Habbershon, T. G., & Melin, L. (2008). Transgenerational entrepreneurship: Exploring entrepreneurial orientation in family firms. Entrepreneurship, sustainable growth and performance: Frontiers in European entrepreneurship research, 93.
Paeleman, I. & Vanacker, T. (2015), ‘Less is More, or Not? On the Interplay between Bundles of Slack Resources, Firm Performance and Firm Survival’, Journal of Management Studies, 52 (6): 819–848. DOI: https://doi.org/10.1111/joms.12135
Pindado, J., Requejo, I., & de la Torre, C. (2011). Family control and investment–cash flow sensitivity: Empirical evidence from the Euro zone. Journal of Corporate Finance, 17(5), 1389-1409. DOI: https://doi.org/10.1016/j.jcorpfin.2011.07.003
Robbins, D. K., & Pearce, J. A. (1992). Turnaround: Retrenchment and recovery. Strategic Management Journal, 13(4), 287-309. DOI: https://doi.org/10.1002/smj.4250130404
Sanchez‐Bueno, M. J., Muñoz‐Bullón, F., & Galan, J. I. (2020). Socially responsible downsizing: Comparing family and non‐family firms. Business Ethics: A European Review, 29(1), 35-55. DOI: https://doi.org/10.1111/beer.12244
Schulze, W.S., Lubatkin, M.H. & Dino, R.N. (2002), “Altruism, agency, and the competitiveness of family firms”, Managerial and Decision Economics, 23 (4/5) 247-259. DOI: https://doi.org/10.1002/mde.1064
Sharfman, M.P., Wolf, G., Chase, R.B. & Tansik, D.A. (1988), “Antecedents of Organizational Slack.”, Academy of Management Review, 13 (4): 601–614. DOI: https://doi.org/10.5465/amr.1988.4307484
Sharma, P., & Manikutty, S. (2005). Strategic divestments in family firms: Role of family structure and community culture. Entrepreneurship Theory and Practice, 29(3), 293-311. DOI: https://doi.org/10.1111/j.1540-6520.2005.00084.x
Shimizu, K., & Hitt, M. A. (2004). Strategic flexibility: Organizational preparedness to reverse ineffective strategic decisions. Academy of Management Perspectives, 18(4), 44-59. DOI: https://doi.org/10.5465/ame.2004.15268683
Stan, C., Peng, M. & Bruton, G. 2014. Slack and the Performance of State-Owned Enterprises. Asia Pacific Journal of Management, 31, 473-495. DOI: https://doi.org/10.1007/s10490-013-9347-7
Stavrou, E., Kassinis, G., & Filotheou, A. (2007). Downsizing and stakeholder orientation among the Fortune 500: Does family ownership matter?. Journal of Business Ethics, 72(2), 149-162. DOI: https://doi.org/10.1007/s10551-006-9162-x
Tan, J., & Peng, M. W. (2003). Organizational slack and firm performance during economic transitions: Two studies from an emerging economy. Strategic Management Journal, 24(13), 1249-1263. DOI: https://doi.org/10.1002/smj.351
Tang, Y., Qian, C., Chen, G. & Shen, R. (2015), “How CEO hubris affects corporate social (ir)responsibility”, Strategic Management Journal, 36 (9): 1338–1357. DOI: https://doi.org/10.1002/smj.2286
Thomas, E. F. (2013). Platform-based product design and environmental turbulence. European Journal of Innovation Management. 17(1): 107-124. DOI: https://doi.org/10.1108/EJIM-06-2013-0055
Thompson, J. D. (1967). Organizations in action: Social science bases of administrative theory. McGraw-Hill.
Tsao, C. W., Newman, A., Chen, S. J., & Wang, M. J. (2016). HRM retrenchment practices and firm performance in times of economic downturn: exploring the moderating effects of family involvement in management. The International Journal of Human Resource Management, 27(9), 954-973. DOI: https://doi.org/10.1080/09585192.2015.1072098
Vanacker, T., Collewaert, V. & Zahra, S.A. (2017). Slack resources, firm performance, and the institutional context: Evidence from privately held European firms. Strategic Management Journal. 38(6): 1305-1326. DOI: https://doi.org/10.1002/smj.2583
Voss, G.B., Sirdeshmukh, D. & Voss, Z.G. (2008), ‘The effects of slack resources and environmental threat on product exploration and exploitation’, Academy of Management Journal, 51 (1): 147–164. DOI: https://doi.org/10.5465/amj.2008.30767373
Wagan, T. H. (1998). Exploring the consequences of workforce reduction. Journal of Administrative Science, 15(4), 300-309. DOI: https://doi.org/10.1111/j.1936-4490.1998.tb00172.x
Wenzel, M., Stanske, S. & Lieberman, M. B. (2020). Strategic responses to crisis. Strategic Management Journal, 41(Virtual Issue), 7-18.
Wu, J., & Tu, R. (2007). CEO stock option pay and R&D spending: a behavioral agency explanation. Journal of Business Research, 60(5), 482-492. DOI: https://doi.org/10.1016/j.jbusres.2006.12.006
Xu, K., & Hitt, M. A. (2020). The international expansion of family firms: The moderating role of internal financial slack and external capital availability. Asia Pacific Journal of Management, 37(1), 127-153. DOI: https://doi.org/10.1007/s10490-018-9593-9
Zahra, S.A. (2005), “Entrepreneurial risk taking in family firms”, Family Business Review, 18 (1) 23-40. DOI: https://doi.org/10.1111/j.1741-6248.2005.00028.x
Zahra, S.A. (2007), “Contextualizing theory building in entrepreneurship research”, Journal of Business Venturing, 22 (3), 443-452. DOI: https://doi.org/10.1016/j.jbusvent.2006.04.007
Zona, F. (2012), “Corporate Investing as a Response to Economic Downturn: Prospect Theory, the Behavioural Agency Model and the Role of Financial Slack”, British Journal of Management, 23 (1), 42–57. DOI: https://doi.org/10.1111/j.1467-8551.2012.00818.x
Copyright (c) 2021 María Agusti, Encarnación Ramos-Hidalgo, Francisco José Acedo González
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Copyright generates two different rights: moral rights and patrimonial rights that EJFB recognizes and respects. Moral rights are those relating to the recognition of the authorship. They are rights of a personal nature that are perpetual, inalienable, unseizable and imprescriptible as consequence of the indivisible union of the author and his/her work. Patrimonial rights are those that can be derived from the reproduction, distribution, adaptation or communication of the work, among others.
Authors who publish in EJFB retain the copyright of their work and grant the right of its first publication to the journal in open access. EJFB is authorized to reproduce, distribute, disseminate or communicate the work under a CC BY-NC-SA 4.0 License. This means that you are free to share and adapt this work under the following terms:
- Attribution — You must give appropriate credit to its author(s), which implie the right to be reconognized and cited correctly.
- NonCommercial — You may not use the material for commercial purposes.
- ShareAlike — If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.
.png){kind=logo}
27.png)
