Financial Slack

Financial Slack

Extra money that a company has available in case of a downturn in sales, revenue, or profit. Financial slack may help a company make it through a difficult period. It is the equivalent of a company's savings.
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Financial slack may also influence transnationality, knowledge-based assets, and profitability (Bourgeois 1981).
If the information cost hypothesis is supported, on announcement date, a positive market reaction is expected for firms with higher growth orientation (MVBV), higher leverage (BKLVG), lower financial slack (CASH), and higher risk in terms of stock return volatility (STOCKSD).
Like most work on slack, we use financial slack as an independent variable.
However, in the post-reform period, the level of absorbed and unabsorbed financial slack has fallen by a statistically significant 20%.
In both scenarios, they found that corporate social responsibility was more sensitive to increased financial slack than other spending decisions, such as R&D and capital investment.
One example given is that financial slack could be used to buy the assets for the preemption of assets that a first mover can undertake.
After NGOs ended their support for the centres, the government did not take up the full financial slack.
In this case, in the presence of value creating investment projects--including acquisitions--it is important for the firms to have financial slack (or low debt level) in order to take advantage of these investment opportunities (O'Brien, 2003).
For instance, financial slack could help to buy plant and equipment to support the first move in creating a source of advantage based on preemption of assets.
First, it picks up the financial slack for depositors when the banks fail.
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