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R&D Expenditure Volatility And Firm Performance: Organizational And Environmental Contexts

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  • TIM SWIFT

    (Management Department, St. Joseph's University, 5600 City Avenue, Philadelphia, Pennsylvania 19131, United States of America)

Abstract

A common view is that organizational slack diminishes firm performance by providing management the opportunity to invest in pet projects or to engage in empire-building. An opposing perspective argues that organizational slack enhances innovation by enabling firms to invest in promising new R&D projects as soon as they are discovered, or to maintain R&D during operating shortfalls. In this paper, we identify empirically a context within which organizational slack enhances firm performance. Recent research indicates that firms that proactively manage their R&D functions by frequently and substantially modifying R&D expenditure over time are superior performers. I find that higher levels of organizational slack increase the positive relationship between R&D expenditure volatility and firm performance. Evidence presented herein suggests that firms with superior access to discretionary funds held as slack use these resources to fund nascent R&D projects and to mitigate uncertainty, thus driving more commercially valuable innovation. This is one of the few studies providing empirical evidence of the practical value of organizational slack.

Suggested Citation

  • Tim Swift, 2013. "R&D Expenditure Volatility And Firm Performance: Organizational And Environmental Contexts," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 1-21.
  • Handle: RePEc:wsi:ijitmx:v:10:y:2013:i:04:n:s0219877013500132
    DOI: 10.1142/S0219877013500132
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    Citations

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    Cited by:

    1. Patel, Pankaj C. & Guedes, Maria João & Soares, Nuno & da Conceição Gonçalves, Vítor, 2018. "Strength of the association between R&D volatility and firm growth: The roles of corporate governance and tangible asset volatility," Journal of Business Research, Elsevier, vol. 88(C), pages 282-288.
    2. Hayoung Park & Taewon Kang & Jeong-Dong Lee, 2019. "R&D Dynamics And Firm Growth: The Importance Of R&D Persistency In The Economic Crisis," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 23(05), pages 1-24, June.
    3. Kang, Taewon & Baek, Chulwoo & Lee, Jeong-Dong, 2017. "The persistency and volatility of the firm R&D investment: Revisited from the perspective of technological capability," Research Policy, Elsevier, vol. 46(9), pages 1570-1579.
    4. Xiang, Erwei & Gasbarro, Dominic & Cullen, Grant & Ruan, Wenjuan, 2020. "Does R&D expenditure volatility affect stock return?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).

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