Financial slack and firm performance of SMMEs in China: Moderating effects of government subsidies and market-supporting institutions

By Feng Guo, B. Zou, Xiaofei Zhang, Qingwen Bo, Kai Li. 2020

115 citations recorded by the source corpus.

Abstract How does financial slack affect the firm performance of small and medium-sized manufacturing enterprises (SMMEs)? By integrating the literature on financial slack and the institutional perspective, we predict the following: financial slack positively affects the firm performance of SMMEs; research and development (RD and government subsidies and market-supporting institutions positively moderate this mediating effect. Using 543 firms’ 4489 firm-year observations of Chinese SMMEs, the empirical results indicate that financial slack promotes firm performance. In addition, R&D investment partially mediates the relationship between financial slack and firm performance. Moreover, the relationship between financial slack and R&D investment is weakened in high levels of government subsidies, and the relationship between R&D investment and firm performance is strengthened in high levels of government subsidies and market-supporting institutions. Theoretical contributions, practical implications, limitations, and future research avenues are discussed.

Subfields: Accounting, Economics and Econometrics, Management of Technology and Innovation

View Paper: https://www.semanticscholar.org/paper/67b793af7ee51bfe70348abd9c7ee0d1eb08005c