This study investigates how unabsorbed financial slack influences new venture growth, focusing on the moderating role of venture origin. This study aims to clarify the conditions under which financial slack contributes to growth and how these conditions vary between corporate ventures (CVs) and independent ventures (IVs).
This study uses a panel data set of 5,756 South Korean manufacturing new ventures from 1991 to 2009 and uses fixed-effects regression models to analyze the relationship between unabsorbed financial slack and new venture growth and the moderating effects of venture origin (CVs vs IVs). All independent variables are lagged one year to mitigate endogeneity concerns.
The results show that unabsorbed financial slack positively impacts new venture growth, and the effect is more pronounced for IVs, likely due to their greater autonomy and strategic discretion. This finding suggests that venture origin moderates the relationship between slack and growth. Additional analyses, including separate sub-sample regressions, confirm that the coefficient of slack on growth is higher for IVs than for CVs, thereby reinforcing the moderating effect.
IV founders should leverage their greater autonomy to deploy slack resources for growth opportunities. CV managers and parent companies should recognize that bureaucratic constraints can dampen the benefits of slack; granting CVs more decision-making flexibility can help unlock slack’s growth potential. Policymakers and incubators can facilitate new venture growth by ensuring access to discretionary financial resources and encouraging structures that allow entrepreneurial decision-making freedom.
This research bridges behavioral theory of the firm with entrepreneurship by highlighting venture origin as a key contingency in the slack–performance relationship. The authors extend prior work on organizational slack – which mostly focused on established firms – to the context of new ventures, demonstrating that discretionary financial slack is a catalyst for growth especially for entrepreneur-founded firms.
