Financial Slack and Firm Performance: Evidence from Africa

Demis Hailegebreal Hailu
Demis Hailegebreal Hailu * § PhD candidate, Lecturer
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Man Wang
Man Wang
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Abdurahman Aliyi Ibrahim
Abdurahman Aliyi Ibrahim
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Misraku Molla Ayalew
Misraku Molla Ayalew
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§ Dongbei University of Finance and Economics Dongbei University of Finance and Economics

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Financial Slack and Firm Performance: Evidence from Africa

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Abstract

This study explores the relationship between financial slack and firm performance using a sample of firms in African countries. This study employed a split sample analysis to unmask the real picture of slack and performance nexus. We also used a baseline sample (using 923 firms) analysis to show how the result is ambiguous. By using 530 African firms (212 high and 318 low financial firms), this study found that while high available slack has adverse effects, low available slack has a favourable impact on firm performance. However, the study confirms while high potential slack has a positive influence, low potential slack hurts African firms’ performance. These results depicted that while agency theory offers a strong prediction when dealing with high available slack, the resource-based theory provides a reliable forecast when dealing with high potential slack. This study finally suggests the application of split-sample analysis in studies like this.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

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How to Cite This Article

Demis Hailegebreal Hailu, Man Wang, Abdurahman Aliyi Ibrahim, Misraku Molla Ayalew. 2020. "Financial Slack and Firm Performance: Evidence from Africa". Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 20 (GJMBR Volume 20 Issue C4).

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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-C Classification JEL Code: F65
  • Submission ReceivedDecember 13, 2019
  • Peer Review Double Blind
    Handling Editor
  • Accepted January 4, 2020
  • Published January 15, 2020
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Financial Slack and Firm Performance: Evidence from Africa

Demis Hailu
Demis Hailu Dongbei University of Finance and Economics
Man Wang
Man Wang
Abdurahman Ibrahim
Abdurahman Ibrahim
Misraku Ayalew
Misraku Ayalew
  • Submission ReceivedDecember 13, 2019
  • Peer Review Double Blind
    Handling Editor
  • Accepted January 4, 2020
  • Published January 15, 2020