Financial Slack and Firm Performance in Africa: The Mediating Effects of the Banking Sector and Stock Market Development

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Demis Hailegebreal Hailu
Demis Hailegebreal Hailu PhD candidate, Lecturer
1 Dongbei University of Finance and Economics

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Organizational theory claimed favorable effect of slack on performance and the agency theory; supported an adverse influence of slack on performance. This study explored the association between the financial slack and the financial performance of firms in Africa. This study further rexamined the mediating effect of the banking sector and the stock market development on the slack-performance nexus. While the firm performance is measured as the return on assets (ROA), and return on sales (ROS), the slack components are categorized as available, potential and recoverable slacks. We used firm-level data from 457 firms in 13 African countries from 2006 to 2015. The finding of this study supported the organizational theory that favors a positive effect of slack on performance. The result of mediation analysis shows that both the banking sector and the stock market development have no strong mediating effect on the slackperformance relationship of firms in Africa. This study finally offers micro and macro level policy implications.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

Demis Hailegebreal Hailu. 2019. \u201cFinancial Slack and Firm Performance in Africa: The Mediating Effects of the Banking Sector and Stock Market Development\u201d. Global Journal of Management and Business Research - B: Economic & Commerce GJMBR-B Volume 18 (GJMBR Volume 18 Issue B7): .

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GJMBR Volume 18 Issue B7
Pg. 31- 47
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-B Classification: JEL Code: M20
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January 24, 2019

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English

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Organizational theory claimed favorable effect of slack on performance and the agency theory; supported an adverse influence of slack on performance. This study explored the association between the financial slack and the financial performance of firms in Africa. This study further rexamined the mediating effect of the banking sector and the stock market development on the slack-performance nexus. While the firm performance is measured as the return on assets (ROA), and return on sales (ROS), the slack components are categorized as available, potential and recoverable slacks. We used firm-level data from 457 firms in 13 African countries from 2006 to 2015. The finding of this study supported the organizational theory that favors a positive effect of slack on performance. The result of mediation analysis shows that both the banking sector and the stock market development have no strong mediating effect on the slackperformance relationship of firms in Africa. This study finally offers micro and macro level policy implications.

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Financial Slack and Firm Performance in Africa: The Mediating Effects of the Banking Sector and Stock Market Development

Demis Hailegebreal Hailu
Demis Hailegebreal Hailu Dongbei University of Finance and Economics

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