Skip to main content

Advertisement

SpringerLink
Log in

Do Firms’ Slack Resources Influence the Relationship Between Focused Environmental Innovations and Financial Performance? More is Not Always Better

  • Original Paper
  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

Environmental research has usually highlighted that the existence of slack resources in an organization helps allocate investment to innovative initiatives. However, the existing literature has paid very limited attention to how slack resources can influence the effects of focused and diversified innovations in different ways. Agency theory scholars claim that a manager’s first preference when confronted with discretionary resources will not generate positive investments for the firm, but their own opportunistic preferences. The differences between focused and diversified environmental innovations allow us to gain a better understanding of the financial impact of being focused and how slack resources matter in this context. We analyze a longitudinal sample of 5845 environmental patents from the 75 largest companies in the electrical components and equipment industry worldwide. Our results show that high levels of slack resources reduce the existing positive relationship between focused environmental innovations and a firm’s financial performance. These results contribute to delineating the theoretical and empirical implications of focused versus diversified environmental innovations and extend the literature on ethical dilemmas concerning managers’ use of slack resources in the firm.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. While agency theory offers an appropriate framework for explaining our results, we acknowledge that they are consistent with several alternative interpretations. Thus, we have included them in our discussion section. We thank an anonymous reviewer for this suggestion.

  2. This sector is numbered 6190 in the COMPUSTAT database.

  3. Since this variable may be subject to outliers, we corrected it through the winsorizing approach (Dixon 1980). We thank an anonymous reviewer for this suggestion.

  4. A patent is “a legal title that protects a technical invention for a limited period. It gives the owner the right to prevent others from exploiting the invention in the countries for which it has been granted” (EPO 2010: 8).

  5. According to the GPI User Manual, the same application can be filed in different countries and thus can be published by several authorities. These publications have similar content, and together form a simple patent family. When filtering one representative per family, we ensure that the same patent does not appear several times.

  6. The innovation literature has used the term “patent portfolio race” to mean that companies apply for a patent as soon as possible, right after the innovation is developed, i.e., there is no time lapse between generating an innovation and filing a patent application (for further detail, see Hall and Ziedonis 2001; Hegde et al. 2009; Joshi and Nerkar 2011).

  7. We want to thank an anonymous reviewer for this suggestion.

  8. We thank an anonymous reviewer for noting this future research line.

  9. We wish to thank an anonymous reviewer for this suggestion.

References

  • Aggarwal, R. K., & Samwick, A. A. (2003). Why do managers diversify their firms? Agency reconsidered. Journal of Finance, 58, 71–118.

    Article  Google Scholar 

  • Ahuja, G., & Katila, R. (2001). Technological acquisitions and the innovation performance of acquiring firms: A longitudinal study. Strategic Management Journal, 22, 197–220.

    Article  Google Scholar 

  • Alessandri, T. M., & Pattit, J. M. (2014). Drivers of R&D investment: The interaction of behavioral theory and managerial incentives. Journal of Business Research, 67, 151–158.

    Article  Google Scholar 

  • Amihud, Y., & Lev, B. (1981). Risk reduction as a managerial motive for conglomerate mergers. The Bell Journal of Economics, 12(2), 605–617.

    Article  Google Scholar 

  • Anastas, P., & Warner, J. (1998). Green chemistry: Theory and practice. New York: Oxford University Press.

    Google Scholar 

  • Antolin-Lopez, R., York, J., & Martinez-del-Rio, J. (2013). Renewable energy emergence in the European Union: The role of entrepreneurs, social norms and policy. Frontiers of Entrepreneurship Research, 33(14), 1.

    Google Scholar 

  • Arora, P., & Dharwadkar, R. (2011). Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack. Corporate Governance: An International Review, 19(2), 136–152.

    Article  Google Scholar 

  • Balkin, D. B., Markman, G., & Gomez-Mejia, L. R. (2000). Is CEO pay in high-technology firms related to innovation? Academy of Management Journal, 43, 1118–1130.

    Article  Google Scholar 

  • Bennett, J. (2010). Are we headed toward a green bubble? Entrepreneur. https://www.entrepreneur.com/article/205494.

  • Berrone, P., Fosfuri, A., Gelabert, L., & Gomez-Mejia, L. R. (2013). Necessity as the mother of “green” inventions: Institutional pressures and environmental innovations. Strategic Management Journal, 34, 891–909.

    Article  Google Scholar 

  • Bertrand, M., & Mullainathan, S. (2003). Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy, 111(5), 1043–1075.

    Article  Google Scholar 

  • Bowman, E. (1982). Risk seeking by troubled firms (pp. 33–42). Summer: Sloan Management Review.

    Google Scholar 

  • Brunnermeier, S. B., & Cohen, M. A. (2003). Determinants of environmental innovations in US manufacturing industries. Journal of Environmental Economics & Management, 45, 278–293.

    Article  Google Scholar 

  • Burgeois, L. and Singh, J. V. (1983). Organizational slack and political behavior within top management groups.In Academy of management proceedings, pp. 43–49.

  • Cainelli, G., De Marchi, V., & Grandinetti, R. (2015). Does the development of environmental innovation require different resources? Evidence from Spanish manufacturing firms. Journal of Cleaner Production, 94(1), 211–220.

    Article  Google Scholar 

  • Calza, F., Parmentola, A., & Tutore, I. (2017). Types of green innovations: Ways of implementation in a non-green industry. Sustainability, 9(1301), 1–16.

    Google Scholar 

  • Carnabuci, G., & Bruggeman, J. (2009). Knowledge specialization, knowledge brokerage and the uneven growth of technology domains. Social Forces, 88(2), 607–641.

    Article  Google Scholar 

  • Chen, Y. (2008). The driver of green innovation and green image—Green core competence. Journal of Business Ethics, 81(3), 531–543.

    Article  Google Scholar 

  • Chen, Y. S., Lai, S. B., & Wen, C. T. (2006). The influence of green innovation performance on corporate advantage in Taiwan. Journal of Business Ethics, 67(4), 331–339.

    Article  Google Scholar 

  • Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin’s q. Financial Management, 23(3), 70–74.

    Article  Google Scholar 

  • Cohen, J., & Cohen, P. (1983). Applied multiple regression/correlation analysis for the behavioral sciences (2nd ed.). Mahwah: Erlbaum.

    Google Scholar 

  • Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35, 128–152.

    Article  Google Scholar 

  • Cohen, W. M., Nelson, R., and Walsh, J. (2000). Protecting their intellectual assets: Appropriability conditions and why US manufacturing firms patent (or not). NBER working paper 7552, National Bureau of Economic Research, Cambridge, MA.

  • Commission, European. (2012). Recast of the waste electrical and electronic equipment (WEEE) directive. Brussels: European Commission.

    Google Scholar 

  • Daim, T. U. (2013). Are formal technology integration processes needed for successful product innovations? International Journal of Innovation Management, 17(04), 1350016.

    Article  Google Scholar 

  • Davis, G. F., & Stout, S. K. (1992). Organization theory and the market for corporate control: A dynamic analysis of the characteristics of large takeover targets, 1980–1990. Administrative Science Quarterly, 37(4), 605–633.

    Article  Google Scholar 

  • Denis, D. J., Denis, D. K., & Sarin, A. (1997). Agency problems, equity ownership, and corporate diversification. Journal of Finance, 52(1), 135–160.

    Article  Google Scholar 

  • Denis, D. J., Denis, D. K., & Yost, K. (2002). Global diversification, industrial diversification, and firm value. Journal of Finance, 57, 1951–1979.

    Article  Google Scholar 

  • Doidge, C., Karolyi, G. A., & Stulz, R. M. (2004). Why are foreign firms listed in the U.S. worth more? Journal of Financial Economics, 71, 205–238.

    Article  Google Scholar 

  • Douglas, P. C., & Wier, B. (2000). Integrating ethical dimensions into a model of budgetary slack creation. Journal of Business Ethics, 28(3), 267–277.

    Article  Google Scholar 

  • Douglas, P. C., & Wier, B. (2005). Cultural and ethical effects in budgeting systems: A comparison of US and Chinese managers. Journal of Business Ethics, 60(2), 159–174.

    Article  Google Scholar 

  • EIO. (2011). The eco-innovation challenge: Pathways to a resource-efficient Europe. Brussels: Eco-Innovation Observatory.

    Google Scholar 

  • EPO (2010). Patents and clean energy: Bridging the gap between evidence and policy. Final report. European Patent Office, Munich.

  • Ernst, H. (2001). Patent applications and subsequent changes of performance: Evidence from time-series cross-section analyses on the firm level. Research Policy, 30, 143–157.

    Article  Google Scholar 

  • Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301–324.

    Article  Google Scholar 

  • Figge, F., & Hahn, T. (2002). Environmental shareholder value matrix. Anwendung: Konzeption.

    Google Scholar 

  • Fontrodona, J., & Sison, A. J. G. (2006). The nature of the firm, agency theory and shareholder theory: A critique from philosophical anthropology. Journal of Business Ethics, 66(1), 33–42.

    Article  Google Scholar 

  • George, G. (2005). Slack resources and the performance of privately held firms. Academy of Management Journal, 48(4), 661–676.

    Article  Google Scholar 

  • Gomez-Mejia, L. R., Campbell, J. T., Martin, G., Hoskisson, R. E., Makri, M., & Sirmon, D. G. (2014). Socioemotional wealth as a mixed gamble: Revisiting family firm R&D investments with the behavioral agency model. Entrepreneurship Theory and Practice, 38(6), 1351–1374.

    Google Scholar 

  • Gómez-Mejia, L. R., & Wiseman, R. M. (2007). Does agency theory have universal relevance? Journal of Organizational Behavior, 28, 81–88.

    Article  Google Scholar 

  • GPI (2009). Global patent index user manual. European Patent Office. EPO—Dept.5411. European Patent Office, Munich.

  • Greenley, G. E., & Oktemgil, M. (1998). A comparison of slack resources in high and low performing British companies. Journal of Management Studies, 35(3), 377–398.

    Article  Google Scholar 

  • Hagedoorn, J., & Cloodt, M. (2003). Measuring innovative performance: Is there an advantage in using multiple indicators? Research Policy, 32, 1365–1379.

    Article  Google Scholar 

  • Hahn, T., Figge, F., & Barkemeyer, R. (2007). Sustainable value creation among companies in the manufacturing sector. International Journal of Environmental Technology and Management, 7(5–6), 496–512.

    Article  Google Scholar 

  • Hall, B. H., & Ziedonis, R. H. (2001). The patent paradox revisited: An empirical study of patenting in the U.S. semiconductor industry, 1979–1995. RAND Journal of Economics, 32(1), 101–128.

    Article  Google Scholar 

  • Harrison, J. S., & Coombs, J. E. (2012). The moderating effects from corporate governance characteristics on the relationship between available slack and community-based firm performance. Journal of Business Ethics, 107(4), 409–422.

    Article  Google Scholar 

  • Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20, 874–907.

    Article  Google Scholar 

  • Hausman, J. (1978). Specification tests in econometrics. Econometrica, Econometric Society, 46(6), 1251–1271.

    Article  Google Scholar 

  • Hegde, D., Mowery, D. C., & Graham, S. J. H. (2009). Pioneering inventors or thicket builders: Which U.S. firms use continuations in patenting? Management Science, 55(7), 1214–1226.

    Article  Google Scholar 

  • Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W. (2002). Conflicting voices: The effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies. Academy of Management Journal, 45(4), 697–716.

    Google Scholar 

  • Huang, J. W., & Li, Y. H. (2017). Green innovation and performance: The view of organizational capability and social reciprocity. Journal of Business Ethics, 145(2), 309–324.

    Article  Google Scholar 

  • Hull, C. E., & Rothenberg, S. (2008). Firm performance: The interactions of corporate social performance with innovation and industry differentiation. Strategic Management Journal, 29(7), 781–789.

    Article  Google Scholar 

  • Jensen, M. C. (1996). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329.

    Google Scholar 

  • Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225–264.

    Article  Google Scholar 

  • Jiraporn, P., Kim, Y. S., & Mathur, I. (2008). Does corporate diversification exacerbate or mitigate earnings management? An empirical analysis. International Review of Financial Analysis, 17, 1087–1109.

    Article  Google Scholar 

  • Joshi, A. M., & Nerkar, A. (2011). When do strategic alliances inhibit innovation by firms? Evidence from patent pools in the global optical disc industry. Strategic Management Journal, 32, 1139–1160.

    Article  Google Scholar 

  • Kaul, A. (2012). Technology and corporate scope: Firm and rival innovation as antecedents of corporate transactions. Strategic Management Journal, 33(4), 347–367.

    Article  Google Scholar 

  • Lee, J., Veloso, F. M., & Hounshell, D. A. (2011). Linking induced technological change, and environmental regulation: Evidence from patenting in the US auto industry. Research Policy, 40, 1240–1252.

    Article  Google Scholar 

  • Lu, Z., & Jinghua, H. (2012). The moderating factors in the relationship between ERP investments and firm performance. Journal of Computer Information Systems, 53(2), 75–84.

    Google Scholar 

  • Marcus, A. (2015). Innovations in sustainability: Fuel and food. Cambridge University Press, Cambridge.. https://doi.org/10.1017/cbo9781139680820.

    Article  Google Scholar 

  • Marcus, A., Aragon-Correa, J. A., & Pinkse, J. (2011). Firms, regulatory uncertainty, and the natural environment. California Management Review, 54(1), 5–16.

    Article  Google Scholar 

  • Meyer, A. D. (1982). Adapting to environmental jolts. Administrative Science Quarterly, 27(4), 515.

    Article  Google Scholar 

  • Miller, D., Fern, M., & Cardinal, L. (2007). The use of knowledge for technological innovation within diversified firms. Academy of Management Journal, 50(2), 308–326.

    Article  Google Scholar 

  • Miller, D., & Leiblein, M. (1996). Corporate risk-return relations: Returns variability versus downside risk. Academy of Management Journal, 39(1), 91–122.

    Google Scholar 

  • Moorman, C., & Slotegraaf, R. J. (1999). The contingency value of complementary capabilities in product development. Journal of Marketing Research, 36(2), 239–257.

    Article  Google Scholar 

  • Nameroff, T. J., Garant, R. J., & Albert, M. B. (2004). Adoption of green chemistry: An analysis based on US patents. Research Policy, 33, 959–974.

    Article  Google Scholar 

  • Nohria, N., & Gulati, R. (1996). Is slack good or bad for innovation? Academy of Management Journal, 39(5), 1245–1264.

    Article  Google Scholar 

  • Nooteboom, B., Van Haverbeke, W., Duysters, G., Gilsing, V., & van den Oord, A. (2007). Optimal cognitive distance and absorptive capacity. Research Policy, 36, 1016–1034.

    Article  Google Scholar 

  • Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403–441.

    Article  Google Scholar 

  • Pakes, A., & Griliches, Z. (1984). Patents and R&D at the firm level: A first look. In Z. Griliches (Ed.), R&D, patents and productivity (pp. 55–72). Chicago: The University of Chicago Press.

    Google Scholar 

  • Peeters, C., & de la Potterie, B. V. P. (2006). Innovation strategy and the patenting behavior of firms. Journal of Evolutionary Economics, 16(1–2), 109–135.

    Article  Google Scholar 

  • Porter, M. E., & van der Linde, C. (1995). Green and competitive. Harvard Business Review, 73(5), 120–134.

    Google Scholar 

  • Prahalad, C. K., & Hamel, G. (1990). The core competence of the organization. Harvard Business Review, 90(3), 79–93.

    Google Scholar 

  • Rajagopalan, N. (1997). Strategic orientations, incentive plan adoptions, and firm performance: Evidence from electric utility firms. Strategic Management Joumal, 18(10), 761–785.

    Article  Google Scholar 

  • Rennings, K. (2000). Redefining innovation—Eco-innovation research and the contribution from ecological economics. Ecological Economics, 32, 319–332.

    Article  Google Scholar 

  • Robeson, D., & O’Connor, G. C. (2013). Boards of directors, innovation, and performance: An exploration at multiple levels. Journal of Product Innovation Management, 30(4), 608–625.

    Article  Google Scholar 

  • Rong, Z., & Xiao, S. (2017). Innovation-related diversification and firm value. European Financial Management, 23(3), 475–518.

    Article  Google Scholar 

  • Rosenkopf, L., & Nerkar, A. (2001). Beyond local search: Boundary-spanning, exploration and impact in the optical disc industry. Strategic Management Journal, 22(4), 287–306.

    Article  Google Scholar 

  • Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40, 534–559.

    Google Scholar 

  • Scharfstein, D. S. (1998). The dark side of internal capital markets II: Evidence from diversified conglomerates. NBER working paper. no. 6352.

  • Shahzad, A. M., Mousa, F. T., & Sharfman, M. P. (2016). The implications of slack heterogeneity for the slack-resources and corporate social performance relationship. Journal of Business Research, 69(12), 5964–5971.

    Article  Google Scholar 

  • Shankman, N. A. (1999). Reframing the debate between agency and stakeholder theories of the firm. Journal of Business Ethics, 19(4), 319–334.

    Article  Google Scholar 

  • Sharma, S. (2000). Managerial interpretations and organizational context as predictors of corporate choice of environmental strategy. Academy of Management Journal, 43(4), 681–697.

    Google Scholar 

  • Shin, J., & Jalajas, D. (2010). Technological relatedness, boundary-spanning combination of knowledge and the impact of innovation: Evidence of an inverted-U relationship. Journal of High Technology Management Research, 21(2), 87–96.

    Article  Google Scholar 

  • Shrivastava, P. (1995). Environmental technologies and competitive advantage. Strategic Management Journal, 16(Special issue), 183–200.

    Article  Google Scholar 

  • Spencer, J. W. (2003). Firms’ knowledge-sharing strategies in the global innovation system: Empirical evidence from the flat panel display industry. Strategic Management Journal, 24(3), 217–233.

    Article  Google Scholar 

  • Tan, J. (2003). Curvilinear relationship between organizational slack and firm performance: Evidence from Chinese state enterprises. European Management Journal, 21(6), 740–749.

    Article  Google Scholar 

  • Tatikonda, M. V., & Rosenthal, S. R. (2000). Technology novelty, project complexity, and product development project execution success: A deeper look at task uncertainty in production innovation. IEEE Transactions on Engineering Management, 47(1), 74–87.

    Article  Google Scholar 

  • Toh, P. K. (2014). Chicken, or the egg, or both? The interrelationship between a firm’s inventor specialization and scope of technologies. Strategic Management Journal, 35(5), 723–738.

    Article  Google Scholar 

  • USTPO (2009). Pilot program for green technologies including greenhouse gas reduction. Federal Register, 74(234), 64666–64669.

    Google Scholar 

  • Varaiya, N., Kerin, R. A., & Weeks, D. (1987). The relationship between growth, profitability, and firm value. Strategic Management Journal, 8, 487–497.

    Article  Google Scholar 

  • Veefkind, V., Hurtado-Albir, J., Angelucci, S., Karachalios, K., & Thumm, N. (2012). A new EPO classification scheme for climate change mitigation technologies. World Patent Information, 34(2), 106–111.

    Article  Google Scholar 

  • Venkatraman, N. (1989). The concept of fit in strategy research: Toward verbal and statistical correspondence. Academy of Management Review, 14(3), 423–444.

    Article  Google Scholar 

  • Voegtlin, C., & Scherer, A. G. (2017). Responsible innovation and the innovation of responsibility: Governing sustainable development in a globalized world. Journal of Business Ethics, 143(2), 227–243.

    Article  Google Scholar 

  • Wagner, M. (2007). On the relationship between environmental management, environmental innovation and patenting: Evidence from German manufacturing firms. Research Policy, 36, 1587–1602.

    Article  Google Scholar 

  • Wang, T., & Bansal, P. (2012). Social responsibility in new ventures: Profiting from a long-term orientation. Strategic Management Journal, 33(10), 1135–1153.

    Article  Google Scholar 

  • Wu, J., & Tu, R. (2007). CEO stock option pay and R&D spending: A behavioral agency explanation. Journal of Business Research, 60, 482–492.

    Article  Google Scholar 

Download references

Acknowledgments

The authors thank the section editor, Cory Searcy, and three anonymous reviewers for their constructive suggestions. The authors are grateful to the competitive research grant ECO2016-75909-P for funding a portion of this research.

Author information

Authors and Affiliations

  1. Department of Entrepreneurship and Strategy, Montpellier Business School, 2300, Avenue des Moulins, 34185, Montpellier Cedex 4, France

    Dante I. Leyva-de la Hiz

  2. Management Department, University of Granada, C/Cuesta del Hospicio s/n, 18071, Granada, Spain

    Vera Ferron-Vilchez & J. Alberto Aragon-Correa

Authors
  1. Dante I. Leyva-de la Hiz
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Vera Ferron-Vilchez
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. J. Alberto Aragon-Correa
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Dante I. Leyva-de la Hiz.

Ethics declarations

Conflict of interest

All authors declare that they have no conflict of interest.

Ethical Approval

This article does not concern any studies with human participants or animals performed by any of the authors.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Leyva-de la Hiz, D.I., Ferron-Vilchez, V. & Aragon-Correa, J.A. Do Firms’ Slack Resources Influence the Relationship Between Focused Environmental Innovations and Financial Performance? More is Not Always Better. J Bus Ethics 159, 1215–1227 (2019). https://doi.org/10.1007/s10551-017-3772-3

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-017-3772-3

Keywords

Search

Navigation