Financial slack, capital intensity, and firm performance: Evidence from global listed firms

Wijaya, Liliana Inggrit and Syarifudin, Dony Sultan and Zunairoh, Zunairoh (2026) Financial slack, capital intensity, and firm performance: Evidence from global listed firms. Manajemen dan Bisnis (MABIS), 25 (3). pp. 40-52. ISSN 1412-3789

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Abstract

Financial slack may preserve operating continuity and investment capacity, but excess resources can weaken financial discipline. This study examines the within-firm association between financial slack and firm performance and formally tests whether it varies with capital intensity and growth opportunities. We construct a pooled-standardized, equally weighted Financial Slack Index from cash holdings, liquidity, and unused debt capacity for 4,832 firm-year observations from 524 listed firms in 21 countries during 2016-2025. Firm and year fixed-effects models are complemented by country-year effects, country-exclusion and equal-weighting checks, wild-country bootstrap inference, COVID-period tests, alternative index construction, and omitted-variable sensitivity analysis. Financial slack is positively associated with return on assets (b = 0.0170, p < .001) and market-to-assets. Capital intensity is negatively associated with performance, whereas the continuous financial-slack-by-capital-intensity interaction is insignificant. Formal slope comparisons show weak evidence of a stronger association among high-capital-intensity firms (p = .099), but strong evidence among high-growth firms (p < .001). The financial-slack slope does not differ across pre-COVID, COVID, and post-COVID periods. Results remain positive under country-year effects and after excluding the two dominant countries. The evidence supports financial slack as conditional financial flexibility, especially for growing firms, while remaining associative rather than causal.

Item Type:	Article
Uncontrolled Keywords:	financial slack, financial flexibility, capital intensity, growth opportunities, firm performance, fixed effects
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions:	Faculty of Business and Economic > Department of Management
Depositing User:	BAMBANG SEPTIAWAN
Date Deposited:	22 Sep 2026 03:30
Last Modified:	23 Sep 2026 01:52
URI:	http://repository.ubaya.ac.id/id/eprint/51286

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