Organisational slack and industry level executive discretion

This thesis examines the associations between organisational slack, that pool of actual or potential cushion of resources of an organisation, and executive discretion - the executives’ latitude for strategic action. Bourgeois and Singh (1983), George (2005), Sharfman et al. (1988) and Sharma (2000) have referred to slack as having a discretionary dimension because its ‘ease of recovery’ varies depending on where it is gained from. For the obverse of this association, slack contributes to resource availability in the task environment and therefore executive discretion (Hambrick & Finkelstein, 1987). However until now, this bi-direction association has been largely unexplored empirically. This thesis contributes to both fields by bringing them together to examine and measure aspects of these interactions. These constructs are applied to the annual reports of U.S. firms by measuring industry level discretion using content analysis of presidents’ letters to shareholders and industry average slack using financial ratios. Correlations show that industries with higher levels of slack enjoy greater industry level discretion. However the associations between slack types and industry level discretion are not uniform suggesting that the discretionary dimension of slack is influenced by the task environment and industry context. The present study replicated Keegan and Kabanoff’s (2007) method to examine slack within industries but could not extend their results to available and recoverable slack, which suggest a curvilinear relationship between potential slack and executive discretion. The limited sub-industry results offer opportunity for further research as does the idea of applying the same research question to the organisational and individual level studies of different cohorts of firms and industries. Future efforts should also improve the measurement of the slack construct