Innovation and Recoverable Slack Interaction: How Does It Affect Firm Performance?

This paper investigates the impact of the interaction effect between a slack variable and innovation on financial performance. Specifically, the interaction effect between recoverable slack resources and an innovation input on financial performance were analyzed using financial data of U.S firms in aerospace and computer science industries. An extensive review of literature on slack, innovation, and environmental shock develops the conceptual model. This study examines the relationship as representative of a specific bundle of resources governed by the strategic direction of management. The results suggest evidence of a positive and significant interaction effect under certain conditions