Financial Slack, Capital Intensity, and Firm Performance: Evidence from Global Listed Firms (Ubaya Repository (University of Surabaya))

Summary

• The study analyzes a pooled-standardized Financial Slack Index using 4,832 firm-year observations from 524 listed firms in 21 countries during 2016-2025 [p.1].p.1
• The country sample is heavily weighted toward South Korea and the United States, which account for 34.50% and 34.48% of total observations, respectively [p.3].p.3
• Financial slack exhibits a positive within-firm association with return on assets (b = 0.0170, p < .001) [p.1].p.1
• Capital intensity demonstrates a negative direct association with firm performance (b = -0.0809, p < .001) in the interaction specification [p.7].p.7
• Formal slope comparisons show strong evidence of a stronger slack-performance association among high-growth firms (p < .001) [p.1].p.1

Key insights

1. Financial slack is positively associated with both current accounting return on assets and market-to-assets ratios [p.2].p.2
2. Capital intensity is negatively associated with profitability due to fixed asset commitments and operating rigidity [p.3].p.3
3. Formal slope testing shows strong evidence that the performance benefit of financial slack is higher for growing firms (p < .001) [p.8].p.8
4. The association between financial slack and performance does not differ significantly between pre-COVID, COVID, and post-COVID periods [p.9].p.9
5. Component-level models reveal that unused debt capacity is the strongest contributor to the positive slack composite association [p.9].p.9