Research On The Influence Of Organizational Slack On Corporate R&D Investment

With the increasingly competitive market and diverse business, technology innovation has become an inexhaustible motive force of enterprises’ development, playing an important role in enhancing enterprises’competitiveness and improving the economic benefits as well as long-term value, etc. Every operating activity and investment activity of enterprises need resources for support, it is especially true for technology innovation activities, which have high risk and full of uncertainty. Because of R&D activities’ high-risk, spillover and information asymmetry, so it is difficult for R&D activities to get the full support from external resources. In addition to external resources support, internal slack resources may also be used for innovation activities. Especially when enterprises can only obtain limited external resources, using internal slack resources to support innovation is not only possible but also necessary. In addition, the competitive environment of market may also influence enterprises’resources allocation, in order to cope with the pressure and threats brought by fierce market competition, the managers have more motivation to improve the efficiency of resource utilization, trying to play the fullest of resources’ potential and value, preventing enterprises at the disadvantage condition in the competition. Therefore, the aim of this paper is to research whether slack resources can play a positive role in promoting corporate R&D investment. As an external governance mechanism, whether product market competition can effectively relieve the agent problem of holding and using slack resources, prompting corporates allocate organizational slack to R&D activities, easing the resources bottleneck problem of technology innovation.This paper chooses the A-share listed companies in 2010-2012 as samples, researching the effect of organizational slack on R&D investment and the moderating effect of product market competition on the relationship between organizational slack and R&D investment. The results of this research show that: (1) the more of slack resources, the higher of R&D investment, namely organizational slack can promote the corporates’R&D investment. (2) As industry competition intensifies, the positive effect of organizational slack on R&D investment will be enhanced. Product market competition has a positive moderating effect on the relationship between organizational slack and corporate R&D investment. As an external governance mechanism, product market competition can act as the role of the supervision and motivation, effectively alleviating the problem of asymmetric information and agent problems, restraining managers use slack to satisfy selfish behavior, making managers optimize internal slack resource to support innovation. Therefore, the positive effect of organizational slack on R&D investment will be enhanced as competition intensifies。In addition, the paper further research the effect of organizational slack on R&D investment in different market environment, finding that companies in good market environment areas are more willing to technology innovation. What’s more, the positive relation between organizational slack and R&D investment is more obvious in good market environment areas, which means that the market environment has a positive moderating effect on the relationship between organizational slack and corporate R&D investment. The higher of the marketization process, the more transparency of the corporates’information, the less agent problem within the corporates. so the positive effect of organizational slack is more obvious. Besides, the higher of the marketization process, the more fierce of the market competition, companies should make full use of available resources to innovate in order to maintain competitive advantages in the highly market competition, no matter the external resources or internal resources. Thus, the positive effect of organizational slack on R&D investment can be enhanced with the improvement of market environment.This paper demonstrates that organizational slack can play a positive role, the existence and utilization organizational slack not only affected by managerial power, incentive mechanism and other internal governance factors, but also affected by industry competition and market environment. Though holding too many slack resources will brings additional costs to some extent, reducing operating efficiency, but the companies should not overly exclude slack resources, and it is also unrealistic to achieve zero slack, holding moderate slack resources can improve the flexibility and adaptability of organizations’ strategy.