Slack and innovation: Investigating the relationship in Korea

This study investigates how organizational slack affects innovation by using a panel data set consisting of Korean firms over the 1999–2008 period. Especially, the relationship between financial slack and R&D investment is of concern. We extend previous work on slack and innovation by using dynamic GMM estimation, split-sample method, and other econometric techniques. The empirical analysis shows that the relationship between slack and innovation is weak in Korea, and small firms and young firms create a favorable environment for managers to use slack resources to invest in innovation. The results imply that the relationship between slack and innovation depends on the distinct social and institutional settings in which firms operate and on the organizational characteristics of the firm.