Matching slack resources and investment strategies to achieve long-term performance: New perspectives on corporate adaptability

Our empirical evidence from a sample of adaptive technology-intensive firms shows that under stable market environments, firms tend to use flexible slack resources (such as cash holdings and cash flows) to finance R&D expenditures in growth options. On the other hand, specific resources (such as plant, property and equipment) are used to support capital expenditures in existing assets. Our evidence further indicates that matched firmsʼ performance dominates that of unmatched firms, and, further, matched firms have fairly similar profitability in the long run. Under turbulent market environments such as the Dot.Com bubble (1999-2002) and the sub-prime mortgage crisis (2007-2009), we find investment in growth opportunities and innovation is slowed down while cash and liquid assets are accumulated to create a buffer against the risk of financial distress.