How much organizational slack and attentions affect firm's performance?

The paper explores the relationship between firm performance; intellectual capital, originally expressed as a bundle of different organizational slack types; and attention. In particular, we argue that each type of slack and attention has a different impact on firm performance and that slack reflects that specific endowment of intellectual capital, usable to foster performance and growth. We use the market to book value to measure both firm performance and, indirectly, the endowment of intellectual capital. This ratio is largely employed as a proxy measure for intellectual capital: the value of intellectual capital is roughly equal to the gap between the market and the book value. Organizational slack is a cushion of excess resources, upon which the firm could rely in case of uncertainty. We group slack types according to the easy-ofrecovery taxonomy. We also consider organizational attention, a further expression of intellectual capital. Overall attention is given by the sum of the attention toward the internal environment and toward the external environment. We test our hypotheses on a sample of large companies operating in the energy market. Our findings show a significant positive relationship between the market to book ratio and both the unabsorbed and potential slack, which reflect, respectively, the organizational capital and the relational capital available for investing in firm growth. On the converse, the absorbed slack has a moderate influence on this gap (it is a measure of organizational capital hardly recoverable for new investments). Consistently with the model, attention is negatively related to the market to book value. In fact, it represents all those expenses made to reduce the discrepancy between the market to book value. However, those expenses reduce the firm’s potential of making new investments, since they are resources already allocated in previous projects and almost unrecoverable.