The Relationship Between Financial Slack, Ownership-Board Structure, and Firm Performance: Evidence From BIST 100

Abstract

The concept of financial slack refers to the sum of a firm's assets held in excess of what is required and its ability to borrow. While resource structure theorists argue that financial slack is a source of power that firms can turn to in times of need, agency theorists argue that slack can negatively affect firm value by prioritizing or squandering managers' self-interest. This study investigates the relationship between available slack, potential slack recoverable slack, and market-based performance indicators and the moderating effect of ownership structure variables on this relationship. Within the scope of the study, the firms traded in the BIST100 index between 2018/Q1-2023/Q3 are analyzed with the GMM method. According to the findings, a positive relationship was found between all types of financial slack and market-based performance indicators such as Tobin's Q, PD/DD, and F/K. According to the results of GMM analysis on the moderating effect of ownership structure and board structure on the relationship between available slack, potential slack, and recoverable slack and Tobin's Q, PD/DD, and P/E variables within the scope of agency theory, managerial ownership, ownership concentration, board independence, and board size are found to have different levels of moderating effect. There is insufficient evidence on the moderating effect of foreign ownership on the relationship between slack and performance.