Abstract

This study explores the relationship between financial slack and firm performance using a sample of firms in African countries. This study employed a split sample analysis to unmask the real picture of slack and performance nexus. We also used a baseline sample (using 923 firms) analysis to show how the result is ambiguous. By using 530 African firms (212 high and 318 low financial firms), this study found that while high available slack has adverse effects, low available slack has a favourable impact on firm performance. However, the study confirms while high potential slack has a positive influence, low potential slack hurts African firms' performance. These results depicted that while agency theory offers a strong prediction when dealing with high available slack,