The performance effect of two different dimensions of absorptive capacity and moderating role of holding-cash

Abstract

This study identified two different dimensions of absorptive capacity and examined the relationship between absorptive capacity and a firm's financial performance. Further, we measured absorptive capacity using both the inputs and outputs involved in its development simultaneously, and investigated the complementary role of holding-cash in the performance effect of two dimensions of absorptive capacity. Our results showed that a firm's homogeneous absorptive capacity has a positive effect on its short-term performance, while a firm's heterogeneous absorptive capacity may hinder its short-term business performance. However, a high level of either homogeneous or heterogeneous absorptive capacity is not always useful to a firm's long-term financial performance. Finally, cash, as a slack resource, was found to be more useful for the performance effect of heterogeneous absorptive capacity than for that of homogeneous absorptive capacity in the short term.