The mediating role of cash slack in the related variety and sales growth relationship: Evidence from Norway

Abstract

The purpose of the paper is to uncover how related industrial variety influences firms’ sales growth through firms’ cash slack. The authors applied a causal steps approach and causal mediation analysis to a very large number of observations covering more than three-quarters of Norway’s municipalities. They found that cash slack had a mediation effect in the negative relationship between related variety and sales growth, and that the regression results were robust. They conclude that the results of the study expand both related variety studies by providing a theoretical microlevel foundation, and firm growth theory by showing that cash slack is a concrete mechanism connecting external industrial environment and firm growth.