Managers are continually challenged to balance the tradeoffs between adapting to rapidly changing market environments and focusing on existing core eﬃciencies. In this paper, we advance new perspectives on corporate adaptability by departing from the premise of the previous research that treats a ﬁrm’s investment strategies and management of its slack resources in isolation. We contend that ﬁrms with adaptive capabilities attempt to match the type of slack resources (i.e., absorbed/speciﬁc or unabsorbed/ﬂexible) with the nature of their investment strategies (i.e., exploration vs. eﬃciencies in existing assets). We further advance that the dynamics of strategy and performance relationship is moderated by the market turbulence level. Our empirical evidence from a sample of adaptive technology-intensive ﬁrms shows that under stable market environments, ﬁrms tend to use ﬂexible slack resources (such as cash holdings and cash ﬂows) to ﬁnance R&D expenditures in growth options. On the other hand, speciﬁc resources (such as plant, property and equipment) are used to support capital expenditures in existing assets. Our evidence further indicates that matched ﬁrms’ performance dominates that of unmatched ﬁrms, and, further, matched ﬁrms have fairly similar proﬁtability in the long run. Under turbulent market environments such as the Dot.Com bubble (1999–2002) and the sub-prime mortgage crisis (2007–2009), we ﬁnd investment in growth opportunities and innovation is slowed down while cash and liquid assets are accumulated to create a buffer against the risk of ﬁnancial distress
© Elsevier, 2013.