This study examines two competing views on how financial slack affects firm performance: resource-based behavioral theory and agency theory. By investigating a large panel data set consisting of 1852 U.S. firms over the 1990.2008 period, the empirical analysis of the fixed-effects FGLS regression and Granger causality test shows a positive relationship between financial slack and firm performance. The empirical findings lend support to the resource-based behavioral theory of the firm.