Toward a practical measure of firm risk-taking: revisiting Bowman’s paradox

Santacruz, Lujer (2018) Toward a practical measure of firm risk-taking: revisiting Bowman’s paradox. In: 31st Australasian Finance and Banking Conference, 13-15 Dec 2018, Sydney, Australia.

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Abstract

Literature overwhelmingly shows a negative relationship between firm-level risk and returns based on accounting data, which is counter-intuitive from the rational perspective of risk-aversion. The present paper revisits this so-called Bowman’s Paradox and examines the wealth of literature on the topic with the objective of contributing to the development of an appropriate measure for firm risk-taking that would provide a counter-argument on the existence of the paradox. After formulating the criteria for such a measure, potential firm risk-taking measures were developed based on variability of some key financial ratios and empirically tested using US listed companies’ data for several time periods. The results showed the same counter-intuitive negative relationship between risk-taking and returns but the present paper identified an area for future theory development that hopefully will lead to a firm risk-taking measure that would exhibit the elusive positive relationship with returns.


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Item Type: Conference or Workshop Item (Commonwealth Reporting Category E) (Paper)
Refereed: Yes
Item Status: Live Archive
Additional Information: No evidence of copyright restrictions preventing deposit of Submitted version.
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce (1 July 2013 -)
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Commerce (1 July 2013 -)
Date Deposited: 04 Feb 2020 02:15
Last Modified: 11 Feb 2020 23:35
Uncontrolled Keywords: firm risk taking, risk and return, bowman's paradox
Fields of Research : 14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: E Expanding Knowledge > 97 Expanding Knowledge > 970114 Expanding Knowledge in Economics
URI: http://eprints.usq.edu.au/id/eprint/35592

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