Determinants of Corporate Risk Taking and Risk-Return Relationship

Xiaodong LI, Fan YANG, Ruiwen ZHANG

Abstract


This research empirically tests for the determinants of corporate risk taking and the risk-return relationship in China, with the sample of listed companies’ financial data from 2004 to 2012 in the electric power and thermal industry in China. The authors use a dynamic model that included risk, corporate performance, industry performance, performance expectations and aspirations. The results presented in the test suggest that corporate performance and past risk both have a negative influence on corporate risk, while performance expectations and aspirations have a positive influence on corporate risk. It  provides evidence of the argument on the corporate risk-return relations of Behavioral Theory of Firm. A low-performance corporate will seek risk actively and a high-performance corporate will avoid risk. The phenomenon of “Bowman’s paradox” exists in China’s enterprises.

Keywords


Risk-return relationship; Performance; Behavioral Theory of Firm; Bowman’s paradox

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References


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DOI: http://dx.doi.org/10.3968/4439

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