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

Paper

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

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

Presentation TypePaper
Authors
AuthorSantacruz, Lujer
Number of Pages20
Year2018
Place of PublicationSydney, Australia
Web Address (URL) of Paperhttps://www.business.unsw.edu.au/about/schools/banking-finance/seminars-conferences/australasian-finance-banking-conference/past-conferences/31st-australasian-finance-and-banking-conference
Conference/Event31st Australasian Finance and Banking Conference
Event Details
31st Australasian Finance and Banking Conference
Event Date
13 to end of 15 Dec 2018
Event Location
Sydney, Australia
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.

Keywordsfirm risk taking, risk and return, bowman's paradox
ANZSRC Field of Research 2020380107. Financial economics
Public Notes

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Byline AffiliationsSchool of Commerce
Institution of OriginUniversity of Southern Queensland
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