Shifts of Reference Points for Framing of Strategic Decisions and Changing Risk-Return Associations

Johannes M. Lehner ()
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Johannes M. Lehner: Institut für Unternehmensführung, Forschungsschwerpunkt Organisation, University of Linz, Altenbergerstrasse 69, A-4040 Linz, Austria

Management Science, 2000, vol. 46, issue 1, 63-76

Abstract: Previous results on nonlinear risk-return associations, predicted by prospect theory, are replicated with mean quadratic differences instead of variance as a measure of risk. In contrast to assumptions of these studies, results with a sample from the COMPUSTAT-database provide evidence that at least a minority of firms shift to individual reference levels, which are represented here through levels of minimal risk. Further, changes of environmental conditions as an alternative explanation for switching risk-return relationships are tested against prospect theory predictions. It is shown that risk-return relationships remain stable as long as the relative position to the individual reference level is stable. This explains switching risk-return relationships better than changing environmental conditions.

Keywords: Framing; Risk; Strategic Management (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:46:y:2000:i:1:p:63-76

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