The Risk-Return Outcomes of Strategic Responsiveness

Torben J. Andersen and Richard A. Bettis

Chapter 3 in Contemporary Challenges in Risk Management, 2014, pp 63-90 from Palgrave Macmillan

Abstract: Abstract The ability to realize sustainable performance over longer periods of time is an essential outcome parameter in strategic management, and another important performance characteristic, not often taken into consideration, is the riskiness of the income stream. The research on the relationships between performance and risk outcomes typically measures performance as the mean value and realized risk as the standard deviation of return measures, such as the accounting-based ratio return on assets (ROA). Based on such mean-variance measures of performance outcomes, Bowman (1980) found a predominantly negative relationship between risk and return across most industries. Since, this finding was at odds with the common assumptions about higher returns associated with more risky business activities; it was referred to as a “risk-return paradox” or simply the “Bowman paradox”. The existence of this risk-return paradox has received much scrutiny in management literature over the years, and the possible explanations that have been presented can largely be categorized around those that are based on prospect theory, on statistical artifacts, and on good management conduct (e.g. Andersen et al., 2007).

Keywords: Learning Rate; Strategic Management; Prospect Theory; Dynamic Capability; Strategic Management Journal (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-44762-3_4

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DOI: 10.1057/9781137447623_4

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