Concept of Taking Risk-Tolerant Financial Decisions Under Elevated Uncertainty

Vladimir A. Kunin and Stanislav I. Peshko
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Vladimir A. Kunin: Saint-Petersburg University of Management Technologies and Economics
Stanislav I. Peshko: Saint-Petersburg University of Management Technologies and Economics

A chapter in Finance, Economics, and Industry for Sustainable Development, 2023, pp 245-260 from Springer

Abstract: Abstract Under the uncertainty caused by external factors and heightened external risks, ensuring the sustainable competitive development of a corporation largely depends on the financial decisions taken. These decisions should be focused on improving the financial performance of the corporation while preventing the occurrence of risk of loss of its financial stability. Achieving this goal largely depends on the level of structural risk, the importance of effective management of which grows significantly under the conditions of strong market volatility which manifests itself under the impact of heightened external risks. In this regard, it is of particular relevance to ensure that risk-tolerant financial decisions are taken aiming at the sustainable effective development of the company under the conditions of high uncertainty and risks, and taking into account potential changes in the external environment and, as a consequence, the level of structural risk. The purpose of this study is to develop a methodology for taking risk-tolerant financial decisions focused on streamlining the leverages on private financial risks of companies in the context of the most reasonable limitation of these risks under the elevated uncertainty, and to advise on the practical application of the methodology developed. The study has evaluated the joint impact of operating and financial leverages on the risk of loss of financial stability of the company and the maximum permissible value of the financial leverage arm above which the risk of loss of financial stability becomes unacceptable. The methodology was proposed and an algorithm was developed for taking financial risk-tolerant decisions on managing the capital structure, and a concept was proposed for implementing financial decisions on managing the company’s debt capital and dividend policy under uncertainty. The impact of a change in the dividend policy on the financial leverage arm and financial profitability of the company was evaluated. Advice was given with regard to taking risk-tolerant financial decisions under the elevated uncertainty. The results obtained may be used by companies when taking their financial decisions under the uncertainty and economic turbulence. The study methodology is based on a dialectical systemic approach using logical, factor and comparative analyses, methods of probability theory and mathematical statistics, data synthesis and grouping.

Keywords: Risk-tolerant financial decisions; Financial stability; Uncertainty; Financial leverage; Operating leverage; Combined leverage effect; Dividend policy (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-30498-9_22

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DOI: 10.1007/978-3-031-30498-9_22

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