Shifts of Reference Points for Framing of Strategic Decisions and Changing Risk-Return Associations
AbstractPrevious 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.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 46 (2000)
Issue (Month): 1 (January)
Framing; Risk; Strategic Management;
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- Manuel Núñez Nickel & Manuel Cano Rodríguez, 2002. "Las Tres Caras Del Riesgo Estratégico: Riesgo Sistemático, Riesgo Táctico Y Riesgo Idiosincrásico," Documentos de Trabajo de EconomÃa de la Empresa db021508, Universidad Carlos III, Departamento de Economía de la Empresa.
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