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

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  • Johannes M. Lehner

    ()
    (Institut für Unternehmensführung, Forschungsschwerpunkt Organisation, University of Linz, Altenbergerstrasse 69, A-4040 Linz, Austria)

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    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.

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    File URL: http://dx.doi.org/10.1287/mnsc.46.1.63.15130
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 46 (2000)
    Issue (Month): 1 (January)
    Pages: 63-76

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    Handle: RePEc:inm:ormnsc:v:46:y:2000:i:1:p:63-76

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    Keywords: Framing; Risk; Strategic Management;

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    Cited by:
    1. Manuel Núñez Nickel & Manuel Cano Rodríguez, 2002. "Las Tres Caras Del Riesgo Estratégico: Riesgo Sistemático, Riesgo Táctico Y Riesgo Idiosincrásico," Documentos de Trabajo de Economía de la Empresa db021508, Universidad Carlos III, Departamento de Economía de la Empresa.
    2. Manuel Núñez Nickel & Manuel Cano Rodríguez, 2002. "Comportamiento Heterocedástico Entre Rentabilidad Y Riesgo," Documentos de Trabajo de Economía de la Empresa db021710, Universidad Carlos III, Departamento de Economía de la Empresa.
    3. Manuel Cano Rodríguez & Manuel Núñez Nickel, 2002. "Is The Risk-Return Paradox Still Alive?," Business Economics Working Papers wb024818, Universidad Carlos III, Departamento de Economía de la Empresa.

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