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Risk And Firm Value In European Companies: A Dynamic Panel Data Approach

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  • Claudiu Botoc

    (West University of Timisoara, Faculty of Economics and Business Administration)

Abstract

Recent uncertainties in financial markets and several company bankruptcies reinforce the relationship between risk and return as a cornerstone in corporate finance. Enterprise risk management theories offer unambiguous predictions about the relation between firm value and risk. The main aim of the paper is to provide new empirical evidence on the risk as a driver for company value creation process for European developed countries over the period 2001-2011. Using dynamic panel data model with two-step GMM-SYS method and enterprise multiple as a new approach to measure for firm value the results suggest that firm value is negatively related with risk, which is consistent with Bowman’s risk and return paradox. The negative relation between firm value and risk is robust through alternative measures, but it does not hold for companies from civil law countries. Additional control variables included in the model are significant and suggest that both growth and capital structure are negatively related with firm value.

Suggested Citation

  • Claudiu Botoc, 2015. "Risk And Firm Value In European Companies: A Dynamic Panel Data Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 792-800, July.
    • Handle: RePEc:ora:journl:v:1:y:2015:i:1:p:792-800
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    File URL: http://anale.steconomiceuoradea.ro/volume/2015/n1/090.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    firm value; risk; growth; profitability; capital structure; dynamic panel models;
    All these keywords.

    JEL classification:

    • G - Financial Economics
    • G - Financial Economics

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