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A review of research on the negative accounting relationship between risk and return: Bowman's paradox

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  • Nickel, Manuel Núñez
  • Rodriguez, Manuel Cano

Abstract

A cornerstone in finance theory continues to be the positive relationship between risk and return in spite of Fama and French (The Journal of Finance 47(2) (1992) 427-65) and several later papers finding no relationship between the two variables. Twelve years earlier, Bowman (Sloan Management Review 1980, pp. 17-31) studied the same relationship from organization theory, achieving similar results with accounting data, and developing a whole research stream known as "Bowman's paradox". This stream has contributed to some curious and interesting ideas that could also be applied to other different streams: new risk measures, managerial goal selection, response to the decline in the organization, diversification strategy on risk and return, among others. Similar to the financial stream, a number of researchers have tried to study this issue from the strategic management perspective. Their inconclusive results have generated a considerable controversy, keeping this research stream alive. In this work, we describe and explore this phenomenon from "Bowman's paradox", theoretical explanations, criticisms and future orientations.

Suggested Citation

  • Nickel, Manuel Núñez & Rodriguez, Manuel Cano, 2002. "A review of research on the negative accounting relationship between risk and return: Bowman's paradox," Omega, Elsevier, vol. 30(1), pages 1-18, February.
    • Handle: RePEc:eee:jomega:v:30:y:2002:i:1:p:1-18
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