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

Nickel, Manuel Núñez; Rodríguez, Manuel Cano

doi:10.1016/s0305-0483(01)00055-x

Cited by 105 publications

(65 citation statements)

References 78 publications

(158 reference statements)

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“…The coefficient of variation, which normalizes the standard deviation of performance by mean performance (cf. is the recommended statistic to isolate real risk from other dimensional effects when comparing the variability of several batches of data with different distributions across various time periods (Berenson and Levine, 1993: 55-56;Níckel and Rodriguez, 2002). As one would expect, there is a high correlation between the absolute standard deviation and the mean corrected standard deviation, or the coefficient of variation.…”

Section: /Asq March 2007mentioning

confidence: 99%

Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

Gómez‐Mejía

Haynes

Nickel

et al. 2007

Administrative Science Quarterly

3,288

144

4,250

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This paper challenges the prevalent notion that family-owned firms are more risk averse than publicly owned firms. Using behavioral theory, we argue that for family firms, the primary reference point is the loss of their socioemotional wealth, and to avoid those losses, family firms are willing to accept a significant risk to their performance; yet at the same time, they avoid risky business decisions that might aggravate that risk. Thus, we propose that the predictions of behavioral theory differ depending on family ownership. We confirm our hypotheses using a population of 1,237 family-owned olive oil mills in Southern Spain who faced the choice during a 54-year period of becoming a member of a cooperative, a decision associated with loss of family control but lower business risk, or remaining independent, which preserves the family's socioemotional wealth but greatly increases its performance hazard. As shown in this study, family firms may be risk willing and risk averse at the same time.

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Section: /Asq March 2007mentioning

confidence: 99%

Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

Gómez‐Mejía

Haynes

Nickel

et al. 2007

Administrative Science Quarterly

3,288

144

4,250

View full text Add to dashboard Cite

show abstract

“…For instance, some scholars have found that risk taking affects individual outcomes such as managers' subsequent changes in pay and long-term pay (Seo et al, 2014), satisfaction with firm performance , the CEO vega (i.e., CEO wealth associated with stock options) and the CEO's future risk taking (Coles et al, 2006). Other studies have shown how it affects firm outcomes (see Andersen et al, 2007;Bromiley et al, 2001;Nickel & Rodriguez, 2002;Ruefli, Collins & LaCugna, 1999)--principally firm performance (e.g., Bromiley, 1991;Strandholm et al, 2004;Villena et al, 2009) but also corporate restructuring and diversification (Hoskisson, Hitt, & Hill, 1991), firm recovery (Morrow et al, 2007), learning (Sitkin, See, Miller, Lawless, & Carton, 2011), survival/failure Latham & Braun, 2009), structure (environment-scanning, technocratization, differentiation : Miller et al, 1982), internationalization (Reuber & Fischer, 1997), product introduction divestiture (Hoskisson et al, 1994;Pathak et al, 2014), and BOD oversight of earning statements (Laux & Laux, 2009). …”

Section: Outcomes Of Managerial Risk Takingmentioning

confidence: 99%

“…As some scholars have noted (e.g., Nickel & Rodriguez, 2002), managerial risktaking behaviors may ultimately impact organizational risk, mostly captured in the variance of the firm's future income stream. The relationship between risk and return has been the subject of much debate since Bowman's (1980Bowman's ( , 1982 "paradox", which found that the positive risk-return expectations of CAPM and the original AT predictions are not generalizable, implying the existence of multiple internal and external contingencies (Andersen, Denrell & Bettis, 2007;Bromiley et al, 2001;Nickel & Rodriguez, 2002). In the following, we suggest opportunities for studying the outcomes of managerial risk taking.…”

Section: Outcomes Of Managerial Risk Takingmentioning

confidence: 99%

Managerial Risk Taking

Hoskisson

Chirico

Zyung³

et al. 2016

Journal of Management

275

132

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Managerial risk taking is a critical aspect of strategic management. To improve competitive advantage and performance, managers need to take risks, often in an uncertain environment. Formal economic assumptions of risk taking suggest that if the expected values for two strategies are similar but one is a greater gamble (uncertain), managers will choose the strategy with a more certain outcome. Based on these assumptions, agency theory assumes that top managers should be compensated or monitored to achieve better outcomes. We review the theory and research on agency theory and managerial risk taking along with theories that challenge this basic assumption about risk taking: the behavioral theory of the firm, prospect theory, the behavioral agency model and the related socioemotional wealth perspective, and upper echelons theory. We contribute to the literature by reviewing and suggesting research opportunities within and across these theories to develop a comprehensive research agenda on managerial risk taking.

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“…Simon (1978: 503) emphasizes that "In long-run equilibrium it might even be the case that choice with dynamically adapting aspiration levels would be equivalent to optimal choice, taking the costs of search into account." Schwartz et al (2002Schwartz et al ( : 1178 argue "A satisficer thus often moves in the direction of maximization without ever having it as a deliberate 4 Reviews of empirical studies on organizational aspirations can be found in Greve (2003) and Nickel and Rodriguez (2002). 5 It is doubtful that anyone would disagree with this claim.…”

Section: Discriminating Between Alternative Rationalizations Of Organmentioning

confidence: 92%

Rationalizing Organizational Change: A Need for Comparative Testing

Sakhartov

Folta

2013

Organization Science

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Behavioral theory explains that organizational change is prompted by performance relative to a firm-specific aspiration. Although this explanation has been empirically confirmed, it has not been tested comparatively alongside other explanations, most notably rational choice. This lack of comparative study implies that prior research may be committing Type I errors-confirming aspiration-level decision making when it is not actually occurring. This paper contributes to behavioral theory in two specific ways. First, we show that several foundational studies purporting to provide empirical support for aspiration-level decision making may actually represent maximizing behavior. To consider this potential, we simulate a sample of subjectively rational agents who choose strategies by maximizing expectations. We show that it is possible and highly probable to diagnose satisficing when agents are, in fact, maximizing. Second, we develop and implement recommendations for comparative testing to demonstrate reliability. Analysis shows that the recommendations are effective at reducing Type I and II errors for both behavioral theory and rational choice. This paper is meant to inspire the design of future studies on aspirations and, indeed, all studies of organizational change. AbstractBehavioral Theory explains that organizational change is prompted by performance relative to a firm-specific aspiration. While this explanation has been empirically confirmed, it has not been tested comparatively alongside other explanations, most notably rational choice. This lack of comparative study implies that prior research may be committing Type I errors -confirming aspiration-level decision-making when it is not actually occurring. The paper contributes to behavioral theory in two specific ways. First, it is shown that several foundational studies purporting to provide empirical support for aspiration level decision-making may actually represent maximizing behavior. To consider this potential, a sample of subjectively rational agents is simulated who choose strategies by maximizing expectations. It is shown that they can be perceived as satisficing, even when aspirations are absent from the data. Second, recommendations for comparative testing are developed and implemented to demonstrate their reliability. Analysis of simulated data shows the recommendations are effective at reducing Type I and Type II errors for both behavioral theory and rational choice. The paper has strong implications for the design of future studies on aspirations, and indeed, all studies of organizational change.

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

Cited by 105 publications

References 78 publications

Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

Socioemotional Wealth and Business Risks in Family-controlled Firms: Evidence from Spanish Olive Oil Mills

Managerial Risk Taking

Rationalizing Organizational Change: A Need for Comparative Testing

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