The Impact of Risk-taking on Firm Volatility

Abstract

We investigate the link between firm volatility and risk-taking (RT) among 4232 institutions across 11 countries during the period of 2000–2017 and find RT is negatively correlated with volatility measures. Second, a decomposition of the primary risk measure, the Z score and Merton distance-to-default, reveals that high RT contributed to lower stock return volatility mainly through better corporate governance, firm size, higher information efficiency, and strong BOD. Third, Australia firms engage in more RT compared to other countries. Finally, majority of the selected countries show the negative impact of RT in firm volatility in the pre-crises period (2002–2006) and during the crises period (2007–2009) but not in the post-crises period (2010–2014).

Citation

Lee, S.-N. (2019), "The Impact of Risk-taking on Firm Volatility", Asia-Pacific Contemporary Finance and Development (International Symposia in Economic Theory and Econometrics, Vol. 26), Emerald Publishing Limited, Leeds, pp. 165-199. https://doi.org/10.1108/S1571-038620190000026009