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Book part
Publication date: 17 January 2023

Victoria Dobrynskaya and Mikhail Dubrovskiy

The authors consider a variety of cryptocurrency and equity risk factors as potential forces that drive cryptocurrency returns and carry risk premiums. In a cross-section of 2,000…

Abstract

The authors consider a variety of cryptocurrency and equity risk factors as potential forces that drive cryptocurrency returns and carry risk premiums. In a cross-section of 2,000 biggest cryptocurrencies during 2014–2020, only downside market risk, cryptocurrency size and cryptocurrency policy uncertainty factors are systematically priced with significant premiums. Cryptocurrencies, which have greater exposures to these factors, yield higher returns subsequently. Equity market risk, particularly equity downside market risk, appears to be more important than cryptocurrency market risk, suggesting greater linkages between cryptocurrency and equity markets than we used to think. Global and the US equity factors are more relevant for the cryptocurrency market than local factors from other markets. However, there is no evidence that exposure to momentum, volatility and Fama–French factors is compensated by higher returns.

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Fintech, Pandemic, and the Financial System: Challenges and Opportunities
Type: Book
ISBN: 978-1-80262-947-7

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Book part
Publication date: 21 July 2020

Stefan Linder and Johanna Sax

Today, long-term success requires firms to sense changes in their environments early and react efficiently to them. Increasing middle managers’ participation in decision-making…

Abstract

Today, long-term success requires firms to sense changes in their environments early and react efficiently to them. Increasing middle managers’ participation in decision-making about market-related and product-related questions has been suggested as one way of enhancing this strategic responsiveness; abandoning formal planning, such as annual budgets, has been another. Yet, empirical evidence on the matter is scarce and conflicting. Drawing on data from Denmark’s 500 largest firms, we show that participation of middle managers in decision-making about new products and markets to serve, in-deed, increases firms’ strategic responsiveness as assessed by a reduction in firms’ downside risk. However, this effect is not a direct one. Nor does it interact positively or negatively with the emphasis put on formal planning as submitted in literature. Our evidence suggests that emphasis on planning mediates the relation between stronger participation of middle managers in decision-making and the increase in firms’ strategic responsiveness. This has implications for ongoing theory building and practice.

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Adapting to Environmental Challenges: New Research in Strategy and International Business
Type: Book
ISBN: 978-1-83982-477-7

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Book part
Publication date: 29 December 2016

Mariya Gubareva and Maria Rosa Borges

This chapter reassesses the economics of interest rate risk management in light of the global financial crisis by developing a derivative-based integrated treatment of interest…

Abstract

This chapter reassesses the economics of interest rate risk management in light of the global financial crisis by developing a derivative-based integrated treatment of interest rate and credit risk interrelation. The decade-long historical data on credit default swap spreads and interest rate swap rates are used as proxy measures for credit risk and interest rate risk, respectively. An elasticity of interest rate risk and credit risk, considered a function of the business cycle phases, maturity of instruments, economic sector, creditworthiness, and other macroeconomic parameters, is investigated for optimizing economic capital. This chapter sheds light on how financial institutions may address hedge strategies against downside risks implementing the proposed derivative-based integrated treatment of interest rate and credit risk assessment allowing for optimization of interest rate swap contracts. The developed framework of integrated interest rate and credit risk management is of special importance for emerging markets heavily dependent on foreign capital as it potentially allows emerging market banks to improve risk management practices in terms of capital adequacy and Basel III rules. Analyzing diversification versus compounding effects, it allows enhancing financial stability through jointly optimizing Pillar 1 and Pillar 2 economic capital.

Book part
Publication date: 27 November 2017

Steven A. Dennis, Prodosh Simlai and Wm. Steven Smith

Previous studies have shown that stock returns bear a premium for downside risk versus upside potential. We develop a new risk measure which scales the traditional CAPM beta by…

Abstract

Previous studies have shown that stock returns bear a premium for downside risk versus upside potential. We develop a new risk measure which scales the traditional CAPM beta by the ratio of the upside beta to the downside beta, thereby incorporating the effects of both upside potential and downside risk. This “modified” beta has substantial explanatory power in standard asset pricing tests, outperforming existing measures, and it is robust to various alternative modeling and estimation techniques.

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Growing Presence of Real Options in Global Financial Markets
Type: Book
ISBN: 978-1-78714-838-3

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Book part
Publication date: 13 August 2007

Jeffrey J. Reuer and Tony W. Tong

This paper categorizes and critiques the empirical research strategies that have been employed to test real options theory. Existing research has sought to detect valuable options…

Abstract

This paper categorizes and critiques the empirical research strategies that have been employed to test real options theory. Existing research has sought to detect valuable options in firms’ strategic investments as well as to investigate the payoffs from these investments. Our review highlights some of the evidence that has accumulated in recent years for real options theory. We flag some of the most important challenges and tradeoffs associated with the use of different empirical research approaches for testing real options theory in strategic management. The paper concludes by offering a number of research priorities to advance the theory by probing its descriptive validity as well as by addressing its normative aspirations to bridge corporate finance and strategy.

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Real Options Theory
Type: Book
ISBN: 978-0-7623-1427-0

Book part
Publication date: 6 September 2021

Line Ettrich and Torben Juul Andersen

The world in which companies operate today is volatile, uncertain, complex, and ambiguous, thus subjecting contemporary forms to an array of risks that challenge their viability…

Abstract

The world in which companies operate today is volatile, uncertain, complex, and ambiguous, thus subjecting contemporary forms to an array of risks that challenge their viability in an increasingly competitive landscape. Organizations that cling to their traditional ways of operating impede their ability to survive while those able to embrace evolving changes and lever their strategic response capabilities (SRCs) will thrive against the odds. The possession of such capabilities has become a prominent explanation for effective adaptation to the impending changes but is rarely analyzed and tested empirically. Strategic adaptation typically assumes innovation as an important component, but we know little about how the innovative processes interact with the firm’s SRCs. Hence, this study investigates these implied relationships to discern their effects on organizational performance and risk outcomes. It explores the effects of SRCs and the role of innovation as intertwined adaptive mechanisms supporting strategic renewal that can attain superior performance and risk effects. The relationships are analyzed based on a large sample of US manufacturing firms over the decade 2010–2019. The study reveals that firms possessing effective SRCs have the ability to exploit opportunities and deflect risky situations to gain favorable performance and risk outcomes. While innovation indeed plays a role, the precise nature and dynamic effect thereof remain inconclusive.

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Strategic Responses for a Sustainable Future: New Research in International Management
Type: Book
ISBN: 978-1-80071-929-3

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Abstract

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The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

Book part
Publication date: 18 August 2006

Heli Wang and Jeffrey J. Reuer

This paper provides a stakeholder-based rationale for firm risk reduction through diversification. While firm-specific investments from stakeholders are often important sources of…

Abstract

This paper provides a stakeholder-based rationale for firm risk reduction through diversification. While firm-specific investments from stakeholders are often important sources of firm competitive advantage and economic rents, there is a reduced incentive for stakeholders to make these investments due to the risk associated with firm-specific investments. Since the risk associated with firm-specific investments is often related to the total firm risk level, we argue that stakeholders’ difficulties in diversifying the risks associated with their firm-specific investments create incentives for risk management by firms. We test this argument in a diversification setting. Based on a sample of firms’ first acquisition moves, we find that firms are more likely to engage in risk reduction through diversification when high levels of firm-specific assets are important to the firm's operations. Several proxies for stakeholders’ specific investments are found to be significant in explaining cross-sectional variation in the extent of ex ante risk reduction in acquisitions.

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Advances in Mergers and Acquisitions
Type: Book
ISBN: 978-0-76231-337-2

Book part
Publication date: 16 November 2012

Stefan Heidenreich and Jonas F. Puck

Purpose – By means of this case study, we aim to learn from failure and provide an explanatory approach why the promising prospects in a developing country could not be exploited…

Abstract

Purpose – By means of this case study, we aim to learn from failure and provide an explanatory approach why the promising prospects in a developing country could not be exploited and strategic actions failed.

Design/methodology/approach – Based on literature within the areas of uncertainty, entrepreneurial activity and political strategy, we provide an event-based case analysis and develop an explanatory model as to why the foreign direct investment (FDI) failed.

Findings – Results provide insights on the effectiveness of political strategies and point to the relevance of entrepreneurial overconfidence as a diminishing cognitive process leading to a misinterpretation of both internal and external conditions.

Originality/value – The exploratory study provides in-depth insights on a failed business and presents an explanatory approach for the business’ collapse.

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New Policy Challenges for European Multinationals
Type: Book
ISBN: 978-1-78190-020-8

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Abstract

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Understanding Financial Risk Management, Second Edition
Type: Book
ISBN: 978-1-78973-794-3

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