Determinants of Corporate Risk Taking and Risk-Return Relationship

Xiaodong LI, Fan YANG, Ruiwen ZHANG


This research empirically tests for the determinants of corporate risk taking and the risk-return relationship in China, with the sample of listed companies’ financial data from 2004 to 2012 in the electric power and thermal industry in China. The authors use a dynamic model that included risk, corporate performance, industry performance, performance expectations and aspirations. The results presented in the test suggest that corporate performance and past risk both have a negative influence on corporate risk, while performance expectations and aspirations have a positive influence on corporate risk. It  provides evidence of the argument on the corporate risk-return relations of Behavioral Theory of Firm. A low-performance corporate will seek risk actively and a high-performance corporate will avoid risk. The phenomenon of “Bowman’s paradox” exists in China’s enterprises.


Risk-return relationship; Performance; Behavioral Theory of Firm; Bowman’s paradox

Full Text:



Andersen, T. J., Denrell, J., & Bettis, R. A. (2007). Strategic responsiveness and Bowman’s risk-return paradox. Strategic Management Journal, 28(4), 407-429.

Bowman, E. H. (1980). A risk/return paradox for strategic management. Sloan Management Review, 21(3), 17-31.

Bowman, E. H. (1982). Risk seeking by troubled firms. Sloan Management Review, 23(4), 33-42.

Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management Journal, 34(1), 37-59.

Brown, L. D., Richardson, G. D., & Schwager, S. J. (1987). An information interpretation of financial analyst superiority in forecasting earnings (Working paper). State University of New York at Buffalo.

Chang, Y., & Thomas, H. (1989). The impact of diversification strategy on risk-return performance. Strategic Management Journal, 10, 271-284.

Conroy, R., & Harris, R. (1987). Consensus forecasts of corporate earnings: Analysts’ forecasts and time series methods. Management Science, 33, 725-738.

Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. Englewood Cliffs, NJ: Prentice-Hall.

Deephouse, D. L., & Wiseman, R. M.(2000). Comparing alternative explanations for accounting risk-return relations. Journal of Economic Behavior and Organization, 42, 463-482.

Denrell, J.(2008). Organizational risk taking: Adaptation versus variable risk preferences. Industrial and Corporate Change, 17(3), 427-466.

Fama, E. F., & MacBeth, J. D. (1973). Risk, return, and equilibrium: Empirical tests. Journal of Political Economy, 81, 607-636.

Eliasson, G. (1976). Business economic planning. London: John Wiley & Sons.

Fiegenbaum, A., & Thomas, H. (1985). An examination of the structural stability of Bowman’s risk-return paradox. Academy of Management Proceedings, 7-10.

Fiegenbaum, A., & Thomas, H. (1988). Attitudes toward risk and the risk return paradox: Prospect theory explanations. Academy of Management Journal, 31(1), 85-106.

Fiegenbaum, A., & Thomas, H. (1995). Strategic groups as reference groups: Theory, modeling and an empirical examination of industry and competitive strategy. Strategic Management Journal, 16(5), 461-476.

Fisher, I. N., & Hall, G. R. (1969). Risk and corporate rates of return. Quarterly Journal of Economics, 83, 79-92.

Givoly, D., & Lakonishok, J. (1988). Divergence of earnings expectations: The effect on stock market response to earnings signals. In E. Dimson (Ed.), Stock m



  • There are currently no refbacks.

Copyright (c)

Share us to:   


  • How to do online submission to another Journal?
  • If you have already registered in Journal A, then how can you submit another article to Journal B? It takes two steps to make it happen:

1. Register yourself in Journal B as an Author

  • Find the journal you want to submit to in CATEGORIES, click on “VIEW JOURNAL”, “Online Submissions”, “GO TO LOGIN” and “Edit My Profile”. Check “Author” on the “Edit Profile” page, then “Save”.

2. Submission

  • Go to “User Home”, and click on “Author” under the name of Journal B. You may start a New Submission by clicking on “CLICK HERE”.
  • We only use three mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases:;;

 Articles published in Canadian Social Science are licensed under Creative Commons Attribution 4.0 (CC-BY).


Address1020 Bouvier Street, Suite 400, Quebec City, Quebec, G2K 0K9, Canada.

Website: Http:// Http://,

Copyright © Canadian Academy of Oriental and Occidental Culture