Risk propensity and firm performance: a study of the petroleum exploration industry

Article Abstract:

The differences in observed risk taking behavior among companies in the petroleum exploration industry and its effects on firm performance are examined. The study focuses on changes in corporate risk propensity based on changes in firm size and the relationships between firm-level risk-taking behavior and alternative dimensions of firm performance, such as ex post risk and return measures. A decision theoretic model is developed as a tool for quantifying risk propensity as an 'implied' utility function. A new risk propensity measured called 'Risk Tolerance Ratio' is also introduced. This measure controls for company size and facilitates the differentiation among companies based on relative risk propensity. Application on the ex ante risk propensity model indicates the importance of risk-taking behavior and that firm performance is significantly affected by decisions about corporate risk policy.

PETROLEUM AND COAL PRODUCTS, Petroleum, Petroleum and Coal Products Manufacturing, Research, Performance, Petroleum industry, Risk management, Strategic planning (Business)

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Measures of perceived risk

Article Abstract:

A study was conducted to investigate, and develop new measurement models for, the concept of perceived risk based on a standard measure of risk developed in previous research. The new measures developed are based on a two-dimensional framework, namely, the mean of lottery and its standard risk, for analyzing the riskiness perceived by individuals. They show a clear link between financial and psychological measures of risk. It will be demonstrated that these new measurement models can unify a large body of empirical evidence about risk judgements and have the potential to capture people's perceptions of risk more effectively than many previously proposed models. These models are believed to be suitable for modeling risk perceptions and preferences for lotteries with multiple outcomes.

Models, Risk assessment, Risk perception

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