Asad Khan, Muhammad Ibrahim Khan, Shehzad Khan, Zia ur Rehman


In this study we extend the conventional risk-return debate to a more intriguing and practically significant conundrum of risk-cost association. The analysis is performed on large sample of 4609 listed companies operating in nine Asian emerging markets, using 2SLS estimation. We established that risk act as a specter and have consequences for long term contractual relationship between key stakeholders and organization. Further, organizational costs are directly affected by organizational risks hence it also provides an immediate opportunity to management to take corrective measures. As whole, the empirical evidence provides an essential perspective and insight to understand the nature of organizational risk, slack, stakeholders and it implication for organizational costs in Asian emerging markets. 


Risk, Organizational Cost, Firm-Specific Risk, Market Risk, Emerging Markets

Full Text:



Aaker, D. A., & Jacobson, R. (1987). The role of risk in explaining differences in profitability. Academy of Management Journal, 30(2), 277-296.

Amaya, D., Gauthier, G., & Léautier, T. O. (2015). Dynamic risk management: investment, capital structure, and hedging in the presence of financial frictions. Journal of Risk and Insurance, 82(2), 359-399.

Amit, R., & Wernerfelt, B. (1990). Why do firms reduce business risk? Academy of Management Journal, 33(3), 520-533.

Andersen, T. J. (2009). Effective risk management outcomes: exploring effects of innovation and capital structure. Journal of Strategy and Management, 2(4), 352-379.

Andersen, T. J., & Bettis, R. A. (2014). The risk-return outcomes of strategic responsiveness Contemporary challenges in risk management (pp. 63-90): Springer.

Andersen, T. J., & Bettis, R. A. (2015). Exploring longitudinal risk‐return relationships. Strategic management journal, 36(8), 1135-1145.

Anderson, M., Banker, R., Huang, R., & Janakiraman, S. (2007). Cost behavior and fundamental analysis of SG&A costs. Journal of Accounting, Auditing & Finance, 22(1), 1-28.

Aybar, B., & Thirunavukkarasu, A. (2005). Emerging market multinationals: an analysis of performance and risk characteristics. Journal of Asia-Pacific Business, 6(2), 5-39.

Bacon, N., & Hoque, K. (2005). HRM in the SME sector: valuable employees and coercive networks. The International Journal of Human Resource Management, 16(11), 1976-1999.

Baird, I. S., & Thomas, H. (1985). Toward a contingency model of strategic risk taking. Academy of Management Review, 10(2), 230-243.

Bansal, P., & Clelland, I. (2004). Talking trash: Legitimacy, impression management, and unsystematic risk in the context of the natural environment. Academy of Management Journal, 47(1), 93-103.

Becerra, M., & Markarian, G. (2013). The Bowman Paradox and Industry Competition: Dynamics of the Risk-Performance Relationship. Paper submitted for presentation at XXXVIII Jornadas de Economia Industrial.

Berghöfer, B., & Lucey, B. (2014). Fuel hedging, operational hedging and risk exposure—Evidence from the global airline industry. International Review of Financial Analysis, 34, 124-139.

Bettinazzi, E. L., & Zollo, M. (2017). Stakeholder orientation and acquisition performance. Strategic management journal, 38(12), 2465-2485.

Bharadwaj, S. G., Tuli, K. R., & Bonfrer, A. (2011). The impact of brand quality on shareholder wealth. Journal of Marketing, 75(5), 88-104.

Bourgeois, L., & Singh, J. V. (1983). Organizational Slack and Political Behavior Among Top Management Teams. Paper presented at the Academy of Management Proceedings.

Bowman, E. H. (1980). A Risk/Return Paradox for Strategic Management. Sloan management review, 21(3), 17.

Bowman, E. H. (1982). Risk seeking by troubled firms. Sloan management review, 23(4), 33.

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

Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise risk management: Review, critique, and research directions. Long range planning, 48(4), 265-276.

Bromiley, P., Miller, K. D., & Rau, D. (2001). Risk in strategic management research. The Blackwell handbook of strategic management, 259-288.

Bromiley, P., Rau, D., & Zhang, Y. (2017). Is R & D risky? Strategic management journal, 38(4), 876-891.

Bromiley, P., & Washburn, M. (2011). Cost reduction vs innovative search in R&D. Journal of Strategy and Management, 4(3), 196-214.

Burt, D., & Doyle, M. (1993). The American keiretsu, business one. Homewood IL: Irwin.

Chatterjee, S., Wiseman, R. M., Fiegenbaum, A., & Devers, C. E. (2003). Integrating behavioural and economic concepts of risk into strategic management: The twain shall meet. Long range planning, 36(1), 61-79.

Chou, P.-H., Chou, R. K., & Ko, K.-C. (2009). Prospect theory and the risk-return paradox: some recent evidence. Review of Quantitative Finance and Accounting, 33(3), 193-208.

Coad, A. F., & Cullen, J. (2006). Inter-organisational cost management: Towards an evolutionary perspective. Management Accounting Research, 17(4), 342-369.

Cooper, R., & Kaplan, R. S. (1992). Activity-based systems: Measuring the costs of resource usage. Accounting horizons, 6(3), 1-13.

Cootner, P. H., & Holland, D. M. (1970). Rate of return and business risk. The Bell Journal of Economics and Management Science, 211-226.

Crilly, D., & Sloan, P. (2012). Enterprise logic: explaining corporate attention to stakeholders from the ‘inside‐out’. Strategic management journal, 33(10), 1174-1193.

Cyert, R. M., & March, J. G. (1963). A behavioral theory of the firm. Englewood Cliffs, NJ, 2.

Dalbor, M., Hua, N., & Andrew, W. (2014). Factors that impact unsystematic risk in the US restaurant industry. The Journal of Hospitality Financial Management, 22(2), 89-96.

Daniel, F., Lohrke, F. T., Fornaciari, C. J., & Turner Jr, R. A. (2004). Slack resources and firm performance: a meta-analysis. Journal of Business Research, 57(6), 565-574.

Dekker, H. C., Sakaguchi, J., & Kawai, T. (2013). Beyond the contract: Managing risk in supply chain relations. Management Accounting Research, 24(2), 122-139.

Edwards, P., Ram, M., & Smith, V. (2008). Introduction to special issue: Workers, risk and the new economy: Sage Publications Sage UK: London, England.

El Ghoul, S., Guedhami, O., Ni, Y., Pittman, J., & Saadi, S. (2013). Does information asymmetry matter to equity pricing? Evidence from firms’ geographic location. Contemporary Accounting Research, 30(1), 140-181.

Estrada, J. (2011). The Three‐Factor Model: A Practitioner's Guide. Journal of Applied Corporate Finance, 23(2), 77-84.

Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. the Journal of Finance, 47(2), 427-465.

Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of financial economics, 33(1), 3-56.

Fiegenbaum, A. (1990). Prospect theory and the risk-return association: An empirical examination in 85 industries.

Fiegenbaum, A., & Karnani, A. (1991). Output flexibility—a competitive advantage for small firms. Strategic management journal, 12(2), 101-114.

Fiegenbaum, A., & Thomas, H. (1986). Dynamic and risk measurement perspectives on Bowman's risk‐return paradox for strategic management: An empirical study. Strategic management journal, 7(5), 395-407.

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

Freeman, R. E. (2010). Strategic management: A stakeholder approach: Cambridge university press.

Geiger, S. W., & Cashen, L. H. (2002). A multidimensional examination of slack and its impact on innovation. Journal of managerial issues, 68-84.

Ghysels, E., Santa-Clara, P., & Valkanov, R. (2005). There is a risk-return trade-off after all. Journal of financial economics, 76(3), 509-548.

Glick, W. H., Washburn, N. T., & Miller, C. C. (2005). The myth of firm performance. Paper presented at the Annual Meeting of the Academy of Management.

Hammer, M. (2015). What is business process management? Handbook on business process management 1 (pp. 3-16): Springer.

Harrison, J. S., & Freeman, R. E. (1999). Stakeholders, social responsibility, and performance: Empirical evidence and theoretical perspectives. Academy of Management Journal, 42(5), 479-485.

Henkel, J. (2009). The risk‐return paradox for strategic management: disentangling true and spurious effects. Strategic management journal, 30(3), 287-303.

Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What's the bottom line? Strategic management journal, 22(2), 125-139.

Hsu, L.-T. J., & Jang, S. S. (2008). Advertising expenditure, intangible value and risk: A study of restaurant companies. International Journal of Hospitality Management, 27(2), 259-267.

Hurdle, G. J. (1974). Leverage, risk, market structure and profitability. The review of economics and statistics, 478-485.

Irvine, P. J., Park, S. S., & Yıldızhan, Ç. (2016). Customer-base concentration, profitability, and the relationship life cycle. The accounting review, 91(3), 883-906.

Ismail, R., Abdullah, N. A. H., & Taufil Mohd, K. N. (2017). Determinants of Accounting-based Performance: Evidence from Bursa Malaysia. International Journal of Management Studies(1), 82-104%V 125.

Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.

Jirasek, M. (2017). The influence of national culture on changes in R&D expenses among agrochemical firms. Agricultural Economics, 63(11), 524-530.

Jones, T. M., Harrison, J. S., & Felps, W. (2018). How applying instrumental stakeholder theory can provide sustainable competitive advantage. Academy of Management Review, 43(3), 371-391.

Kallenberg, K. (2007). The role of risk in corporate value: A case study of the ABB asbestos litigation. Journal of Risk Research, 10(8), 1007-1025.

Kaplan, R. S. (1983). Measuring manufacturing performance: a new challenge for managerial accounting research Readings in accounting for management control (pp. 284-306): Springer.

Khanna, T., & Palepu, K. G. (2006). Emerging giants: Building world-class compaines in developing countries. Harvard business review, 84(10).

Kim, S. K., Cho, H., & Khieu, H. (2014). Slack and R&D strategy: The effect of slack on internal R&D and external R&D, and innovation. Journal of Management Policy and Practice, 15(2), 33.

Knight, F. H. (1921). Risk, uncertainty and profit. New York: Hart, Schaffner and Marx.

Lee, C. L., & Wu, H. C. (2016). How do slack resources affect the relationship between R&D expenditures and firm performance? R&D Management, 46(S3), 958-978.

Lehner, J. M. (2000). Shifts of reference points for framing of strategic decisions and changing risk-return associations. Management science, 46(1), 63-76.

Li, K., Griffin, D., Yue, H., & Zhao, L. (2013). How does culture influence corporate risk-taking? Journal of corporate finance, 23, 1-22.

Lintner, J. (1965a). Security prices, risk, and maximal gains from diversification. the Journal of Finance, 20(4), 587-615.

Lintner, J. (1965b). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The review of economics and statistics, 13-37.

Liu, X., Liu, X., & Reid, C. D. (2019). Stakeholder orientations and cost management. Contemporary Accounting Research, 36(1), 486-512.

Low, A. (2009). Managerial risk-taking behavior and equity-based compensation. Journal of financial economics, 92(3), 470-490.

Lubatkin, M., & Chatterjee, S. (1994). Extending modern portfolio theory into the domain of corporate diversification: Does it apply? Academy of Management Journal, 37(1), 109-136.

Markowitz, H. (1952). Portfolio selection. the Journal of Finance, 7(1), 77-91.

Marlin, D., & Geiger, S. W. (2015). The organizational slack and performance relationship: a configurational approach. Management Decision, 53(10), 2339-2355.

McGoun, E. G. (1995). The history of risk" measurement". Critical Perspectives on Accounting, 6(6), 511-532.

Meulbroek, L. K. (2002). A senior manager's guide to integrated risk management. Journal of Applied Corporate Finance, 14(4), 56-70.

Miller, K. D. (1998). Economic exposure and integrated risk management. Strategic management journal, 497-514.

Miller, K. D. (2009). Organizational risk after modernism. Organization studies, 30(2-3), 157-180.

Miller, K. D., & Bromiley, P. (1990). Strategic risk and corporate performance: An analysis of alternative risk measures. Academy of Management Journal, 33(4), 756-779.

Miller, K. D., & Chen, W.-R. (2003). Risk and firms' costs. Strategic Organization, 1(4), 355-382.

Miller, K. D., & Leiblein, M. J. (1996). Corporate risk-return relations: Returns variability versus downside risk. Academy of Management Journal, 39(1), 91-122.

Miller, K. D., & Reuer, J. J. (1996). Measuring organizational downside risk. Strategic management journal, 17(9), 671-691.

Narang, S., & Kaur, M. (2014). Impact of Firm-specific Attributes on Shareholder Value Creation of Indian Companies: An Empirical Analysis. Global Business Review, 15(4), 847-866.

Nohria, N., & Gulati, R. (1996). Is slack good or bad for innovation? Academy of Management Journal, 39(5), 1245-1264.

Oviatt, B. M., & Bauerschmidt, A. D. (1991). Business risk and return: A test of simultaneous relationships. Management science, 37(11), 1405-1423.

Patatoukas, P. N. (2012). Customer-Base Concentration: Implications for Firm Performance and Capital Markets. The accounting review, 87(2), 363.

Reider, R. (2004). Cost reduction analysis: A benchmarking guide for treasury managers. Journal of Corporate Accounting & Finance, 16(1), 33-41.

Reider, R. (2008). Sharp ideas for controlling costs. Journal of Corporate Accounting & Finance, 19(3), 3-9.

Reuer, J. J., & Leiblein, M. J. (2000). Downside risk implications of multinationality and international joint ventures. Academy of Management Journal, 43(2), 203-214.

Ruefli, T. W. (1990). Mean-variance approaches to risk-return relationships in strategy: Paradox lost. Management science, 36(3), 368-380.

Salter, M. S., & Weinhold, W. A. (1979). Diversification through acquisition: Strategies for creating economic value: Free Pr.

Sanchez, R. (1995). Strategic flexibility in product competition. Strategic management journal, 16(S1), 135-159.

Santacruz, L. (2016). Corporate risk returns and economic outlook, Australian data. Paper presented at the Proceedings of the 29th Australasian Finance and Banking Conference (AFBC 2016).

Santacruz, L. (2020). Measures of firm risk-taking: revisiting Bowman’s paradox. Managerial Finance, 46(3), 421-434.

Saunders, A., Strock, E., & Travlos, N. G. (1990). Ownership structure, deregulation, and bank risk taking. the Journal of Finance, 45(2), 643-654.

Sax, J., & Andersen, T. J. (2019). Making risk management strategic: Integrating enterprise risk management with strategic planning. European Management Review, 16(3), 719-740.

Sharfman, M. P., Wolf, G., Chase, R. B., & Tansik, D. A. (1988). Antecedents of organizational slack. Academy of Management Review, 13(4), 601-614.

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. the Journal of Finance, 19(3), 425-442.

Singh, J. V. (1986). Performance, slack, and risk taking in organizational decision making. Academy of Management Journal, 29(3), 562-585.

Smithson, C., & Simkins, B. J. (2005). Does risk management add value? A survey of the evidence. Journal of Applied Corporate Finance, 17(3), 8-17.

Stulz, R. M. (2003). Risk management and derivatives: South-Western Pub.

Subramaniam, C., & Watson, M. W. (2016). Additional evidence on the sticky behavior of costs Advances in Management Accounting (pp. 275-305): Emerald Group Publishing Limited.

Wang, H., Barney, J. B., & Reuer, J. J. (2003). Stimulating firm-specific investment through risk management. Long range planning, 36(1), 49-59.

Winn, D. N. (1977). On the relations between rates of return, risk, and market structure. The Quarterly Journal of Economics, 157-163.

Wiseman, R. M., & Bromiley, P. (1996). Toward a model of risk in declining organizations: An empirical examination of risk, performance and decline. Organization Science, 7(5), 524-543.

Wood Donna, J. (1995). STAKEHOLDER MISMATCHING: A THEORETICAL PROBLEM IN EMPIRICAL RESEARCH ON CORPORATE SOCIAL PERFORMANCE. The International Journal of Organizational Analysis, 3(3), 229-267. doi: 10.1108/eb028831


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
Sarhad Journal of Management Sciences by Sarhad University of Science & Information Technology is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at suit.edu.pk