Strategic Risk and Corporate Performance: an Analysis of Alternative Risk Measures

Abstract

A study attempted to clarify the relations among a variety of risk measures that are relevant to strategic management research and to examine the stability of the relations over time. The data included all companies in COMPUSTAT's primary, secondary, and tertiary files for which matching data could be found in the Institutional Brokers Estimate System. Factor analysis of 9 measures yielded 3 factors: income stream risk, stock returns risk, and strategic risk. These factors were stable over time. Income stream and strategic risk in a given 5-year period reduced firm performance in the next 5 years. However, the effect varied across industries and between high- and low-performance firms. Contrary to previous findings, performance reduced subsequent income stream uncertainty for high performers and increased income stream risk for low performers.