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Publication date: 18 October 2024

Asad Khan, Zia ur Rehman, Imtiaz Badshah and Muhammad Ibrahim Khan

This study aims to reconcile and address Bowman’s paradox empirical criticism from the lens of financial theory, corporate strategy and their econometric adversaries based on…

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Abstract

Purpose

This study aims to reconcile and address Bowman’s paradox empirical criticism from the lens of financial theory, corporate strategy and their econometric adversaries based on three issues, i.e. risk conceptualization, measurement and econometric modeling in Asian emerging countries (AEC).

Design/methodology/approach

The study is conducted on panel data sampling from 2,872 firms across four Asian Emerging Countries (AEC) and employs a two-stage least squares (2SLS) estimation technique. We proposed a theoretical framework based on triangulation that outlines four risk-return relationships based on proxies derived from capital market and firm-level data and used different econometric models to answer Bowman’s paradox ongoing criticism.

Findings

The empirical results negate the empirical artifact viewpoint in AEC. The risk-return relationship estimated on firm accounting-based ratios or its combination with market-based measures supports Bowman’s paradox and thus upholds the corporate strategy point of view. Whereas the risk-return relationship based on market-based ratios upholds the financial theory point of view. However, the results are mixed when risk is subdivided into systematic and business risk. Our results are robust across standard deviation and semi-standard deviation-based measures of risk, and there is no evidence of a non-linear relationship.

Originality/value

A compelling debate exists that Bowman’s paradox is an empirical artifact. We provide an innovative approach that aims to reconcile and address the ongoing debate by employing diverse risk-return proxies and econometric models in Asian emerging countries. Methodological issues such as endogeneity, sample biases, temporal fluctuations, downside risk variations, multiple moments of a variable and model misspecification are also addressed. This triangulation enhances the robustness of our analysis, providing a comprehensive perspective on AEC and laying the groundwork for future researchers to explore Bowman’s paradox through alternative measures and models.

Details

Managerial Finance, vol. 50 no. 12
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 18 July 2023

Asad Khan, Zia ur Rehman, Muhammad Ibrahim Khan and Imtiaz Badshah

This study aims to verify the significance of Andersen (2008) corporate risk management (CRM) framework in Asian emerging markets (AEMs) to control firm risk and improve firm…

626

Abstract

Purpose

This study aims to verify the significance of Andersen (2008) corporate risk management (CRM) framework in Asian emerging markets (AEMs) to control firm risk and improve firm performance.

Design/methodology/approach

The cross-sectional analyses are performed on a sample of 4,609 firms across nine Asian emerging countries using 2SLS estimation technique.

Findings

The empirical findings show that the adoption of CRM not only enhances firm performance by increasing the firm ability to capitalize on the market opportunity but also plays a significant role in reducing firm risk. The findings of this study assert that by institutionalizing risk management practices into an integrated CRM framework, the firm can reap multiple benefits by maintaining better contractual agreements and strategic partnerships with key stakeholders.

Originality/value

The study shifts the focus of CRM away from Western countries toward AEMs, which has been afflicted by high risks and uncertainties. The effectiveness of CRM against firm risk is established by dividing firm risk into firm-specific risk and systematic risk. Furthermore, this study also establishes that CRM not only leads to high returns but also reduces firm operational and production costs. Overall, the study provides a compelling argument to implement CRM for improving organizational performance and managing risks in a strategic and integrated manner. The findings are also relevant to risk management practitioners, as well as to academicians interested in the broader fields of corporate finance and strategy.

Details

Management Research Review, vol. 47 no. 3
Type: Research Article
ISSN: 2040-8269

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