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Bridging the gap between management and finance: entrepreneurial orientation and idiosyncratic risk

Steve Kihm (Slipstream Group, Madison, Wisconsin, USA)
Rashiqa Kamal (Department of Finance and Business Law, University of Wisconsin-Whitewater, Whitewater, Wisconsin, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 4 June 2020

Issue publication date: 12 January 2021

243

Abstract

Purpose

Management theorists suggest that entrepreneurially oriented firms manifest higher risk levels than more conservative companies, but executives of such firms and their consultants argue that the opposite is true. The purpose of this paper is to explore this issue and examine the relationship between entrepreneurial orientation and idiosyncratic risk of firms.

Design/methodology/approach

Content analysis is applied to the 2018 third-quarter earnings call transcripts for 992 companies to measure five factors attributed to entrepreneurially oriented firms: autonomy, competitive aggressiveness, innovation, proactiveness and risk-taking, and their relationship to firm-level idiosyncratic risk. Multivariate regression analysis is used to examine the effect of these factors on measures of idiosyncratic risk obtained from the Wharton Research database Service's Beta Suite.

Findings

Results show that firms whose executives frequently use terms related to risk-taking tend to manifest higher levels of idiosyncratic risk, but those firms whose executives stress innovation-related terms tend to have lower levels of idiosyncratic risk. The degree to which executives use words related to the three other entrepreneurial orientation factors show no associations with idiosyncratic risk.

Practical implications

The results might suggest to managers which of the individual components of entrepreneurial orientation, if adopted, are likely to affect firm-specific risk and in what way.

Originality/value

This paper is the first to attempt to bridge the gap between the management concept of entrepreneurial orientation and the financial concept of idiosyncratic risk by studying the possible relationship between the two. The research also uses the novel methodology of applying content analysis to earnings call transcripts, which is uncommon in finance research.

Keywords

Citation

Kihm, S. and Kamal, R. (2021), "Bridging the gap between management and finance: entrepreneurial orientation and idiosyncratic risk", Managerial Finance, Vol. 47 No. 1, pp. 98-118. https://doi.org/10.1108/MF-05-2019-0256

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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