A review of research on the negative accounting relationship between risk and return: Bowman's paradox

By M. Nickel, Manuel Cano Rodríguez. 2002

144 citations recorded by the source corpus.

A cornerstone in finance theory continues to be the positive relationship between risk and return in spite of Fama and French (The Journal of Finance 47(2) (1992) 427-65) and several later papers finding no relationship between the two variables. Twelve years earlier, Bowman (Sloan Management Review 1980, pp. 17-31) studied the same relationship from organization theory, achieving similar results with accounting data, and developing a whole research stream known as "Bowman's paradox". This stream has contributed to some curious and interesting ideas that could also be applied to other different streams: new risk measures, managerial goal selection, response to the decline in the organization, diversification strategy on risk and return, among others. Similar to the financial stream, a number of researchers have tried to study this issue from the strategic management perspective. Their inconclusive results have generated a considerable controversy, keeping this research stream alive. In this work, we describe and explore this phenomenon from "Bowman's paradox", theoretical explanations, criticisms and future orientations.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/2ed487fdf94a4c368418337c44c307d49f21e2ec

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Citations in the corpus

Less Likely to Fail: Low Performance, Firm Size, and Factory Expansion in the Shipbuilding Industry (2006, background): “Most studies adopting this theoretical perspective suggest that, when performance is above the aspiration level, increases in performance decrease risk taking (Bromiley et al. 2001, Nickel and Rodriguez 2002).”
Managerial Risk Taking (2016, unknown): “As some scholars have noted (e.g., Nickel & Rodriguez, 2002), managerial risktaking behaviors may ultimately impact organizational risk, mostly captured in the variance of the firm’s future income stream.”
Corporate Life Cycle and Cost of Equity Capital (2015, unknown): “Hence, introduction and decline firms cannot raise capital unless investors are properly compensated (Nickel and Rodriguez, 2002), which effectively increases the cost of equity.”
Management Theory Applications of Prospect Theory: Accomplishments, Challenges, and Opportunities (2011, unknown): “Of course, if firms are not using the reference point researchers assume, results that appear to support PT may not do so (Nickel & Rodriguez, 2002).”
A Behavioral Theory of the Firm - 40 Years and Counting: Introduction and Impact (2007, background): “A recent review reported many empirical studies on this topic and good support for the behavioral theory of the firm (Nickel and Rodriguez 2002).”