The objective of this study is toanalyse NSE 500 frms’ risk-attitudesfrom a behavioural perspective,specifcally in light of Bowman’s(1980) paradox. To fulfl thisobjective, it examines Kahneman andTversky’s (1979) and Tversky andKahneman’s (1992) prospect theoryimplications in these frms. Thistheory emphasises the role ofreference or target return levels inanalysing risky choices. This studyhypothesises that below median (i.e.reference return level) frms inclineto be risk-seeking in light ofBowman’s paradoxical negativerisk-return association, and frmsabove the reference return levelwould be risk-averse. To investigatethe risk-return association, this studyuses accounting variables, namely,return on assets (i.e. ROA), return onshareholders’ equity (i.e. ROE), andthe capital ratio (i.e. CR) of NSE 500frms over the period 2001-2015. Bothfrm and cross-sectional industrymean returns for preceding fve yearson a rolling basis are used tocalculate the target return tomeasure distance from such targets(return measure) in line withFishburn’s (1977) concept. Kendall’s(1938) correlation test is used tomeasure the correlations betweensuch distance and the standarddeviation (risk measure) of theaccounting variables for the overallsample and controlled sector, size,age and risk sub-samples. For thepurpose of robustness, this study alsodevelops a multi-variate model withrisk as the dependent variable. On anoverall basis, Indian frms asrepresented by NSE 500 showsignifcant presence of the prospecttheory implications, and belowmedian frms exhibit presence ofBowman’s (1980) risk-return paradox.This is true for both the frm’s ownand cross-sectional industry meantarget return benchmarks. So, therisk-seeking attitude of frms belowmedian and the risk-averse behaviourof superior performers are clearlyevident from study results. Therobustness of correlation results isalso authenticated by multi-variateresults. We submit that this is thefrst study on Indian frms dealingwith their risk-attitudes from theprospect theory and Bowman’srisk-return paradox perspectives. So,the results would serve as a guide toin?uence future empirical studies onthis issue in a broader Indian andlarger emerging market context. Also,it will be of immense help to thesefrms and their managers, capitalmarket practitioners, shareholdersand regulators to work on theirrespective functional domains andskills in regard to their planning anddecision-making in this context.
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