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

Abstract

PurposeManagement 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/approachContent 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.FindingsResults 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 implicationsThe 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/valueThis 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.

Relationship lending, access to credit and entrepreneurial orientation as cornerstones of venture financing

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Influence of entrepreneurial orientation: How open innovation and risk governance affects firm performance

“…Sedangkan, Pengelolaan Risiko yang dimaksud adalah proses dan mekanisme dimana keputusan berisiko diambil dan diimplementasikan dalam suatu perusahaan (Krauß & Bremer, 2020). Hal ini yang akhirnya menyebabkan tingkat pengambilan risiko lebih tinggi dibandingkan dengan perusahaan yang lebih konservatif (Kihm & Kamal, 2020).…”