Defining and Predicting Corporate Strategic Risk: An Application in the Telecommunications Industry
Baird, Inga S.
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https://hdl.handle.net/2142/70461
Description
Title
Defining and Predicting Corporate Strategic Risk: An Application in the Telecommunications Industry
Author(s)
Baird, Inga S.
Issue Date
1986
Department of Study
Business Administration
Discipline
Business Administration
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Management
Abstract
This dissertation examines corporate strategic risk--the risk accruing to a corporation as it relates to its environment. First, an integrative concept of risk is developed based on the risk constructs used by various fields. Variables which have important effects on strategic risk are examined. Methods for measuring risk are developed and tested. These building blocks of a theory of strategic risk are applied to understanding risk in the telecommunications industry and examining firm variation in risk characteristics.
A questionnaire about risk definition and firm risk in telecommunications was mailed to financial analysts and telecommunications managers. To examine risk patterns of a large number of firms, risk measures were derived for definitions found to be relevant to this industry from questionnaire responses and content analysis. Risk profiles for clusters of telecommunications firms were developed using these measures from the Compustat data base.
The results of this study demonstrate the necessity of adopting a multifaceted definition of risk. Description of industry and firm risk would have been incomplete if any previous, single-faceted risk construct had been used. The classic risk elements of loss size, loss probability and failure to achieve targets were most important in this industry. Lack of information, innovation and variance were less important.
Significant differences were found among firm risk profiles. Failure to innovate was more risky than innovating, particulary for equipment companies. Low risk was associated with early market entry, participating in regulated markets and large size.
It is concluded that the risk/return paradox (Bowman, 1980) does not hold when several dimensions of risk are measured concurrently. Also, the significant risk variation which was found among differing industry segments indicates that while some risk elements may be important in all industries, the importance of others may differ from industry to industry. The multidimensional risk measuring techniques developed in the thesis can be used to further the study of strategic risk across industries, across firms, and across time.
A model of risk which supplements Bettis (1982) is proposed. It includes a feedback loop to indicate that risk affects and is affected by strategy.
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