What Is Risk to Managers?

Jeppe Christoffersen, Felix Holzmeister*, Thomas Plenborg

*Corresponding author af dette arbejde

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Abstract

In an online experiment with a sample of 4287 managers from small- and medium-sized enterprises in Denmark, we present participants with scenario-dependent outcomes of a hypothetical investment prospect and elicit their perception of risk and their perception of the investment’s attractiveness (as a proxy for investment preferences). The experimental data is merged with a set of background variables on the company from the Danish registry which allows controlling for firm-specific effects. We find that risk perception is driven by the likelihood and the return associated with the worst-case scenario as well as the size of the required investment. Furthermore, we provide evidence that managers’ perception of the project’s attractiveness is significantly associated with their individual-level risk preferences and the interaction effect between risk preferences and risk perception. This implies that not only the characteristics of the different scenarios but also individuals’ risk preferences play an important role when assessing the attractiveness of a business opportunity.
OriginalsprogEngelsk
Artikelnummer100841
TidsskriftJournal of Behavioral and Experimental Finance
Vol/bind40
Antal sider12
ISSN2214-6350
DOI
StatusUdgivet - dec. 2023

Emneord

  • Risk perception
  • Risk preferences
  • Investment decision
  • Managerial decision-making

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