Articlegreen1999

Toward a Strategic Theory of Risk Premium: Moving Beyond Capm

Sayan Chatterjee · Michael Lubatkin · EM Lyon · William S. Schulze

169 citations0/0 files storedAcademy of Management Review

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Financial Markets and Investment Strategies Corporate Finance and Governance Financial Reporting and Valuation Research

Abstract

We propose a framework of risk premium that offers a resolution to CAPM's challenge to the field of strategy. Our core assumption is that investors bear firm-specific risk because they are not as diversified and markets not as perfect as CAPM assumes. We therefore hypothesize that investors require lower risk premiums from firms that are able to reduce firm-specific risk, and we ground this prediction on theories from information economics, risk management, and strategy, as well as recent empirical challenges to CAPM.

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References

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