Stimulating firm-specific investment through risk management

• Main Authors: WANG, Heli, BARNEY, Jay B., REUER, Jeffrey J.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2003
• Subjects: Corporate Finance; Finance and Financial Management; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3457; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4456/viewcontent/Stimulating_firm_specific_investment_pv.pdf
• Institution: Singapore Management University

This article suggests a rationale for firm risk management that has been largely ignored in financial economics literature. It presents an argument for harnessing the influence of a company’s stakeholders who, whether as employees, suppliers or customers, make a valuable investment specific to the company. Such investments are crucial for a firm’s competitive advantage, yet because they are firm-specific and therefore cannot be transformed or transferred, stakeholders are often concerned about the risks involved in making them. A company’s efforts to manage risk can therefore persuade stakeholders to make even greater firm-specific investments, bringing benefits to shareholders and stakeholders alike.