Firm-specific risk

Firm-specific risk

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Where the trustee has delegated investment duties to a professional investment manager the trustee need only ask, "Will you please send me a memo on your firm's letterhead that confirms that, in your professional opinion, the portfolio is reasonably diversified within the standards of Modern Portfolio Theory, with an objective of reducing or removing firm-specific risk from the portfolio?
Consequently, insiders have incentives to reduce their exposure to firm-specific risk and, over time, monetize their equity positions in their firms' stock.
2012) report a mismatch between accounting and market model beta, which is intriguing in the sense that both should represent a measurement of firm-specific risk and distinguish high and low risk firms.
In this session, Altman combines an analysis of credit risk from both a macroeconomic financial markets viewpoint and a microeconomic firm-specific risk of default analysis.
Our investigation provides evidence that an increase in firm-specific risk leads to a reduction in both public and nonpublic firms' leverage.
Firm-specific risk evaluation provides a more fine-grained look at how VCs manage risk and whether there are significant differences in the way risk is managed between ventures that are VC-backed and those that are not.
16) They can eliminate firm-specific risk through diversification.
Just through conversations with funds, I find that when a fund has between $500 million and $700 million in LDI assets, they start to diversify the firm-specific risk -- but that funds of all size tend to hire more managers as LDI assets increase.
and (c) following the lead of Demsetz and Villalonga (2001), we include two measures of financial risk that have been included in this research: market risk (or beta), measured by a regression of the monthly return on a stock on a market return index, and firm-specific risk measured as the standard error of estimate from the regression.
If a firm is closely or privately held, the argument is that the owner(s) will have a greater proportion of assets invested in the firm, and thus a decreased ability to diversify firm-specific risk across other investments.
Chatterjee, Lubatkin, and Schulze (1999) claim the CAPM implores managers to focus on lowering their firm's systematic risk, and not be concerned with unsystematic or firm-specific risk.
Such analysis, however, must incorporate an examination of the relevant firm-specific risk variables when estimating these relationships.