Firm-specific risk

Firm-specific risk

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Consequently, insiders have incentives to reduce their exposure to firm-specific risk and, over time, monetize their equity positions in their firms' stock.
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.
Ativo estimates firm-specific risk premiums, which when combined with the market-required rate of return, determine the discount rate to be used for each stock's cash flows.
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.
The main intuition behind this result is that the absence of a firm-specific risk component in the CAPM comes about because such risk can be eliminated (through diversification) and is not priced.
The second point is that while firm-specific risk can be reduced via diversification, overall market risk cannot.
Firm-specific risk is derived from the difference between all-in risk and systematic risk.
This is the unique or firm-specific risk associated with an individual security.
6) It is a more diffuse ownership structure because the cost of bearing firm-specific risk should be reflected in the optimal ownership structure.
6) This important distinction suggests that increasing firm-specific risk may, in fact, reduce the value of the ESO.