Examining Risk–Return Relationship
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This chapter aims to explore the relationship between (accounting based) risk index developed in the study and accounting returns. In view of the possible endogeneity problem, diff-GMM regression has been used. The results contradict the widely accepted hypothesis of ‘higher the risk, higher the return’; and lend credence to the fact that by following the normative risk index developed in Chap. 3, and by keeping lower risk levels, firms may generate higher returns.
KeywordsRisk–return Risk index ROA ROE Endogeneity Diff-GMM
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