טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentTsur Iris
SubjectRisk-Return Association: Examination at the Organizational
Level
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Doron Kliger


Abstract

This research addressed some critical aspects regarding the implementation of PT on organizational decision-making, in an attempt to explain the nature of the relationship between organizational risk and return. Our work addressed previous research and suggested a different approach for dealing with several aspects. We suggested an alternative view for inferring the reference point, one of the key elements of prospect theory, and the way of measuring risk, as well as a different representation of the risk-return association taking into consideration a timeline of the firm's state, its state-dependent action, and consequences.

Results obtained on a sample from the COMPUSTAT database showed consistency with prospect theory propositions. Mainly, firms with returns above the reference level (measured as the median industry return in the previous year) take less risk then firms with returns below the reference level. These results were obtained by a pooled regression analysis, as well as by industry-specific regressions (for the 15 largest industries). Similar results were obtained on a filtered sample that excluded the most successful and the most unsuccessful firms.