by Eric Bickel
In this paper [$], Professor Eric Bickel summarizes the rationale for developing a consistent corporate risk appetite and reconciles the competing views of corporate finance and decision analysis. He argues that risk imposes real costs upon the organization and that these effects can be captured via a corporate risk aversion function. As a shortcut, he recommends that a public corporation’s risk tolerance should be about 20% of its equity market value.
Published in 2006 in Decision Analysis. The abstract is free and the paper is available for purchase at this link.