Researchers in strategic management and finance agree that organizational risk (i.e., variations in firm returns) should influence capital investments decisions. However, the risk capital investments relationship remains scantily explored. In this study we examine three issues: 1) How does organizational risk affect decisions about capital investments from a longitudinal perspective?, 2) Do organizational risk and decisions about capital investments jointly influence firm performance?, and 3) Is this relationship contingent on organizational context? The analysis of pooled cross-sectional time-series data for 1,284 U.S. firms over a period of 12 years shows that organizational risk and variation in capital investments are related, but the extent of their relation depends on the organizational context. In addition, firms that face greater organizational risk and are more flexible in their capital investments outperform firms that are less flexible. Overall, this longitudinal study provides support for a behavioral contingency approach to understanding capital investments decisions by showing that the link between organizational risk and firm performance is dependent on the flexibility in capital investments decisions.
Journal of Managerial Issues
Bhattacharya, Mousumi and Wheatley, Kathleen, "Organizational risk and capital investments: A longitudinal examination of performance effects and moderating contexts" (2006). Business Faculty Publications. 78.
Bhattacharya, M., & Wheatley, K. 2006. Organizational risk and capital investments: A longitudinal examination of performance effects and moderating contexts. Journal of Managerial Issues, 18(1), 62-83.