88 Pages Posted: 10 Aug 2013
Date Written: April 22, 2013
We explore the determinants of equity price risk of non-financial corporations. Operating and asset characteristics are by far the most important determinants of risk. For the median firm,financial risk accounts for only 15% of observed stock price volatility. Furthermore, financial risk has declined over the last three decades indicating that any upward trend in equity volatility was driven entirely by economic risk factors. This explains why financial distress (as opposed to economic distress) was surprisingly uncommon in the nonfinancial sector during the recent crisis even as measures of equity volatility reached unprecedented highs.
Keywords: capital structure, financial risk, risk management, corporate finance
JEL Classification: G3, F4, F3
Suggested Citation: Suggested Citation
Bartram, Söhnke M. and Brown, Gregory W. and Waller, William, How Important Is Financial Risk? (April 22, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2307939
By Amir Sufi