Abstract
This chapter aims to provide a normative framework (primarily based on accounting information) for measurement of corporate risk. The index is based on nine risks and has been developed using expert opinion. In the process two new ratios, namely, modified defensive interval ratio and contingency coverage ratio have been developed. The index has been then empirically computed for sample 429 non-financial companies for each of the 10 years from 2005 to 2015. In addition an aggregative analysis, focussing on phase-wise, age-wise, and industry-wise analysis has been carried out. Further, a dis-aggregative (risk-wise) detailed analysis has been carried out to develop deeper understanding of risks surrounding the Indian corporates.
What gets measured, gets managed.
—Peter Drucker
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Notes
- 1.
Inverse of contingency coverage ratio and not the contingency coverage ratio has been taken as a proxy of risk, for the reason that throughout the study, the element that may lead to unwanted consequences for the company has been taken in the numerator and the element out of which the risky part is expected to be met-out has been taken in the denominator.
- 2.
Mann-Whitney U test is a non-parametric counterpart of t-test, which is used to compare two groups when the data is not normally distributed.
- 3.
Kruskal Wallis test is a non-parametric counterpart of ANOVA, which is used to compare more than two groups when the data is not normally distributed.
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Shivaani, M.V., Jain, P.K., Yadav, S.S. (2019). Normative Framework for Risk Index and Its Empirical Analysis. In: Understanding Corporate Risk. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-8141-6_3
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