Risk

The chance that the expected outcome of an event may not occur. For example, if you expect your company to meet its year-end revenues objectives, there is a chance or risk that this may not happen. Business is often a risky undertaking, and some companies are more risky than others. Businesses are subject to many different kinds of risks—economic, technological, political, and financial. The risk to companies comes from many sources, including but not limited to the economy, government policies, competition, and regulation. The risk to a company is generally borne by the owners and shareholders. Management attempts to reduce these risks or control them by using risk management techniques such as diversification. For taking on risks, investors expect to be compensated and demand a higher return on risky ventures. For more [Page 452]information, see Hall and Lieberman (2005) and Ehrhardt and Brigham (2003).