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In what way does management's willingness to assume risk impact the firm?

In what way does management's willingness to assume risk impact the firm?

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Answer #1

The management has the power to take relevant decisions which impact the firm. If the management takes up high risk projects, they increase the returns of the firm. However they also increase the risk which may lead the risk averse investors to move away from the firm.

In the reverse scenario if the management does not take up risky projects, they do keep the overall risk of the investors low. However they are losing out on profitable opportunities which will reduce the return of the firm as well as the investors.

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