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The Role of Risk in Explaining Differences in Profitability

David A. Aaker and Robert Jacobson
The Academy of Management Journal
Vol. 30, No. 2 (Jun., 1987), pp. 277-296
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/256274
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Role of Risk in Explaining Differences in Profitability
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Abstract

This study examined the role of risk in explaining cross-sectional differences in the profitability of business units. Applying suggestions of financial theory, we disaggregated risk into two components--systematic and unsystematic--that are thought to have different effects on return. Drawing on the PIMS data base, we found each component of risk to have a substantial, significant, and different impact on return on investment (ROI). The research and strategy implications of the roles of risk are discussed.

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