Exploring the Relationship between Risk and Performance in Listed Indian Firms

Abstract This paper analyses the relationship between a firm’s accounting risk and performance for a large sample of listed Indian firms observed over the period 2000–2015. We find evidence that the relationship is not absolute but contingent on the level of firm performance. We show that poorly performing firms below a threshold level of performance exhibit a ‘paradoxical’ or inverse relationship, while the firms above the threshold exhibit a non-linear relationship with a clear point of inflection. We posit that the former observation is due to a risk-seeking behaviour by the poor performers in line with behavioural finance theories while the latter is a result of a mixed-risk-behaviour.