Investment Risk Profiling Utilizing Business Resource Slack

Abstract

Financial investor classes are commonly depicted via a tripartite model that distinguishes among risk averse, risk neutral and risk seeking behaviors. This paper contributes to the literature by capturing the essence of risk tolerance in the context of a profit-maximizing firm’s investment decision vis-à-vis the business’ resource slack. The paradigm introduced in this paper contextualizes risk profiling in a rigorous manner which should augment treatments relayed in standard principles of finance textbooks. This paper illustrates that it is the existence or absence of resource slack that influences, if not dictates, a business’ risk disposition.