| Management risk perception is managers’ judgment and assessment of the firms’ risks.Recently,global risk events have occurred frequently,covering various aspects such as geopolitical conflicts,trade conflicts,economic crises,extreme weather and public health threats.In particular,since 2020,the COVID-19 has become a global pandemic,and the public health and safety risks and social risks arising from it have increased rapidly.These typicalized facts break through the perception of a zero-risk society and raise the level of risk perception.The Global Risk Perception Survey(2022)show that only 16% of respondents are optimistic about the world’s outlook,while the majority of respondents perceive that risks will continue to increase in the future.Manager,as the main decision maker of business decisions,perceives risk directly affects the long-term development of the company.Moreover,in the context of the Chinese economy,listed companies are the main drivers of economic development,and the total market capitalization of listed companies in China’s Shanghai and Shenzhen stock markets reached 59.29 trillion yuan as of the end of 2019,accounting for 59.8%of the gross national product GDP.Therefore,studying the risk perception of the manager in Chinese listed companies and its impact on corporate decision making is beneficial to both understanding manager’s decision making behavior from a risk perception perspective and providing a deeper understanding of the micro mechanisms by which risk shocks affect the real economy.However,up to now,research on risk perception is still an exploratory field of study.In particular,research on management risk perception implemented at the enterprise level is rare.On the one hand,risk perception belongs to the subjective judgment or feeling of economic subjects,which is difficult to measure directly.The existing literature is mainly based on experimental methods and survey questionnaires to measure the risk perceptions of specific economic agents,which can capture the risk attitudes of economic agents towards specific events,but are limited by survey respondents and survey costs,and cannot comprehensively describe the changes and differences in risk perceptions.In other words,at this stage,there are no management risk perception measures that can accurately portray the changes over time at the firm level of Chinese listed companies.On the other hand,when studying firms’ behavioral decisions such as investment and innovation,the existing literature focuses its perspective on risk shocks in the macro environment,such as economic crisis and economic policy uncertainty,ignoring the heterogeneity of firms’ perceptions of risk,resulting in an inability to accurately estimate how firms’ different perceptions of risk affect their decision-making behavior.Based on the above considerations,this paper argues that it is necessary to conduct a comprehensive analysis of management risk perceptions of Chinese listed companies,mainly including: how to effectively measure management risk perceptions? What are the causes of the different management risk perceptions of different firms? How does management risk perception affect the decision making behavior of firms? Answering this series of questions can help understand the changes in management’s risk perception of Chinese listed companies and lift the veil of management’s decision making in risk,which has theoretical and practical significance.Specifically,this study focuses on four topics.First,the textual analysis method is used to measure the management risk perception of Chinese listed companies and to test its validity.In the institutional context of continuous improvement of information disclosure standard norms,this paper uses the Management Discussion and Analysis(MD&A)module in the company’s annual report as a sample to extract and measure management risk perception of Chinese listed companies using the dictionary method.The accuracy of the measure depends on the completeness of the sample and the applicability of the dictionary.In terms of sample completeness,this study uses a web crawler to download the text of company annual reports from Juchao Website,and then extracts the MD&A text content,and manually completes the uncapturable parts;in terms of dictionary applicability,this paper uses manual reading to first determine the preliminary dictionary list to ensure that the words in the preliminary dictionary are high-frequency words used by companies in discussing risks,and then uses this as the root.The dictionary is then expanded using the word2 vec method.Finally,after manual checking and filtering,this paper constructs three dictionaries,such as risk category dictionary,internal risk dictionary and external risk dictionary,which are used to measure management overall risk perception,internal risk perception and external risk perception,respectively.Based on this,this paper extracts the number of words in the dictionaries that appear in the risk sentences by using the three types of dictionaries as the sentences containing risk keywords,and divides them by the total number of words in the sentences to obtain the weights of the risk sentences.The proportion of risky sentences to the total sentences in MD&A(in percent)is then multiplied by the weights to obtain the management risk perception measure,internal risk perception measure and external risk measure.To ensure the good nature of management risk perception measures,a series of validity tests are conducted in this paper,including economic implication analysis of management risk perception,time trend and industry distribution analysis,and correlation analysis with economic policy uncertainty and stock return volatility.Second,the factors influencing management risk perceptions are explored.There is heterogeneity in management risk perceptions,which are directly related to the financial status of firms.In this paper,we characterize the financial characteristics of firms from the perspectives of firm size,capital structure,profitability,growth,age,and shareholder ownership,and analyze which financial characteristics have an impact on management risk perception.Meanwhile,management risk perception is the process of processing and perceiving risk information as managers’ intuitive perception of risk.In this process,management’s ability to assess and predict is particularly important.Moreover,according to the top echelon theory,the personal characteristics of a company’s management,such as gender,education,experience,and experience,can influence its behavioral decisions.Accordingly,this paper portrays management characteristics from three perspectives: gender ratio of management,financial background and overseas background,and explores which management characteristics have a significant impact on risk perception.Further,the paper analyzes the variability of the impact of firm financial characteristics on management’s risk perceptions under different scenarios.Considering that if management risk perceptions do reflect the risks faced by firms,the effect of firm financial characteristics on management risk perceptions is more pronounced in periods of high economic policy uncertainty or in samples where firms are more willing to take risks.Third,we analyze the impact of management risk perception on corporate investment behavior.Corporate investment is an important driver of economic growth and directly affects economic development and national employment.Based on the characteristics of risk predictability,this paper proposes that there are at least two mechanisms,risk management mechanism and investor expectations,that influence the relationship between management risk perception and corporate investment.From the perspective of risk management mechanism,the rise of management risk perception enables firms to know the future risks they face.For risk-averse purposes,firms will reduce investments.However,if the risk is manageable,firms may not reduce invest.In other words,for firms with better risk management capabilities,the negative impact of management risk perception on corporate investment is not significant.In terms of investor expectation mechanism,a rise in management risk perception means that investors receive more negative information and will demand a higher risk premium,the degree of corporate financing constraints rises,and the size of corporate investment decreases.However,if corporate information transparency is higher and the information content contained in risk factors is lower,which makes investors’ negative expectations lower,financing costs may not rise significantly and the degree of negative impact of risk perception on investment decreases.This paper empirically explores the impact of management risk perception on corporate investment and the mechanisms,using a sample of Chinese A-share listed companies.Fourth,the impact of management risk perception on the level of corporate innovation is explored.Unlike corporate fixed investment,corporate innovation behavior is characterized by high risk,high investment and long cycle.The impact of management risk perception on firm innovation behavior may be completely different from that of firm investment.This paper argues that the relationship between management risk perception and firm innovation behavior may have completely opposing results.Management risk perception may reduce the level of corporate innovation,mainly stemming from the financing constraint mechanism.A rise in management risk perception raises the level of risk premium for investors and the cost of equity financing.Moreover,for credit investors,such as banks,who are less tolerant of risk,it becomes more difficult for firms to finance innovation,leading to a lower level of firm innovation.Conversely,management risk perception may increase the level of corporate innovation,which is mainly a function of corporate risk-taking mechanism.An increase in management perception of risk can lead to overconfidence and a tendency for management to choose risky projects for investment.At the same time,elevated risk implies opportunities,and management or firms with higher levels of risk-taking will choose high-risk and high-return investments to improve their firms.Therefore,under the financing constraint mechanism,management risk perception has a negative impact on firm innovation;under the risk-taking mechanism,management risk perception has a positive impact on firm innovation.In this paper,we empirically analyze the relationship between management risk perception and corporate innovation and the influence mechanism using Chinese A-share listed companies as a sample.After the above analysis,the main conclusions obtained from this paper are as follows.First,the risk perception measures of management constructed in this paper have economic connotations that can capture the differences in risk perceptions across time and industries,and have strong correlations with existing uncertainty and risk indicators.Specifically,in terms of economic connotation,when management assesses corporate risks,it pays most attention to corporate production and operation risks,financial risks and market risks,and perceives less sudden risks.In terms of temporal and industry distribution characteristics,management risk perception shows a significant upward trend during the equity share reform from 2005 to 2007,the financial crisis in 2008 and the stock market crash in 2015,with obvious time-varying characteristics;among the industry distribution,the information science research and technology service industry has a higher risk perception due to the technological innovation qualities of the industry,and the accommodation and catering industry has the lowest risk perception.In terms of correlation,management risk perception is largely consistent with the time trend of economic policy uncertainty.Further,this paper measures corporate risk using stock return volatility,and the study finds that management risk perception has a significant positive effect on firm’s return volatility in the current year,the next year and the next two years.This indicates that the management risk perception indicator constructed in this paper has excellent properties such as time-varying and forward-looking.Second,firm financial characteristics and management characteristics are the main factors affecting management risk perception.It is found that small,highly leveraged and low-profit firms have higher risk perceptions.Management financial background increases risk perception,but overseas experience diminishes the degree of risk perception.Classifying risk perceptions in terms of internal and external risks,it was found that firm size,leverage,profitability,growth,shareholder ownership,management financial background and management age all have significant effects on internal risk perceptions,while only firm leverage and management’s overseas background have significant effects on external risk perceptions.Further research finds that the effect of firm financial characteristics on management risk perception is more pronounced when economic policy uncertainty is high or when firms are more willing to take risks,confirming that management risk perception does reflect the risks faced by firms.Third,regarding the impact of management risk perception on corporate investment,it is found that the impact of overall management risk perception and external risk perception on corporate investment is not significant,and internal risk perception has a significant negative impact on corporate investment.This indicates that corporate investment is more sensitive to internal risk perception,and a rise in internal risk perception reduces the size of corporate investment.The results remain unchanged after considering information disclosure strategies,controlling for perceptions of uncertainty,and regression analysis using instrumental variables.Further,this paper verifies whether risk management mechanisms and investor expectations mechanisms can explain the relationship between management internal risk perceptions and corporate investment.The paper measures corporate risk management capability using corporate governance structure and internal control quality,corporate information transparency using whether or not to hire a Big 4 accounting firm and the proportion of institutional investors,and corporate financing constraints using corporate size,KZ index and WW index,and the results show that corporate investment size decreases to a greater extent when corporate risk management capability is weaker,information transparency is lower,and financing constraints are higher.This suggests that both the risk management mechanism and the investor expectation mechanism can explain the negative relationship between management internal risk perception and corporate investment.Fourth,regarding the relationship between management risk perception and corporate innovation,it is found that management risk perception has a significant positive effect on corporate innovation.The positive effect remains the same when management risk perception is subdivided into internal risk perception and external risk perception.This indicates that either overall risk perception,internal risk perception or external risk perception promotes firms to improve innovation.Further,using the proportion of management males and the volatility of corporate earnings to measure firms’ willingness to take risks and risk-taking ability,respectively,it is found that the higher the proportion of management males and the higher the volatility of corporate earnings,the more significant the increase in corporate innovation.This suggests that for firms with higher levels of risk-taking,the positive effect of management risk perception on firm innovation is stronger,confirming that the risk-taking mechanism holds.Further,it is found that firms do not increase innovation by increasing R&D investment,but rather increase the effectiveness of R&D investment and use the funds in more innovative projects to improve the firm’s innovation.Moreover,in the case of high risk perception,an increase in the level of firm innovation can improve long-term firm performance and enhance firm value.This suggests that management innovation decisions under high risk can indeed lead to high returns.The paper has important policy implications and practical implications.First,the textual content disclosed in the MD&A has information content that can influence investors and corporate behavior,but there is still room for information manipulation.Regulators should further improve the information disclosure guidelines,make clear specifications and guidelines on the content and format of information in important modules,and improve the quality of information.Second,the improvement of corporate risk management capabilities and information transparency can both reduce the negative impact of risk on corporate investment.Regulators should encourage companies to continuously improve their corporate governance capabilities and internal control quality,and actively guide investors so that they can make reasonable expectations of corporate risks.At the same time,they should promote the development of financial markets to reduce corporate financing constraints and help enterprises cope with risk shocks.Finally,they should vigorously implement talent strategies and cultivate entrepreneurship so that they can stay awake and take risks in the midst of risk shocks.At the same time,we encourage enterprises to form a diversified management structure,improve the efficiency of allocating and using R&D investment funds,and use the funds for more innovative projects,so as to improve the quality of enterprise innovation and enable enterprises to develop in the long run.The study contributes to the extant literature in three ways.First,the management risk perception index constructed in this paper accurately portrays the subjective perception of risk by enterprises,which has excellent properties such as time-varying,heterogeneous and forward-looking.Specifically,management’s risk perception encompasses different perceptions of the various types of risks faced by companies,with the strongest perceptions of production and operation risks,financial risks and market risks,and weaker perceptions of unexpected risks caused by strikes and other events with economic connotations.The time-varying characteristics of management risk perception indicators are obvious,with a clear upward trend during the equity share reform from 2005 to 2007,the financial crisis in 2008 and the stock market crash in 2015,and a clear downward trend during the implementation phase of the quadrillion stimulus plan in 2009,indicating that management risk perception is consistent with major risk events in terms of point-in-time changes.In the industry distribution,the information science research and technology service industry has a higher risk perception due to the technological innovation qualities of the industry,and the accommodation and food service industry has the lowest risk perception.Finally,validity tests were conducted.The mean values of risk perceptions of all firms at each time point are calculated and found to be largely consistent with the trend of economic policy uncertainty indicators,confirming the validity of the indicators in this paper from a macro perspective.Further,management risk perception indicators are significantly and positively correlated with firms’ current return volatility,future one-year return volatility,and future two-year return volatility,confirming that management risk perception captures differences in firm-level risk and is heterogeneous and forwardlooking.Second,this study comprehensively portrays the characteristics and influencing factors of management risk perception.Based on the construction of management risk perception indicators,this study portrays the economic connotations,temporal trends,and industry distribution characteristics of management risk perception of Chinese listed firms from 2000 to 2019,and performs correlation analysis on them.The indicator captures individual differences at the firm level and helps to understand the changing characteristics of risk perceptions across firms and industries,providing a micro-foundation for subsequent cross-firm,cross-industry and cross-region comparative studies.Further,this study explores the causes of management risk perception from the perspectives of financial characteristics and management characteristics of firms,expanding the research related to the factors influencing risk perception and helping to understand the root causes of changes in management risk perception.Third,this study systematically assesses the impact of management’s risk perception on firms’ behavioral decisions,which facilitates the understanding of the micro-level mechanisms of action of risk shocks affecting the real economy.The studies on risk shocks have focused their perspectives on the impact of macro-level risk events on firms’ behavior,ignoring the different perceptions of risk by firms themselves.In other words,firms’ different perceptions of the same risk event can have different economic consequences.In order to fill this gap,this paper focuses on two key drivers of firm development,namely,firm investment and firm innovation,and analyzes how management’s risk perception affects firm investment and innovation.This paper finds that firms’ need for risk aversion leads to lower levels of corporate investment when management’s risk perception rises,and that this relationship is more pronounced among firms with poor risk management capabilities,lower transparency,and higher financing constraints.In contrast,managerial risk perceptions promote firm innovation.This suggests that when risk continues to increase,firms will reduce corporate investment due to financing constraints,but also strive for breakthroughs and will increase innovation by increasing the level of risk-taking to cope with the growth dilemma caused by risk shocks.In addition,this paper enriches and expands the research related to the factors influencing corporate investment and innovation,and also effectively complements the analysis of the economic consequences of existing studies focusing on the analysis of executives’ professional experience and academic background regarding their characteristics from the perspective of risk perception. |
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