The Impact Of Growth Options On Idiosyncratic Risk

Firm’s value is not simply embodied as the assets-in-place of current profitability,but also includes growth options for future investment opportunities of the enterprise.Under the given resources,growth options can give enterprises a lot of operational flexibility to expand,stop and terminate projects,helping companies seize market opportunities and gain competitive advantage.At the same time,growth options also reveal uncertain investment opportunities for enterprises in the future,which can be acquired and accumulated through R&D,technological innovation,strategic mergers and other activities.They are not only the key driving force for sustainable development of enterprises,but also the main source of idiosyncratic risk for enterprises.In addition,the decision-making of growth option investment depends on the internal and external environmental conditions.The heterogeneity of property rights background is a comprehensive reflection of internal corporate governance,reflecting the differences in ownership structure,resource allocation,principal-agent model,and investment decision-making mechanism,which will affect the sensitivity of the option-risk relationship.As a mechanism of external governance,industrial competition will constitute a pressure source for enterprises in different directions,or positively stimulates innovation or negatively increases risk aversion of management,resulting in different degrees of increase or decrease of growth options,thereby affecting the rise and fall of idiosyncratic risk.This paper chooses non-financial A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2005 to 2017 as research samples,taking TobinQ and equity ratio as the proxy variables of growth options,adopting indirect separation method and model estimation method of Fama-French-EGARCH measures idiosyncratic risk,empirically tests the impact of growth options on idiosyncratic risk.Secondly,we conduct a sensitivity analysis of the option-risk relationship through combining creatively the internal perspective of the nature of corporate property rights and the external perspective of industrial competition.Thirdly,based on the perspective of capital expenditure consumption growth options,this paper further tests our theoretical hypothesis.Finally,we make an expansive analysis according to the empirical results of this paper.The empirical results show that:(1)Growth options have a significant positive relationship with idiosyncratic risk,and in private enterprises,the option-risk positive relationship is more significant;(2)Industrial competition has a significant "Inverted U-shaped" moderating effect on the positive relationship between growth options and idiosyncratic risk,but the non-linear moderating effect exists only in private enterprises.For state-owned enterprises,industrial competition linearity weakens the positive relationship between options and risks;(3)Further tests show that capital expenditure means the consumption of growth options,which negatively affects idiosyncratic risk,but this negative impact only exists in private enterprises and is regulated by the "U-shaped" role of industrial competition;(4)Expansionary research show that growth options have a strong explanatory ability to explain the rising trend of cross-sectional idiosyncratic risk,while capital expenditure has a strong explanatory ability to explain the falling trend of cross-sectional idiosyncratic risk.