How risk an important element of corporate finance
Corporate finance is involves striking a balance between risk and profitability, with an attempt to maximize a firm’s wealth and the value of its stock.
Risks are a great opportunities to be unique and to present the firm as a leader in corporate finance. Risks don’t only benefit the firm in terms of the line of business they are in but it may also open up to a world of opportunities they have not yet considered. (Berezin, 2005)
Ecclesiastes 11:1-3: Cast thy bread upon the waters: for thou shalt find it after many days. (King James Version). Great and unforeseen opportunities often come from risks. Risk is an opportunity to succeed rather than a path to failure. For example, the $10 billion business Bayer Crop Science, took the risk as an opportunity and now it is a successful entity.
According to (Brealey, 2012) Risks also provide an opportunity for growth financially. Lessons learnt from risks can lead the firms on an important, new path that brings forth financial success. Risks are a necessary step in pursuing success since, Success has to be pursued. In corporate finance it is important to take risks as it is the step to financial success of the firm.
Failure is a major roadblock to success and hence embracing risk-taking helps overcome that fear. Businesses become identified with their successes and failures. However, taking one risk gives courage to take a second one increasing chances of success.
Berezin, M. (2005). “Emotions and the Economy” in Smelser, N.J. and R. Swedberg (Eds.). The Handbook of Economic Sociology, Second Edition. Princeton University Press: Princeton, NJ
Brealey, R, Marcus A, Myers, S. (2012). Fundamentals of corporate finance. 7 Ed. New York, NY: McGraw-Hill Irwin.
The Official King James Bible Online retrieved from http://www.kingjamesbibleonline.org/Bible-Verses-About-Risk-Taking/