Abstract
This paper examines the relation between firm risk and growth of Finnish firms. The results reveal a negative relation between risk (total and unsystematic risk) and firm investment. This negative relation is robust to the choice of estimation method. The results also suggest that labor-intensive firms respond to increased risk by substituting capital for labor. Discrete decision models reassure the main conclusions by showing that greater risk decreases (increases) the likelihood of simultaneous growth (decline) investment and employment.
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