Risk–return paradox? The moderating effects of risk-taking capabilities

Purpose: This study aims to examine the phenomenon of the risk–return paradox from the resources side of the firm. The authors emphasize the moderating role of risk-taking capabilities in investigating the relationship between risk-taking and performance. Design/methodology/approach: Building on the disciplines of the resource-based view, the moderating effects of risk-taking capabilities on performance were tested by using Taiwan listed companies' data from information technology and electronics industries. Based on the data from 216 firms for periods from 2003 to 2007, this study runs a hierarchical moderated regression analysis to test the hypotheses in the context of diversification. Findings: The results of this study emphasize that risk-taking and its relationship with performance are context-specific. Significantly, it is contingent on the firm's risk-taking capabilities endowment. The findings also indicate that some aspects of risk-taking capabilities moderate the relationship between risk-taking and performance. Originality/value: This paper emphasizes that risk-taking capability is an essential factor in investigating the risk–return paradox. It constructs the dimensions of risk-taking capability in terms of absorptive capacity, network resources and organizational slack. Firms equipped with a high level of risk-taking capabilities benefit from risk-taking activities and should, therefore, embrace risk.