Comparing alternative explanations for accounting risk-return relations

Research into accounting risk-return relations largely relied on reference-based models of managerial choice. This focus ignores other explanations that may contribute to our understanding. Our study extends prior research by incorporating agency theory and implicit contracts theory into models based on the behavioral theory of the firm. We test our hypotheses in a large sample of US manufacturing firms in two different economic environments. Our results show some support for each theory, suggesting that multiple frameworks may better explain risk-return relations. Further, differences in results between the two economic environments imply that macroeconomic conditions may be important. © 2000 Elsevier Science B.V. All rights reserved. JEL classification: D81