Enterprise Strategic Risk Based On Ordinal Space And The Relationship Between Financial Performance

As the trend towards globalization has accelerated, the organizational level riskcalled strategic risk needs more attentions. In view of the current limitations onacademic study, followed by paradigm of strategic management, we integrate thetheory from strategic management, economic, risk management and statistics, andmethods from qualitative and quantitative, deductive and inductive, to analysis thetheory and method of strategic risk and its relationship with financial performance.On foundation of reviewing relevant literatures about enterprise strategic risk, anew concept and characteristic of strategic risk are defined. We emphatically studiesin the risk factor and risk form mechanism of enterprise strategic risk identificationprocess. And we briefly review and analyze the tradition strategic risk measurementmethods, such as the mean variance method, the absolute percentage differentialmethod and Sharp method, CAPM method, then analyzed their advantages anddisadvantages. We use the method of entropy measurement in ordinal theory forsystem uncertainty to consider the strategic risk of the enterprise sets as the rankingchange in the system, which means that the risk is the negative uncertain informationdue to the drop. On this basis, according to the contribution of one enterprise to thewhole system, we can get the strategic risk of each enterprise in the system. We alsostudied the strategic risk measurement method in the system with the enterpriseentering and exiting, and analyzed two kinds of measurement methods. One is throughfixed the position before entering or after exiting the system, to quantify their rankingchanges. Then we got a new transition probability matrix, to measure the strategic riskusing the theory of ordinal space. The other is using the rank friction among theenterprises. We discussed the risk of the whole system through the rank friction.Using the method of entering and exiting rate, we solved the phenomenon of thewhole industry.After defining and measuring strategic risk, we researched the relationshipbetween the strategic risk and financial performance. Firstly, we gave the generalmodel of panel data, then the fixed effect model and random effect model and theirparameter estimation methods. Choosing indicators of enterprise financialperformance and using the data of Chinese textile industry, we selected suitable paneldata model to find a negative relation between strategic risk and performance of Chinese textile industry, which is known as "Bowman’s paradox". The result showsthat high risk does not necessarily bring high profits, and enterprise’s sustainablecompletive advantage is not only obtaining from the high return, but resulting inlong-term high return-low risk performance outputs. Secondly, with the problem ofless number of the system and the strong correlation between financial performanceindicators of enterprises in the industry of every section, we chose the partial leastsquares method to analyze. This study gives the basic theory of partial least squaresmethod and the basic form of expression, and analyses the multicollinearity diagnosismethod. We also chose the data of Chinese textile industry to compare the twomethods. With annual cross-section data, by their VIF calculation, we found theindicators correlation. Through the comparison of PLS and OLS, we got the negativerelation relationship of strategic risk and financial performance. We also suggestedthat in every different year, enterprises should take the corresponding measuresaccording to actual situation.Finally, we combined with panel data and partial leastsquares method. According to the discussion of the method of PLS, we used the PLSmethod to estimate its parameters of panel data model. and analyses its crosseffectiveness, solve the strong correlation problem. Using the data of Chinese textileindustry, we compared the two methods and obtained that panel data model with PLSmethod for parameter estimation of regression had more effectiveness. We got a seriesof conclusions that the return on ROA is negatively related to the enterprise strategicrisk.The method provides new theoretical support for practical applications. Thestudy is very important to reframe strategic risk theory and change the attiudes instrategic management practive. It also provides the reference in different environmentfor the enterprise resource allocation and management decision-making. In dailyoperation and management, company managers should be realized in different levelsof performance, because of the different strategic risk. Only paying attention to thepremise of performance, the company managers can accurately judge the strategicposition of the company and realize the balance of strategic risk and performance.