The Robust Test Of Existence Of The "Bowman Paradox" Of China’s Listing Corporation

The American economic scholar Bowman by using 85 industries more than 1500 enterprises data from the year 1972 to 1976,taken a research and found there was a significant negative correlation between enterprise income and enterprise risk in most industries.The result was against to the concept and theory of the capital market and investors of "high risk,high income".On the reasons for the "Bowman paradox",Bowman himself launched a study over the next few years and summarizes some possible factors.however,since "Bowman paradox" was raised,the problem attracted a large number of scholars and entrepreneurs’ attention,because this conclusion of the problem not only changed the people’s investment view,more important is to provide a unique perspective to study this problem.So far,however,whether it is theoretically or empirically,the relationship between enterprise risk and income had not unanimously conclusion..This paper aims at the study of the relationship between enterprise income and enterprise risk of Chinese listed companies,it namely test whether the existence of the phenomenon of "Bowman paradox".Further,from two factors of enterprise diversification strategy and financing constraints,this paper explore whether the factors affect the relationship between enterprise income and enterprise risk.Therefore,this paper selects the 2001 to 2013 listed companies as sample,using static panel fixed effect model and system generalized method of moments estimation method,to study the relationship between enterprises’ income and enterprises’ risk,and whether the relationship is different among industries.Then taking a robustness test by using independent variable lag,standard deviation calculation cycle,enterprise income index.At the end part,the paper from the diversification of investment and capital constraints the two perspectives to analysis whether it affect the relationship between the income an risk.Empirical results show that:(1)The average income of Chinese enterprises from 2005 years to 2013 years experienced a Mtype movements.Enterprise risk,showing rapid decline before 2005,it began to intensify begin in 2008,and declined.in recent years.(2)Panel data model with fixed effects estimate and System GMM estimate both show the relation between enterprise risk and enterprise income of overall sample support "Bowman paradox",however,the result is different among industries.In monopoly industries such as mining industry and metal products,the relationship of enterprise risk and enterprise income is positive,and in competitive industries such as food,textile,leather,equipment,services,the relationship of enterprise risk and enterprise income is negative.Take the test by using independent variable lag,standard deviation calculation cycle,enterprise income index,the result show the conclusion is robust.(3)Firms of diversification strategy will negatively affect the relation of enterprise income and enterprise risk.At the same time,financing constraints also can negatively affect the relation of enterprise income and enterprise risk.That means diversification strategy and financing constraints of enterprise is two factors will lead to"Bowman paradox" phenomenon.This paper explain the empirical results from two points:First,the result is from the influence of macroeconomic aspects.Different from the corporation level,macroeconomic volatility is more inclined to minimize losses of economic growth.Since macroeconomic can affect the micro-economic quickly,and then a small amount of micro-economy can adversely affect the macro-economy,and therefore the macroeconomic occur high volatility and low growth,the effect will transmit to the industry and corporations,which will lead a negative correlation between risk and returns.This phenomenon is called "Bowman Paradox".Second,Some industries support "Bowman Paradox",and Some industry does not support the "Bowman Paradox",which may be related to the nature of the industries.From the empirical results,like mining and metal smelting industry which is monopolized industries have positive effect,because these industries are not sensitive to the risks.In contrast,competitive industries dominate the market,in the face of higher market risks,companies are more flexible to make decision to reduce risks,and ultimately form a situation of high-risk(external conduction)and lower earnings.According to the results,this paper propose the following advise:(1)The Corporations should have risk awareness on thinking and behavior when they cross-investment or investment in new projects to weaken the risks of declining the corporation performance as far as possible;(2)Government departments should play a role to avoid high-risk and high volatility of macroeconomic and guide policy development correctly,so that enterprises can avoid the decline in performance as far as possible when the external economic environment is poor;(3)Investors should be rational to the various strategic investment behavior of listed companies,and should understand the relationship between risk and return of industries and enterprise correctly,and a comprehensive analysis of possible factors influencing this relationship,only to master these relationships,and then to maintain low risks and get high returns.