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Changes in management attitudes to risk most apparent in the technology sector Back  
Does management in different sectors display very different levels of risk aversion?
A major difference is apparent between the technology sector and other sectors. In the former, management could be described as risk seeking as they operate in a sector with far more rapid growth and regression patterns.

AIB Corporate Finance
Attitude to risk depends on many factors including stage of development, ownership, financial position and strategic positioning. All businesses regardless of sector need to be driven forward and developed by opening new markets and offering new products. All these efforts involve some level of risk and therefore companies are always taking risks.

BDO Simpson Xavier
Definitely. To date the technology sector showed no fear, but this is going to change over the next year. Traditional businesses have been more cautious, perhaps because they still remember the bad old days of the late 80’s and early 90’s.

CFM Capital
More traditional sectors have historically shown a more risk averse attitude, however, this is heavily influenced by personal characteristics and often this generalisation has been proven untrue in the past.

Goodbody Stockbrokers
Management teams in the technology sector would typically have a higher risk profile than those in other sectors. This largely reflects the importance of speed to market and scalability in the technology sector. Investors in technology companies also tend to have a higher risk profile to other sectors thus enabling the management teams to adopt aggressive strategies. The increasing focus on path-to-profitability in recent times coupled with the challenging funding environment at present has inevitably led many technology companies to adopt a more conservative strategy than heretofore.

Risk is directly linked with confidence and expected returns. In the late 1990s, with the value of many technology companies increasing by as much as 50 per cent per annum, the acceptance of greater risk by technology companies was facilitated. If a technology company overpaid by 10 per cent for an acquisition, many observers felt that it didn’t matter when the acquirer’s value was expected to increase by 50 per cent over the following twelve months. Since the slide in share prices, the risk threshold acceptable to technology-related companies has certainly fallen. For example, Cisco Systems, which made 23 acquisitions in 2000, has put an informal hold on making any acquisitions until the high-tech market recovers.

NCB Stockbrokers
At present management in the technology and food sectors see greater risks in their sectors than others, for obvious reasons. Generally, however, we find that management in most sectors display similar risk aversion characteristics.

Broadly, no.

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