Risk Substance of Newly Established Businesses

Abstract

This paper investigates the risk substance of newly established business in the Czech Republic. As traditional methods for risk measurement in this case come across the lack of reliable data from capital markets, lack of any financial history for start-up companies and low level of diversification of investors, we draw on the theory of business risk and empirically investigate the role that risk fundamentals may play in the overall riskiness of start-up firms in the Czech Republic. Our findings confirm that the return fluctuations of start-up companies are statistically significantly associated with the operating and financial leverage.

Keywords

• Risk measurement
• start-up business
• degree of operating leverage
• degree of financial leverage