Methods for Risk Measurement of Start-Up Firms in the Conditions of Emerging Capital Markets

Abstract

The aim of this paper is to offer the know-how for quantifying risk, which may reflect the restrictions faced by investors in the conditions of emerging capital markets when they start up a new company. The theoretically suitable risk measurement techniques are subject to empirical testing with finding that methods on financial basis outperform those on the market basis and that the level of risk of the respective companies is particularly dependent on the combined level of operating and financial leverage. This result allowed for the construction of a new risk-quantifying technique for investors with low capital diversification, zero entrepreneurial history and access to capital market data with low information content.

Keywords

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