A risk based approach to firm evaluation applied to Dutch industries

In this paper, a method is developed to evaluate firms on the basis of the risks they face. In accordance with the multi-factor method, risk is represented as a vector of sensitivities for unexpected changes of risk factors. Subsequently, the sensitivities themselves are related to firm characteristics. In addition, an application of the method to interfirm comparison is presented. This applicaiton is illustrated by a numerical example based on estimates concerning real data. Apart from this application, some other possible future applications are mentioned. Finally, some decision support tools are presented which may enhance the usefulness of the method in practice.