A taxonomy of risk in large UK industrial firms

The overall movements of the capital market are broken down into four orthogonal forces. A multilayer perceptron (MLP) is then used to explain the sensitivities of firms to each of these forces in terms of accounting information. A strong relationship was found between specific features of accounting reports of firms and their appraisal by the market. Using size, industrial group, work force, and payment patterns as predictors, the MLP explained the sensitivities of firms' returns to these overall forces. However, the map relating features of firms to sensitivities is a complex one. This explains why previous studies, based on linear tools, did not find such strong relationships. The method developed by the author opens up the possibility of building a taxonomy of risk.< >