||Examines the impact of firm risk aversion on firm investment decisions, focusing on large, often diversified firms and their managers. Proposes that firms have the goal of minimizing total firm investment risk, in addition to earning profits, when they make internal resource allocations. Argues that, within a framework where firms seek to minimize the risk to a portfolio of long-term investments, the correlations between various firm-level investments affect the allocation of resources. Adapts the Tobin-Markovitz theoretical portfolio selection model of stock market investment and applies it to investment choices by managers. The present study focuses on the composition of individual investments, as well as on total firm risk and return; incorporates the dependence of certain asset prices on internal firm covariance risk; develops a methodology that relies on micro-level, project-specific data to forecast ex ante risks and returns to firm investment; and uses a unique data set to analyze the composition of actual investment expenditures in the petroleum industry. Specifically examines investment risk and the diversified firm; the petroleum industry from 1970 to 1979; estimation of the efficient frontier; petroleum industry projects; and estimated efficient frontiers for the industry. Based in large part on the author's doctoral dissertation. Helfat is Assistant Professor at the J. L. Kellogg Graduate School of Management, Northwestern University. Bibliography; index.