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Risk aversion

Explain in brief the risk aversion? If the common stockholders are risk averse, then they will mostly invest in risky companies. Explain.

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The tendency to stay away from additional risk is Risk aversion. Risk-averse people mostly stay away from risk whenever they can, until they get an additional compensation for taking that risk. That extra compensation is a higher expected rate of return in finance.
All People are not equally risk averse. Such as, few people are will be ready to buy risky stocks, whereas others will not. The ones who will, they always require a comparatively higher expected return rate for accepting the additional risk.

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