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Managerial Risk Attitudes and Firm Performance in Ghanaian Manufacturing: an Empirical Analysis Based on Experimental Data

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  • Catherine Pattillo
  • Måns Söderbom

Abstract

Ghanaian manufacturing firms face a highly risky environment. Firms may attempt to manage these risks by undertaking production, input, and investment strategies designed to lower profit variability. Mean-variance analysis implies, however, that these strategies involve a trade-off with lower expected profits. This paper investigates the extent to which more risk averse managers who face high risks attempt to smooth profits at the expense of lower average profits. We use data from the Ghana Manufacturing Enterprise Survey (GMES) 1994-95, and a specialised component designed to measure managers’ risk attitudes using an experimental gambling approach with real monetary payoffs. Joint estimation of profit and profit variance functions which control for unobserved heterogeneity support model predictions. Firms with more risk averse managers who face high risks have lower profit rate variability and lower mean profit rates. These mean and variance differences are economically important and statistically significant.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2000-17.

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Date of creation: 2000
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Handle: RePEc:csa:wpaper:2000-17

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Keywords: Ghanaian manufacturing; risk aversion; profit function; variance function.;

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Cited by:
  1. Cucculelli, Marco & Ermini, Barbara, 2013. "Risk attitude, product innovation, and firm growth. Evidence from Italian manufacturing firms," Economics Letters, Elsevier, Elsevier, vol. 118(2), pages 275-279.
  2. Gouzaye, Amadou & Vitale, Jeffrey D. & Epplin, Francis M. & Adam, Brian D. & Stoecker, Arthur L., 2013. "The Value of Price Stabilization Policy for Cotton Producers in Burkina Faso," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida, Southern Agricultural Economics Association 142882, Southern Agricultural Economics Association.

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