Managerial Risk Attitudes and Firm Performance in Ghanaian Manufacturing: an Empirical Analysis Based on Experimental Data
AbstractGhanaian 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 InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2000-17.
Date of creation: 01 Jul 2000
Date of revision:
Ghanaian manufacturing; risk aversion; profit function; variance function.;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
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