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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.

Suggested Citation

  • Catherine Pattillo & Måns Söderbom, 2000. "Managerial Risk Attitudes and Firm Performance in Ghanaian Manufacturing: an Empirical Analysis Based on Experimental Data," CSAE Working Paper Series 2000-17, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2000-17
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    File URL: http://www.csae.ox.ac.uk/materials/papers/20-17text.pdf
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    Cited by:

    1. Jansen, Anika & Pfeifer, Harald & Raecke, Julia, "undated". "Only the brave? Risk and time preferences of decision makers and firms’ investment in worker training," Research Memorandum 004, Maastricht University, Graduate School of Business and Economics (GSBE).
    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 142882, Southern Agricultural Economics Association.
    3. Cucculelli, Marco & Ermini, Barbara, 2013. "Risk attitude, product innovation, and firm growth. Evidence from Italian manufacturing firms," Economics Letters, Elsevier, vol. 118(2), pages 275-279.

    More about this item

    Keywords

    Ghanaian manufacturing; risk aversion; profit function; variance function;

    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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