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

  • MÃ¥ns Söderbom
  • Catherine Pattillo
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    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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    File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/20-17text.pdf
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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2000-17.

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    Date of creation: 01 Jul 2000
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    Handle: RePEc:oxf:wpaper:wps/2000-17
    Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Web page: http://www.economics.ox.ac.uk/
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    9. Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
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