A risk–return trade‐off or co‐movement? Are food processing firms risk‐averse?

Subhadip Mukherjee, Soumyatanu Mukherjee, Mamata Parhi, Kun Duan, Ahmed Usman

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Abstract

We build a two-moment decision-theoretic framework to study how firms in the food-processing industry negotiate between risk and return while relying on imported inputs for production at an intensive margin. Two possibilities emerge: either a co-movement or a trade-off in risk and return under various industry and economic conditions. Building on our theoretical setting, we design a testable empirical framework that considers a panel of 316 firms in the Indian food-processing industry between 1993 and 2009. We find strong evidence of a decrease in the absolute risk aversion preference, although the magnitude varies measurably across firms.
Original languageEnglish
Pages (from-to)2176-2192
Number of pages17
JournalInternational Journal of Finance and Economics
Volume29
Issue number2
Early online date17 Jan 2023
DOIs
Publication statusPublished - 7 Apr 2024

Bibliographical note

This is the peer reviewed version of the following article: Mukherjee, S, Mukherjee, S, Parhi, M, Duan, K & Usman, A 2024, 'A risk–return trade‐off or co‐movement? Are food processing firms risk‐averse?', International Journal of Finance and Economics, vol. 29, no. 2, pp. 2176-2192, which has been published in final form at https://doi.org/10.1002/ijfe.2763. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.

This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

Keywords

  • exchange rate risk
  • food-processing industry
  • imported intermediate inputs
  • mark-up estimation
  • risk aversion elasticity
  • risk preference

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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