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

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.