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

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

International Journal of Finance & Economics, 2024, vol. 29, issue 2, 2176-2192

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.

Date: 2024
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