Unobserved Heterogeneity: Evidence and Implications for SMEs' Hedging Behavior

Joost Pennings () and Philip Garcia

No 18955, 2001 Conference, April 23-24, 2001, St. Louis, Missouri from NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: Financial research indicates that several firm characteristics are related to the use of derivatives. Less attention has been paid to the role of the characteristics of managers, which are particularly important when studying derivative usage of small and medium sized enterprises (SMEs). In this paper we focus on the influence of manager's level of education, the manager's decision-making unit, and the fundamental determinants of risk management - managerial risk attitude and managerial risk perception - on SMEs' commodity derivative usage. In empirical studies to date, the heterogeneity of derivative users has been neglected. We propose a generalized mixture regression model that estimates the relationship between commodity derivative usage and a set of explanatory variables across segments of an industry. Accounting for unobserved heterogeneity reveals that segments of the industry have different determinants of derivative use. Moreover, the heterogeneity at the segment level appears to mask significant effects at the aggregate level, most notably the effects of risk attitude and risk perception.

Keywords: Marketing (search for similar items in EconPapers)
Pages: 23
Date: 2001
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:ncrone:18955

DOI: 10.22004/ag.econ.18955

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