Open AccessFinancial risk monitoring and transaction costs in coffee & soybean trading companies and processors
Author(s) -
Edson Costa Bignotto,
Adriano Azevedo Filho
Publication year - 2003
Publication title -
revista de economia e sociologia rural
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.303
H-Index - 16
eISSN - 1806-9479
pISSN - 0103-2003
DOI - 10.1590/s0103-20032003000100002
Subject(s) - opportunism , transaction cost , information asymmetry , bounded rationality , negotiation , business , risk management , rationality , economics , database transaction , industrial organization , finance , microeconomics , computer science , political science , law , market economy , programming language
This study characterizes the use of risk monitoring mechanisms by coffee and soybean trading and processing companies. It also investigates the role these mechanisms play in the mitigation of certain transaction costs associated to bounded rationality, information asymmetry, and business opportunism in negotiations involving derivatives. The results presented are based on literature and original research, which consisted of interviews with 19 coffee and soybean trading and processing company agents that deal with the management and execution of derivatives trades. The interviews suggest that the interest in formal risk monitoring mechanisms depends strongly on the organizational structure of the business. In family businesses, in which the owner participates actively in negotiations, the interest is limited. In non-family businesses, where there is a clear separation between supervisory upper-management and agents involved with trading, the interest in risk monitoring systems is more evident. This result seems to indicate that the mitigation of transaction costs associated with information asymmetry and opportunism might be stronger motivations for interest in risk monitoring mechanisms than the costs resulting from bounded rationality