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Signaling Credit Risk in Agriculture: Implications for Capital Structure Analysis

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Author Info

  • Zhao, Jianmei
  • Barry, Peter J.
  • Katchova, Ani L.

Abstract

Signaling is an important element in the lender-borrower relationship that influences the cost and availability of debt capital to agricultural borrowers. This paper analyzes the effects of signaling on farm capital structure in conjunction with the pecking order and trade-off theories. The aggregate estimation indicates that signaling does affect agricultural credit relationships through measures of past cash flow and profitability. High-quality borrowers achieve greater credit capacity by providing lenders with valid signals of their financial status, while adjusting toward target debt levels over time and following the pecking order relationship in the short run.

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File URL: http://purl.umn.edu/47260
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Bibliographic Info

Article provided by Southern Agricultural Economics Association in its journal Journal of Agricultural and Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 03 (December)
Pages:

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Handle: RePEc:ags:joaaec:47260

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Related research

Keywords: farm businesses; pecking order theory; signaling theory; trade-off theory; Agribusiness; Risk and Uncertainty; G11; G32; Q14;

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References

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  1. Barry, Peter J. & Ellinger, Paul N., 1989. "Credit Scoring, Loan Pricing, And Farm Business Performance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(01), July.
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Cited by:
  1. Harris, James Michael & Blank, Steven C. & Erickson, Kenneth W. & Hallahan, Charles B., 2010. "Off-farm Income and Investments in Farm Assets: A Double Hurdle Approach," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61531, Agricultural and Applied Economics Association.
  2. Harris, James Michael & Dillard, John & Erickson, Kenneth W. & Hallahan, Charles B., 2009. "Changes in Debt Patterns and Financial Structure of Farm Businesses: A Double Hurdle Approach," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49402, Agricultural and Applied Economics Association.
  3. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.

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