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Transaction Costs, Farm Finance and Investment

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  • Benjamin, Catherine
  • Phimister, Euan

Abstract

An investment model of the farm firm is constructed which allows for adjustment costs in investment and transactions costs associated with new borrowing. The presence of transaction costs means that the financial and investment decisions of the farm are simultaneous, and hence that financial decisions affect investment. In contrast to the work on liquidity constraints, the structure of the model generates a classification of farms which is observable in the data. This model is compared with a model that assumes perfect capital markets. Both models are estimated and tested using a balanced panel of 3,650 French farms over the period 1989-1993. The specification based on the perfect capital market assumption is rejected. The sample selection criterion implied by the transaction costs model allows the estimation of an empirically acceptable Euler equation for investment. Copyright 1997 by Oxford University Press.

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Bibliographic Info

Article provided by Foundation for the European Review of Agricultural Economics in its journal European Review of Agricultural Economics.

Volume (Year): 24 (1997)
Issue (Month): 3-4 ()
Pages: 453-66

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Handle: RePEc:oup:erevae:v:24:y:1997:i:3-4:p:453-66

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Cited by:
  1. Gardebroek, Cornelis & Oude Lansink, Alfons G.J.M., 2008. "Dynamic Microeconometric Approaches To Analysing Agricultural Policy," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6592, European Association of Agricultural Economists.
  2. Myyrä, Sami, & Pietola, Kyosti & Heikkilä, Anna-Maija, 2011. "Farm Level Capital: Capital positions, structures, the dynamics of farm level investments, capital accumulation and leverage positions," Factor Markets Working Papers 105, Centre for European Policy Studies.
  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.
  4. Lagerkvist, Carl Johan & Olson, Kent D., 2001. "Asymmetric Information, Capital Structure And Agricultural Investment," 2001 Annual meeting, August 5-8, Chicago, IL 20652, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. 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.
  6. Olsen, Jakob Vesterlund & Pederson, Michael Friis, 2011. "An Empirical Analysis of Access to Finance for Danish Farms: Understanding Investment and the Absence of Risk Management," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114591, European Association of Agricultural Economists.

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