The role of fundamental Q and financing frictions in agricultural investment decisions: an analysis pre and post financial crisis
AbstractThis paper uses a fundamental Q model of investment to consider the role played by financing frictions in agricultural investment decisions, controlling econometrically for censoring, heterogeneity and errors-in-variables. Our findings suggest that farmer's investment decisions are not driven by market fundamentals. We find some evidence that debt overhang restricts investment but investment is not dependent on liquidity or internal funds. The role of financing frictions in determining investment decisions changes in the post-financial crisis period when debt overhang becomes a significant impediment to farm investment. The evidence suggests that farmers increasingly rely on internal liquidity to drive investment. Finally, we find no evidence that farmers use off-farm capital to fund on-farm investment.
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Bibliographic InfoPaper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0311.
Length: 42 pages
Date of creation: Feb 2011
Date of revision:
Credit Constraints; Firm Level Investment; Tobin's Q; Debt;
Find related papers by JEL classification:
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-02-26 (Agricultural Economics)
- NEP-ALL-2011-02-26 (All new papers)
- NEP-BEC-2011-02-26 (Business Economics)
- NEP-HME-2011-02-26 (Heterodox Microeconomics)
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- Conor O'Toole & Thia Hennessy, 2013. "Do decoupled payments affect investment financing constraints? Evidence from Irish agriculture," Trinity Economics Papers tep0113, Trinity College Dublin, Department of Economics.
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