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Signaling Credit Risk in Agriculture: Implications for Capital Structure Analysis

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

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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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
Contact details of provider: Web page: http://www.saea.org/jaae/jaae.htm
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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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