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The impact of liquidity and solvency on cost efficiency


  • Levi Alan Russell
  • Michael R. Langemeier
  • Brian C. Briggeman


Purpose - – This paper aims to develop and utilize a conceptual framework to examine the impact of liquidity and solvency on cost efficiency for a sample of Kansas farms. Design/methodology/approach - – A standard cost-efficiency model is modified to incorporate liquidity and solvency ratios. Tobit regressions are used to determine the impact of farm characteristics on improvements in efficiency. Findings - – Results confirm that liquidity and solvency measures have a significant impact on improving cost efficiency. Farms with larger expenditures on purchased inputs relative to capital were less likely to improve efficiency when liquidity and solvency were considered. Originality/value - – To the authors' knowledge, the paper is the first to add liquidity and solvency ratios to the cost-efficiency model developed by Färeet al.for the analysis of farms.

Suggested Citation

  • Levi Alan Russell & Michael R. Langemeier & Brian C. Briggeman, 2013. "The impact of liquidity and solvency on cost efficiency," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 73(3), pages 413-425, November.
  • Handle: RePEc:eme:afrpps:v:73:y:2013:i:3:p:413-425
    DOI: 10.1108/AFR-09-2012-0047

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    Cited by:

    1. Noah J Miller & Jason S Bergtold & Allen M Featherstone, 2019. "Economic elasticities of input substitution using data envelopment analysis," PLOS ONE, Public Library of Science, vol. 14(8), pages 1-15, August.
    2. Hadrich, Joleen C. & Pendell, Dustin L. & Kim, Youngjune, 2018. "The effect of financial structure and efficiency on Kansas farm growth," 2018 Annual Meeting, August 5-7, Washington, D.C. 274110, Agricultural and Applied Economics Association.


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