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Evaluating environmental liability through risk premiums charged on loans to agribusiness borrowers

Author

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  • Mary Jo Billiot

    (College of Business, Eastern New Mexico University, Station #49, Portales, NM 88130)

  • Zoel W. Daughtrey

    (School of Accountancy, College of Business and Industry, Mississippi State University, P.O. Box EF, Mississippi State, MS 39762)

Abstract

Environmental activities of a company may result in payments for hazardous waste site costs. Based upon current financial accounting standards, prospective payments for these costs are not always reported as liabilities on financial statements. Agribusiness lenders require complete information on the environmental status of agribusiness borrowers in order to assess the potential effects of environmental liability. In addition, agribusiness lenders have been held responsible by the judicial system for the environmental problems of their borrowers. Publicly available, financial and environmental data was used to develop models to quantify the effects of environmental status regardless of whether environmental liabilities are included in the financial statements. The results indicate that environmental status is dependent upon source of environmental hazard and company size, adjusted for industry affiliation. Affiliation with particular 4-digit SIC codes reduces the probability of the borrower being considered a significant environmental liability risk. [EconLit Citations: Q13, K32, G20]. © 2001 John Wiley & Sons, Inc.

Suggested Citation

  • Mary Jo Billiot & Zoel W. Daughtrey, 2001. "Evaluating environmental liability through risk premiums charged on loans to agribusiness borrowers," Agribusiness, John Wiley & Sons, Ltd., vol. 17(2), pages 273-297.
    • Handle: RePEc:wly:agribz:v:17:y:2001:i:2:p:273-297
    DOI: 10.1002/agr.1016
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    References listed on IDEAS

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    1. Deakin, Eb, 1972. "Discriminant Analysis Of Predictors Of Business Failure," Journal of Accounting Research, Wiley Blackwell, vol. 10(1), pages 167-179.
    2. Michael A. Mazzocco, 1991. "Environmental Regulations and Agricultural Lending," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(5), pages 1394-1398.
    3. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
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    Cited by:

    1. Olaf Weber & Roland W. Scholz & Georg Michalik, 2010. "Incorporating sustainability criteria into credit risk management," Business Strategy and the Environment, Wiley Blackwell, vol. 19(1), pages 39-50, January.
    2. Olaf Weber & Marcus Fenchel & Roland W. Scholz, 2008. "Empirical analysis of the integration of environmental risks into the credit risk management process of European banks," Business Strategy and the Environment, Wiley Blackwell, vol. 17(3), pages 149-159, March.
    3. Muddassar Sarfraz & Wang Qun & Li Hui & Muhammad Ibrahim Abdullah, 2018. "Environmental Risk Management Strategies and the Moderating Role of Corporate Social Responsibility in Project Financing Decisions," Sustainability, MDPI, vol. 10(8), pages 1-17, August.

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