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Determinants of Financial Capital Use: Review of theories and implications for rural businesses

  • Curtiss, Jarmila
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    This paper presents a review of financial economics literature and offers a comprehensive discussion and systematisation of determinants of financial capital use. In congruence with modern financial literature, it is acknowledged here that real and financial capital decisions are interdependent. While the fundamental role of the (unconstrained) demand for real capital in the demand for finance is acknowledged, the deliverable focuses on three complementary categories of the determinants of financial capital use: i) capital market imperfections; ii) factors mitigating these imperfections or their impacts; and iii) firm- and sector-related factors, which alter the severity of financial constraints and their effects. To address the question of the optimal choice of financial instruments, theories of firm capital structure are reviewed. The deliverable concludes with theory-derived implications for agricultural and non-agricultural rural business’ finance.

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    Paper provided by Factor Markets, Centre for European Policy Studies in its series Working Papers with number 122846.

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    Date of creation: 15 Feb 2012
    Handle: RePEc:ags:famawp:122846
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