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Competing Risk Proportional Hazard Models of Farm Service Agency Direct Operating Loans

Author

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  • Dixon, Bruce L.
  • Ahrendsen, Bruce L.
  • Foianini, Monica
  • Hamm, Sandra J.
  • Danforth, Diana M.

Abstract

The USDA Farm Service Agency (FSA) direct farm loan program is designed to provide credit to family-sized farms unable to obtain credit from conventional sources at reasonable rates and terms despite having sufficient cash flow to repay and an ability to fully securitize the loan. FSA policy encourages borrowers to exit the program as soon as possible. This study uses Cox proportional hazard models in a competing risks framework to identify predictive factor of: (1) loan success or default, and (2) length of time to loan termination. Survey data from 1925 direct loans originated in federal fiscal years 1994-95 are used for analysis. Only data available to FSA at time of origination were collected. Since these data are all the information FSA has at time of loan origination, the competing risk models provide an alternative method for measuring priori relative riskiness indicated by borrower and loan characteristics. Results indicate that borrower financial strength, intensity of borrowers' current relationship with FSA and loan characteristics are significant measures of loan risk.

Suggested Citation

  • Dixon, Bruce L. & Ahrendsen, Bruce L. & Foianini, Monica & Hamm, Sandra J. & Danforth, Diana M., 2008. "Competing Risk Proportional Hazard Models of Farm Service Agency Direct Operating Loans," Proceedings: 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48140, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  • Handle: RePEc:ags:nc1007:48140
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    File URL: http://purl.umn.edu/48140
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    Keywords

    duration; Farm Service Agency; direct loans; competing risks; Agricultural Finance; Risk and Uncertainty; C29; G28; Q12; Q14;

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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