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Farm Values and Financial Performance of Diversified Farms

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  • Katchova, Ani L.

Abstract

Theoretical arguments suggest that diversification has both value-enhancing and value-reducing effects. Several finance studies have found that the average diversified firm is worth less than a portfolio of comparable single-segment firms. In agriculture, farms have different characteristics and diversification incentives than publicly-traded firms. This study examines the farm diversification discount using data from Illinois and the methodology developed by Burger and Ofek. The results show that, on average, a diversified crop/livestock farm has a lower value and lower return on equity than a portfolio of a specialized crop and livestock farm. The regression results examine the impact of various farm and operator characteristics on the level of diversification discount.

Suggested Citation

  • Katchova, Ani L., 2002. "Farm Values and Financial Performance of Diversified Farms," 2002 Regional Committee NC-221, October 7-8, 2002, Denver, Colorado 132372, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    • Handle: RePEc:ags:nc2002:132372
    DOI: 10.22004/ag.econ.132372
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    1. Purdy, Barry M. & Langemeier, Michael R. & Featherstone, Allen M., 1997. "Financial Performance, Risk, And Specialization," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 29(1), pages 1-13, July.
    2. Lamont, Owen A. & Polk, Christopher, 2002. "Does diversification destroy value? Evidence from the industry shocks," Journal of Financial Economics, Elsevier, vol. 63(1), pages 51-77, January.
    3. Gillan, Stuart L. & Kensinger, John W. & Martin, John D., 2000. "Value creation and corporate diversification: the case of Sears, Roebuck & Co," Journal of Financial Economics, Elsevier, vol. 55(1), pages 103-137, January.
    4. Toni M. Whited, 2001. "Is It Inefficient Investment that Causes the Diversification Discount?," Journal of Finance, American Finance Association, vol. 56(5), pages 1667-1691, October.
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    Keywords

    Agricultural Finance; Land Economics/Use;

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