The role of debt in financing French farm investments

The purpose of this paper is to investigate the role of indebtedness in the capital structure of French farms, in order to understand how they finance their investments. The methodology is based on three main theoretical frameworks associated with capital structure in the financial literature: the trade-off theory, the pecking order theory and the signaling theory. We use data from the Farm Accountancy Data Network (FADN) during the period 2000-2014, which are representative of French professional farms. A simultaneous equation model (3SLS) is estimated in order to explain the financing of farms by short- and long-term debt and the level of investments. The paper complements previous studies by validating parts of the financial literature for farm businesses. Notably, the model reveals that farmers prefer to finance their investments using first internal funds, second long-term debt and third short-term debt. Over the years, the capital structure of French farms remains quite stable, although it has progressively integrated more short-term debt. Practical implications in terms of farm financing are then suggested. Acknowledgement : The authors acknowledge financial support from the French research agency ( Agence Nationale de la Recherche -ANR) in the frame of the research project FARM_VALUE Farm value and farm transfer: perspectives from economics and sociology (ANR-15-CE36-0006-01).(This abstract was borrowed from another version of this item.)