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Determinants of the Strength of Strategic Adjustments in Farm Capital Structure

Published online by Cambridge University Press:  28 April 2015

Cesar L. Escalante  and
Peter J. Barry
Cesar L. Escalante
Affiliation:
Department of Agricultural and Applied Economics, University of Georgia, Athens, GA
Peter J. Barry
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois, Urbana-Champaign, IL
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Abstract

This study employs correlation relationships to measure the strength of trade-offs between business and financial risks as a representation of the strategic capital adjustment process. Under different business risk measures based on varying lengths of historical farm income data, results suggest that farmers tend to adopt a myopic perspective when contemplating risk-balancing plans. Cross-sectional regression results for two-time period models covering the decade of the 1980s and 1990s yielded important implications. The liquidity-constrained environment of the 1980s emphasizes the combination of risk-balancing plans, specialization, and market revenue-enhancing strategies. In the 1990s, risk balancing becomes compatible with risk-reducing crop diversification and insurance protection plans.

Keywords

business riskcorrelation coefficient measure of risk balancingexpected utility mean variance modelfinancial riskrisk management strategystochastic interest ratesstrategic capital adjustmentD21D81G11Q12Q14
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 35 , Issue 1 , April 2003 , pp. 67 - 78
Copyright
Copyright © Southern Agricultural Economics Association 2003

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