Hostname: page-component-cd9895bd7-8ctnn Total loading time: 0 Render date: 2024-12-25T17:04:05.306Z Has data issue: false hasContentIssue false
  • English
  • Français

Signaling Credit Risk in Agriculture: Implications for Capital Structure Analysis

Published online by Cambridge University Press:  26 January 2015

Jianmei Zhao ,
Peter J. Barry  and
Ani L. Katchova
Jianmei Zhao
Affiliation:
China Academy of Public Finance and Public Policy, the Central University of Finance and Economics
Peter J. Barry
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign
Ani L. Katchova
Affiliation:
Department of Agricultural Economics, University of Kentucky
Get access Rights & Permissions [Opens in a new window]

Abstract

Signaling is an important element in the lender-borrower relationship that influences the cost and availability of debt capital to agricultural borrowers. This paper analyzes the effects of signaling on farm capital structure in conjunction with the pecking order and trade-off theories. The aggregate estimation indicates that signaling does affect agricultural credit relationships through measures of past cash flow and profitability. High-quality borrowers achieve greater credit capacity by providing lenders with valid signals of their financial status, while adjusting toward target debt levels over time and following the pecking order relationship in the short run.

Keywords

farm businessespecking order theorysignaling theorytrade-off theoryG11G32Q14
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 40 , Issue 3 , December 2008 , pp. 805 - 820
Copyright
Copyright © Southern Agricultural Economics Association 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Backes-Gellner, U., and Werner, A. “Entrepreneurial Signaling via Education: A Success Factor in Innovative Start-Ups.” Small Business Economics 29(2007): 173-90.Google Scholar
Baker, C.B. “Credit in the Production Organization of the Firm.” American Journal of Agricultural Economics 50(1968):507-21.CrossRefGoogle Scholar
Barry, P.J., Bierlen, R.W., and Sotomayor, N.L. “Financial Structure of Farm Businesses under Imperfect Capital Markets.” American Journal of Agricultural Economics 82(2000): 920-33.Google Scholar
Barry, P.J., and Ellinger, P.N. “Credit Scoring, Loan Pricing and Farm Business Performance.” Western Journal of Agricultural Economics 14(1989):45–55.Google Scholar
Barry, P.J., and Robison, L.J. “Agricultural Finance: Credit, Credit Constraints, and Consequences.” Handbook of Agricultural Economics, Volume 1A, Gardner, B.L. and Rausser, G.C. eds. Amsterdam, London, and New York: Elsevier Science North-Holland, 2001.Google Scholar
Baskin, J. “An Empirical Investigation of the Pecking Order Hypothesis.” Financial Management 17(1989):26–35.Google Scholar
Brealey, R.A., Franklin., A., and Myers, S.C. Principles of Corporate Finance, 9th ed. New York: McGraw-Hill Irwin, 2008.Google Scholar
Diamond, D.W. “Reputation Acquisition in Debt Markets.” Journal of Political Economy 97(1989):828-62.Google Scholar
Ellinger, P.N., Bergschneider., P., Barry, P.J., and Raab, D. “Financial Characteristics of Illinois Farms 2001-2002.” Center for Farm and Rural Business Finance, Department of Agricultural and Consumer Economics 02-F-1, University of Illinois, 2002.Google Scholar
Fama, E.F., and French, K.R. “Testing Pecking Order Predictions about Dividends and Debt.” Review of Financial Studies 15(2002): 1–33.Google Scholar
Hart, O. Firms, Contracts, and Financial Structure. New York: Oxford University Press, 1995.Google Scholar
Hovakimian, A., Opler., T., and Titman, S. “The Debt-Equity Choice.” Journal of Financial and Quantitative Analysis 36(2001): 1–24.Google Scholar
Hubbard, G. “Capital Market Imperfections and Investment.” Journal of Economic Literature 36(1998): 193–225.Google Scholar
Jalilvand, A., and Harris, R.S. “Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study.” Journal of Finance 39(1984): 127-45.Google Scholar
Jensen, M., Solberg., D., and Zorn, T. “Simultaneous Determination of Insider Ownership, Debt and Dividend Policies.” Journal of Financial and Quantitative Analysis 27(1992):247-61.Google Scholar
Jensen, M.C., and Meckling, M.H. “Theory of the Firm, Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics 3(1976):305-60.Google Scholar
Levine, C.B., and Hughes, J.S. “Management Compensation and Earnings-Based Covenants as Signaling Devices in Credit Markets.” Journal of Corporate Finance 11(2005):832-50.Google Scholar
Miller, L.H., Ellinger., P., Barry., P., and Lajili, K. “Price and Nonprice Management of Agricultural Credit Risk.” Agricultural Finance Review 53(1993):28–41.Google Scholar
Myers, S.C. “The Capital Structure Puzzle.” Journal of Finance 39(1984):575-92.Google Scholar
Myers, S.C. “Financing of Corporations.” Handbook of the Economics of Finance, Volume 1A, Constantinides, G.M., Harris, M. and Stulz, R. eds. Amsterdam, London, and New York: Elsevier Science North-Holland, 2003.Google Scholar
Myers, S.C., and Majluf, N.S. “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have.” Journal of Financial Economics 13(1984): 187–222.Google Scholar
Ross, S.A. “The Determination of Financial Structure: The Incentive-Signaling Approach.” Bell Journal of Economics 8(1977): 23–40.Google Scholar
Shenoy, C., and Koch, P.D. “The Firm's Leverage-Cash Flow Relationship.” Journal of Empirical Finance 2(1996):307-31.Google Scholar
Shyam-Sunder, L., and Myers, S. “Testing Static Trade-off against Pecking Order Models of Capital Structure.” Journal of Financial Economics 51(1999):219-44.Google Scholar
Spence, M. “Job Market Signaling.” Quarterly Journal of Economics 87(1973):355-74.Google Scholar
Taggart, R.A. “A Model of Corporate Financing Decisions.” Journal of Finance 32(1977): 1467-84.Google Scholar
Vogt, S.C. “The Role of Internal Financial Sources in Firm Financing and Investment Decisions.” Review of Financial Economics 4(1994):1–24.Google Scholar
Voordeckers, W., and Steijvers, T. “Business Collateral and Personal Commitments in SME Lending.” Journal of Banking & Finance 30(2006):3067-86.Google Scholar