Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt

Steele C. West, Amin W. Mugera and Ross S. Kingwell

Australian Journal of Agricultural and Resource Economics, 2020, vol. 65, issue 02

Abstract: The viability and profitability of a farm business can be influenced by how it chooses to fund its operations and capital investments either using debt or internal funds. This study examines the determinants and speed of adjustment of the capital structure of broadacre farm businesses in Western Australia’s Wheatbelt. Results show that prior period cash flow and equity, farm size and farm location are significant determinants of observed capital structures. Farm businesses are found to quickly adjust their capital structure to desired target levels, suggesting that adjustment costs are not high. The findings support the view that there is a pecking order in the choice of how farm businesses fund working capital and capital investments.

Keywords: Agribusiness; Agricultural Finance (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aareaj:342953

DOI: 10.22004/ag.econ.342953

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