The impact of liquidity and solvency on cost efficiency

Levi Russell, Michael Langemeier and Brian Briggeman

Agricultural Finance Review, 2013, vol. 73, issue 3, 413-425

Abstract: Purpose - – This paper aims to develop and utilize a conceptual framework to examine the impact of liquidity and solvency on cost efficiency for a sample of Kansas farms. Design/methodology/approach - – A standard cost-efficiency model is modified to incorporate liquidity and solvency ratios. Tobit regressions are used to determine the impact of farm characteristics on improvements in efficiency. Findings - – Results confirm that liquidity and solvency measures have a significant impact on improving cost efficiency. Farms with larger expenditures on purchased inputs relative to capital were less likely to improve efficiency when liquidity and solvency were considered. Originality/value - – To the authors' knowledge, the paper is the first to add liquidity and solvency ratios to the cost-efficiency model developed by Färeet al.for the analysis of farms.

Keywords: Cost efficiency; Liquidity; DEA; Farm management; Solvency (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:v:73:y:2013:i:3:p:413-425

DOI: 10.1108/AFR-09-2012-0047

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