Optimal Debt and Risk Balancing Behavior of Rural Households in China: Evidence from a Discrete Choice Experiment

Yanling Peng, Li Zhou, Qinwen Wang, Rong Kong, Hong Fu, Yuehua Zhang and Calum Turvey

Emerging Markets Finance and Trade, 2023, vol. 59, issue 2, 436-450

Abstract: Using an in-the-field discrete choice experiment on 336 farmers from rural China, this study aims to determine whether farmers optimize debt according to the optimal capital structure models and assess whether there is evidence of risk balancing behavior among Chinese farmers when they make financing decisions under risk constraints. Results suggest that farmers will increase leverage with greater profits, reduced interest rates, reduced business risk, lower risk aversion, and increasing prudence; they will reduce credit demand with increased collateral requirements, shorter repayment terms, and reduced loan usage flexibility. We also found significant heterogeneity among farmers and substantial differences across areas.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:2:p:436-450

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DOI: 10.1080/1540496X.2022.2104635

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