Fundamental q, Cash Flow, and Investment: Evidence from Farm Panel Data

Ralph Bierlen and Allen Featherstone

The Review of Economics and Statistics, 1998, vol. 80, issue 3, 427-435

Abstract: This study used a 1976-1992 panel data set to test whether farm machinery investors face finance constraints. Tests were based on fundamental q investment equations in which cash flow was added as an additional explanatory variable. Results indicated that (1) credit constraints were generally not a problem during the 1970s boom, (2) credit constraints became a problem during the 1980s and early 1990s because of tighter credit and/or more conservative financial managerial styles, (3) the investment-cash flow relationships of low-debt and older-operator farms were not significantly affected by farm business cycles, and (4) the investment-cash flow relationships of high-debt and young-operator farms were affected strongly by business cycles. Debt level was the strongest determinant of credit constraints; asset size and operator age were less important. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 1998
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