A DYNAMIC MODEL OF CAPITAL STRUCTURE FOR THE NONCORPORATE FIRM

Larry Karp and Robert A. Collins

No 270420, 1988 Annual Meeting, August 1-3, Knoxville, Tennessee from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: A dynamic model of capital structure for the noncorporate farm is developed and analyzed. The model examines the effect on optimal capital structure of (1) bankruptcy risk, (2) the difference between the riskless rate and the expected return in agriculture, and (3) the difference between the off-farm wage and the implicit on-farm wage. If the difference between the wages is O, a constant leverage is optimal under reasonable circumstances. The model predicts that older farmers require more leverage to induce them to remain in farming and that they tend to reduce their leverage as retirement approaches. The model is tested with cross sectional data.

Keywords: Agricultural and Food Policy; Industrial Organization (search for similar items in EconPapers)
Pages: 14
Date: 1988-08-01
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Related works:
Working Paper: Dynamic Model of Capital Structure for the Noncorporate Firm (1989)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea88:270420

DOI: 10.22004/ag.econ.270420

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