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The role of financing frictions in agricultural investment decisions: an analysis pre and post financial crisis

Conor O'Toole (), Carol Newman () and Thia C. Hennessy

No 114568, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: This paper uses a fundamental Q model of investment to consider the role played by financing frictions in agricultural investment decisions, controlling econometrically for censoring, heterogeneity and errors-in-variables. Our findings suggest that farmer's investment decisions are not driven by market fundamentals. We find some evidence that debt overhang restricts investment but investment is not dependent on liquidity or internal funds. The role of financing frictions in determining investment decisions changes in the post-financial crisis period when debt overhang becomes a significant impediment to farm investment. The evidence suggests that farmers increasingly rely on internal liquidity to drive investment. Finally, we find no evidence that farmers use on-farm capital to fund on-farm investment.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Pages: 17
Date: 2011-09-02
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:114568

DOI: 10.22004/ag.econ.114568

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