Farm Values and Financial Performance of Diversified Farms

Ani Katchova

No 132372, 2002 Regional Committee NC-221, October 7-8, 2002, Denver, Colorado from Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition

Abstract: Theoretical arguments suggest that diversification has both value-enhancing and value-reducing effects. Several finance studies have found that the average diversified firm is worth less than a portfolio of comparable single-segment firms. In agriculture, farms have different characteristics and diversification incentives than publicly-traded firms. This study examines the farm diversification discount using data from Illinois and the methodology developed by Burger and Ofek. The results show that, on average, a diversified crop/livestock farm has a lower value and lower return on equity than a portfolio of a specialized crop and livestock farm. The regression results examine the impact of various farm and operator characteristics on the level of diversification discount.

Keywords: Agricultural Finance; Land Economics/Use (search for similar items in EconPapers)
Pages: 9
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nc2002:132372

DOI: 10.22004/ag.econ.132372

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