Signaling Credit Risk in Agriculture: Implications for Capital Structure Analysis

Signaling is an important element in the lender-borrower relationship that influences the cost and availability of debt capital to agricultural borrowers. This paper analyzes the effects of signaling on farm capital structure in conjunction with the pecking order and trade-off theories. The aggregate estimation indicates that signaling does affect agricultural credit relationships through measures of past cash flow and profitability. High-quality borrowers achieve greater credit capacity by providing lenders with valid signals of their financial status, while adjusting toward target debt levels over time and following the pecking order relationship in the short run.


Issue Date:
2008-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/47260
Published in:
Journal of Agricultural and Applied Economics, Volume 40, Number 3
Page range:
805-820
Total Pages:
16
JEL Codes:
G11; G32; Q14




 Record created 2017-04-01, last modified 2017-08-25

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