Dynamic target capital structure and speed of adjustment in farm business

Tamirat S. Aderajew*, Andres Trujillo-barrera, Joost M.E. Pennings

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

11 Citations (Scopus)


This paper quantifies the determinants and speed of adjustment to the target capital structure for a panel of 1,500 Dutch farms over the years 2001–2015. Using the System General Method of Moments (System-GMM) estimator, the results show that farm profitability, earnings volatility, asset tangibility and growth opportunity are important determinants of leverage. Leverage is highly persistent, i.e. the average adjustment speed is relatively low, with variations among farm types. This variation is mainly attributed to the difference in adjustment costs. Further, we show that the pecking order and signalling theories explain these leverage dynamics.
Original languageEnglish
Pages (from-to)637-661
JournalEuropean Review of Agricultural Economics
Issue number4
Publication statusPublished - 1 Sept 2019


  • farm business
  • speed of adjustment
  • System-GMM estimator
  • target capital structure


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