Dynamic target capital structure and speed of adjustment in farm business

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

doi:10.1093/erae/jby035

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 journal › Article › Academic › peer-review

18 Citations (Scopus)

Abstract

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 language	English
Pages (from-to)	637-661
Journal	European Review of Agricultural Economics
Volume	46
Issue number	4
DOIs	https://doi.org/10.1093/erae/jby035
Publication status	Published - 1 Sept 2019

Keywords

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

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10.1093/erae/jby035

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title = "Dynamic target capital structure and speed of adjustment in farm business",

abstract = "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.",

keywords = "farm business, speed of adjustment, System-GMM estimator, target capital structure",

author = "Aderajew, {Tamirat S.} and Andres Trujillo-barrera and Pennings, {Joost M.E.}",

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AU - Aderajew, Tamirat S.

AU - Trujillo-barrera, Andres

AU - Pennings, Joost M.E.

PY - 2019/9/1

Y1 - 2019/9/1

N2 - 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.

AB - 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.

KW - farm business

KW - speed of adjustment

KW - System-GMM estimator

KW - target capital structure

U2 - 10.1093/erae/jby035

DO - 10.1093/erae/jby035

M3 - Article

SN - 0165-1587

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SP - 637

EP - 661

JO - European Review of Agricultural Economics

JF - European Review of Agricultural Economics

IS - 4

ER -

Dynamic target capital structure and speed of adjustment in farm business

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Keywords

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