Factors influencing the use of debt capital on farms
Factors influencing the use of debt capital on farms

Summary/Abstract: The goal of this article is to identify and evaluate factors affecting the use of debt capital by farms in Poland. We assume that the propensity to use external financing by the farmer depends on the size of the farm (as measured by the area of the farm, the number of people employed, and the value of its production), on the type of agricultural production (crop production, livestock and mixed), on the purpose of production activities (commodity farms producing to sell manufactured products on the market and others), and on the asymmetry of information (the age of the farm). The study was based on a linear econometric model in which the dependent variable is the share of debt capital in the financing structure of the farm. The estimation of the model parameters was based on the data from 933 farms in Poland (collected through direct interviews, covering the data for the year 2011). In order to select the variables, backward elimination method was used based on t-statistics. The analysis demonstrated that what has a statistically significant positive impact on the use of debt capital on farms in Poland is the farm size measured by its area, the value of agricultural production (the increase of farm production by 100,000 PLN increases the share of debt capital by 0.65 percentage point), as well as the orientation of agricultural production on livestock production (farms oriented on livestock production have a share of debt capital 6.04 p.p. higher than multidirectional households). What negatively affects the use of debt capital on farms was their age (doubling of the age of the farm means a reduction in the share of debt capital by 1.25 p.p.). The study shows that farms in Poland prefer to use equity. Those that do use debt capital tend to select sources offering interest rates on preferential terms. These include larger farms focused mostly on livestock production, which are still in the development phase.

• Details
• Contents