Does the Linkage between Agricultural Business Insurance and Use of Debt Exist? Empirical Evidence from Polish Farm Businesses
Does the Linkage between Agricultural Business Insurance and Use of Debt Exist? Empirical Evidence from Polish Farm Businesses

Author(s): Michał Soliwoda, Agnieszka Kurdyś-Kujawska
Subject(s): Business Economy / Management, Agriculture, Transformation Period (1990 - 2010), Present Times (2010 - today)
Published by: Masarykova univerzita nakladatelství
Keywords: agricultural insurance; credit; farm households;
Summary/Abstract: The objective of this paper is to investigate into the linkage between participation in agricultural business (crop/livestock) insurance programs and debt ratios (mainly debt-to-assets and debt-to-equity ratio). Our methodological approach was based on previous empirical studies on the role of determinants of purchase of agricultural insurance. We used a farm-level data from Farm Accountancy Data Network (FADN) for 2009-2015 (after significant changes in Polish law on agricultural insurance). We performed a Mann-Whitney U test between insured and non-insured farm businesses. Additionally, we used chi-squared test for data in contingency tables in order to indicate dependencies between agricultural insurance participation and use of liabilities, long-term and short-term credits and loans. Our findings were mostly consistent with previous studies. Farm business that use crop/livestock insurance (about 20% in FADN sample) were characterized by higher debt ratios (Debt-to-Assets, Debt-to-Equity) and the share of long-term liabilities in total liabilities. Our findings may be useful insurers and financial institution that offer various credits for rural inhabitants. The use of crop/livestock insurance is important variable from the perspective of credit scoring. Further research will refer to dynamic processes, including credit risk migration of farmers and credit signaling in agriculture. Particular attention should be paid in two types of farms: “field crops” and “mixed” that are sensitive to risk related to crop production.

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