Returns to Debt and Equity in Farm Producer Organizations

Abstract

While the capital structure irrelevance proposition is the point of departure in corporate finance, it is unknown if debt‐or‐equity decisions matter to farm producer organizations. To inform decisions of capital acquisition, a panel study is conducted to estimate the relationships of different types of debt (current, long‐term) and equity (allocated, unallocated) to the financial performance of 707 farm producer organizations in the United States during the 2005–2011 period. Using 3,120 observations, the panel analysis indicates net sales in period t is increased by $1.97, $9.59, and $4.01 with an addition of $1 in current debt, allocated equity, or unallocated equity in period t‐1. Furthermore, the magnitude of the positive relationship of an additional dollar of allocated (unallocated) equity to net income is estimated at $0.32 ($0.14). We thus reject the notion managers and directors of farm producer organizations should decide to use debt or equity with a coin toss.

The commercial growth of farmer cooperatives in Romania: A double‐hurdle model analysis

“…Revenue is frequently used as an indicator of the financial performance of farmer cooperatives (e.g. Soboh et al., 2012; Benos et al., 2016; Grashuis, 2019; 2020; Barry and Rousselière, 2021; Sebhatu et al., 2021). Because we deal with financial time series data, we first normalize the revenue variable in order to account for the effect of inflation.…”

“…Revenue is often used as an indicator of the financial performance of cooperatives (e.g. Soboh et al., 2012; Benos et al., 2016; Grashuis, 2019; 2020; Barry and Rousseliere, 2021; Sebhatu et al., 2021). The truncated model, which is only estimated for the sub‐sample of cooperatives which cleared the first hurdle (i.e.…”

“…Although there are numerous descriptions of the underdeveloped state of farmer cooperatives in Romania (e.g. Florea et al, 2019;2020;Dumitru et al, 2022;Zlati et al, 2023), applied research endeavors to find explanations and possible opportunities for improvement have been lacking. Considering the above, our general objective is to examine the commercial growth of farmer cooperatives in Romania.…”

Characterization of farmer‐based cooperative societies in the upper west region of Ghana

“…Finance is the biggest challenge most of the cooperative societies are confronted with, as reported by 62.3% of FBCSs. As members are both suppliers and investors, equity is often considered to be an inherent constraint of cooperatives (Chaddad, Cook, & Heckelei, 2005;Grashuis, 2020). Most of the other challenges in Table 6 are linked directly to finance.…”

Financial structure and cooperative efficiency: A pecking‐order evidence from sugarcane farmers in Eswatini

“…For instance,Fischer and Qaim (2012) report an average of 23% and 27% increase in output price and (annual) income respectively for banana group members in Kenya.2 The other part of the literature (seeBoyd, Boland, Dhuyvetter, & Barton, 2007;Grashuis, 2018Grashuis, , 2019Pokharel, Regmi, Featherstone, & Archer, 2019), which is not the focus of the paper have examined the effect of financing choice on financial performance of agricultural cooperatives.3Carter (1989);Feder et al (1990);Whittaker and Morehart (1991);Lambert and Bayda (2005); Hailu, Jeffrey, and Goddard (2007);Zhengfei and Lansink (2006);Davidova and Lafruffe (2007);Maietta and Sena (2010);Mugera and Nyambane (2014);Martínez-Victoria, Sánchez-Val, and Arcas-Lario (2016);Russell, Briggeman, and Featherstone (2017).4 The limited evidence on the relationship between grants and efficiency is limited to individual farmers(Minviel & Latruffe, 2017;Latruffe, Bravo-Ureta, Carpentier, Desjeux, & Moreira, 2017;Minviel & Sipiläinen, 2018;Cillero, Thorne, Wallace, Breen, & Hennessy, 2018).…”