The Costs and Returns of Agricultural Credit Delivery

Abstract

Borrower-level data from 963 agricultural lending relationships are used to examine how several factors influence the costs and returns of extending agricultural credit. The results provide estimates of the costs and returns of agricultural lending and the extent to which these costs and returns are influenced by factors such as loan volume, lender/borrower relationship factors, and contract terms. The findings indicate that economies of size exist in agricultural credit delivery and that lenders pass most of these benefits on to borrowers through lower interest rates. In addition, the impacts of lender/borrower relationship factors were relatively small. Copyright 2005, Oxford University Press.

The impact of board of director characteristics on Farm Credit Association performance

“…In addition, the coefficient on the NetLoans variable is statistically significant, though the coefficient for NetLoans 2 is not. Larger loan portfolios tend to enjoy greater efficiency in delivering loans which is consistent with previous research (Gloy et al, 2005). At the average loan portfolio size and compensation per member, a board size of 13 members minimizes the operating expenses-to-average assets ratio (Figure 1).…”

“…The extant literature on corporate boards indicates that board size, compensation and diversity among members have important implications for firm performance. Also, there is evidence that scale economies exist in agricultural lending (Gloy et al, 2005). The studies in for-profit firms have most typically used market-based values to measure performance in the relationship.…”

A profile of nontraditional agricultural real estate lender activity in the secondary market

“…With this information, we will create an ordinary least squares model to represent spreads, similar to the model employed by Gloy et al. (2004) used to measure interest margins.…”

Community Banks and Agricultural Sales in Rural States

“…Research examining the importance of relationships on agricultural lending has come up with mixed results. Gloy, Gunderson, and Ladue (2005) find that agricultural lenders charge higher interest rates on smaller loans due to higher perdollar servicing costs and offer lower interest rates to farmers when they have a greater familiarity of farmers' business plans and collateral. They further find that servicing and monitoring costs fall for lenders when they have longer-standing relationships with the borrower and when the proportion of total debt that they extended is greater.…”

“…Nonetheless, whether these effects are pronounced is not well understood. For example, Gloy, Gunderson, and Ladue (2005) find that while the costs to lenders fall when lenders have a longer relationship with a borrower and provide a greater share of a borrower's debt, the impact is modest.…”