Abstract
In transition countries, farm businesses can suffer financial distress due to the restructuring of the agricultural sector and irregularities in capital and credit markets. By applying econometric techniques, the authors examine the influence of earnings, capital and financial business structures on the profitability of farm companies, and assess their capital structure strategy to increase profitability. The results show that farm companies rely more on debt than equity to operate. Financial risk is considered in long-term decisions, while in the short term pricing flexibility is a limitation. Farm companies without liquidity constraints follow the ‘pecking-order’ pattern, preferring assets rather than debt to profit, while liquidity-constrained companies are more consistent with ‘trade-off’ theory. The authors define a typical farm that exhibits increasing opportunities for profit under transition circumstances.
Keywords
Get full access to this article
View all access options for this article.
