Drivers of farm business capital structure and its speed of adjustment: evidence from Western Australia’s Wheatbelt

Research output: Contribution to journalArticlepeer-review

Abstract

The viability and profitability of a farm business can be influenced by how it chooses to fund its operations and capital investments either using debt or internal funds. This study examines the determinants and speed of adjustment of the capital structure of broadacre farm businesses in Western Australia’s Wheatbelt. Results show that prior period cash flow and equity, farm size and farm location are significant determinants of observed capital structures. Farm businesses are found to quickly adjust their capital structure to desired target levels, suggesting that adjustment costs are not high. The findings support the view that there is a pecking order in the choice of how farm businesses fund working capital and capital investments.

Original languageEnglish
Pages (from-to)391-412
Number of pages22
JournalAustralian Journal of Agricultural and Resource Economics
Volume65
Issue number2
DOIs
Publication statusPublished - Apr 2021

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