In the section | Articles |
Title of the article | Bank Loan, Financial Leverage and Farm Productivity: Evidence from the Russian Far East |
Pages | 67-97 |
Author | Olga Gennadievna Vasilyeva Candidate of Science (Economics), Senior Researcher Economic Research Institute FEB RAS 153 Tikhookeanskaya St., Khabarovsk, 680042, Russian Federation This email address is being protected from spambots. You need JavaScript enabled to view it. ORCID: 0000-0002-3053-106X |
Abstract | Does capital structure matter for farms productivity? Do bank loans increase or decrease farms efficiency? To address this question, I use farm-level data for 2014–2020 from Amur region, which is one of the most typical Russian regions in terms of agricultural development. I find some evidence of a negative correlation between financial leverage and total factor productivity in Amur Oblast farms. I also observe a negative correlation between financial leverage and partial productivity measures such as labor productivity, crop yield, and return on fixed assets. The negative relationship between enterprise productivity and the share of loans in liabilities can be explained, on the one hand, by the fact that bank loans are more often used by struggling, inefficient agricultural enterprises, i. e. adverse selection may take place. On the other hand, the negative relationship between firm productivity and bank credit may be due to the non-market nature of the credit they receive, with the government subsidizing the interest rate and/or guaranteeing the loan obligations. As a result, farms face soft budget constraints that reduce the incentives of owners and management to improve farm efficiency. The two proposed explanations (adverse selection and soft budget constraints) are not mutually exclusive, but rather complementary |
Code | 330.36+332.14 |
JEL | R12, O13, Q14 |
DOI | https://dx.doi.org/10.14530/se.2024.3.067-097 |
Keywords | financial leverage, farm, productivity, Russian agriculture |
Download | |
For citation | Vasilyeva O.G. Bank Loan, Financial Leverage and Farm Productivity: Evidence from the Russian Far East. Prostranstvennaya Ekonomika = Spatial Economics, 2024, vol. 20, no. 3, pp. 67–97. https://dx.doi.org/10.14530/se.2024.3.067-097 (In Russian) |
References | 1. Aghion P., Bergeaud A., Cette G., Lecat R., Maghin H. Coase Lecture – The Inverted-U Relationship between Credit Access and Productivity Growth. Economica, 2019, vol. 86, issue 341, pp. 1–31. 2. Aghion P., Fally T., Scarpetta S. Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms. Economic Policy, 2007, vol. 22, issue 52, pp. 732–779. 3. Avarmaa M., Hazak A., Mannasoo K. Does Leverage Affect Labour Productivity? A Comparative Study of Local and Multinational Companies of the Baltic Countries. Journal of Business Economics and Management, 2013, vol. 14, issue 2, pp. 252–275. 4. Bezlepkina I., Lansink A.O., Huirne R. Effects of Debt on Moscow-Region Dairy Farm Performance, 1996–2000, 2004, 23 p. Available at: 5. Coricelli F., Driffield N., Pal S., Roland I. When Does Leverage Hurt Productivity Growth? A Firm-Level Analysis. Journal of International Money and Finance, 2012, vol. 31, issue 6, pp. 1674–1694. 6. Dao B.T.T., Ta T.D.N. A Meta-Analysis: Capital Structure and Firm Performance. Journal of Economics and Development, 2020, vol. 22, issue 1, pp. 111–129. 7. Frank M.Z., Goyal V.K. Trade-off and Pecking Order Theories of Debt. Handbook of Empirical Corporate Finance, 2008, vol. 2, pp. 135–202. 8. Gadanakis Y., Stefani G., Lombardi G.V., Tiberti M. The Impact of Financial Leverage on Farm Technical Efficiency during Periods of Price Instability. Agricultural Finance Review, 2020, vol. 80, no. 1, pp. 1–21. 9. Gatti R., Love I. Does Access to Credit Improve Productivity? Evidence from Bulgaria. Economics of Transition, 2008, vol. 16, issue 3, pp. 445–465. 10. Harvey C.R., Lins K.V., Roper A.H. The Effect of Capital Structure When Expected Agency Costs Are Extreme. Journal of Financial Economics, 2004, vol. 74, issue 1, pp. 3–30. 11. Ilyukhin E. The Impact of Financial Leverage on Firm Performance: Evidence from Russia. Journal of Сorporate Finance Research, 2015, no. 2, pp. 24–36. 12. Impullitti G. Credit Constraints, Selection and Productivity Growth. Economic Modelling, 2022, vol. 111. 105797. 13. Jensen M.C. Agency Costs of Free Cash Flow, Corporate Finance and Takeovers. American Economic Review, 1986, vol. 76, no. 2, pp. 223–238. 14. Jensen M.C., Meckling W.H. Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure. Journal of Financial Economics, 1976, no. 3, pp. 305–360. 15. Koke J., Renneboog L. Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market-Oriented and Blockholder-Based Governance Regimes. The Journal of Law and Economics, 2005, vol. 48, no. 2, pp. 475–516. 16. Kornai J., Maskin E., Roland G. Understanding the Soft Budget Constraint. Journal of Economic Literature, 2003, vol. 41, no. 4, pp. 1095–1136. 17. Kumar R. Determinants of Firm’s Financial Leverage: A Critical Review. SSRN, 2008, 47 p. http://dx.doi.org/10.2139/ssrn.1080883 18. Lambert D.K., Bayda V.V. The Impacts of Farm Financial Structure on ProductionEfficiency. Journal of Agricultural and Applied Economics, 2005, vol. 37, issue 1, pp. 277–289. 19. Levine R., Loayza N., Beck T. Financial Intermediation and Growth: Causality and Causes. Journal of Monetary Economics, 2000, vol. 46, issue 1, pp. 31–77. 20. Markopoulou M.K., Papadopoulos D.L. Capital Structure Signaling Theory: Evidence from the Greek Stock Exchange. Portuguese Journal of Management Studies, 2009, vol. 14, no. 3, pp. 217–238. 21. Mugera A.W., Nyambane G.G. Impact of Debt Structure on Production Efficiency and Financial Performance of Broadacre Farms in Western Australia. Australian Journal of Agricultural and Resource Economics, 2015, vol. 59, issue 2, pp. 208–224. 22. Mukherjee S. Financial Leverage and Total Factor Productivity Growth: Firm-Level Evidence from India. SSRN, 2019. http://dx.doi.org/10.2139/ssrn.3238016 23. Mundakkad P. Firms’ Leverage and Labour Productivity: A Quantile Regression Approach. Economics Bulletin, 2018, vol. 38, no. 4, pp. 2331–2344. 24. Nasr R.E., Barry P.J., Ellinger P. Financial Structure and Efficiency of Grain Farms. Agricultural Finance Review, 1998, vol. 58, pp. 33–48. 25. Nucci F., Pozzolo A., Schivardi F. Is Firm’s Productivity Related to Its Financial Structure? Evidence from Microeconomic Data. Rivista Di Politica Economica, 2005, vol. 95, no. 1, pp. 269–290. 26. Reyes A., Lensink R., Kuyvenhoven A., Moll H. Impact of Access to Credit on Farm Productivity of Fruit and Vegetable Growers in Chile. International Association of Agricultural Economists, 2012, 31 p. 27. Rodriguez-Pose A., Ganau R., Maslauskaite K., Brezzi M. Credit Constraints, Labor Productivity, and the Role of Regional Institutions: Evidence from Manufacturing Firms in Europe. Journal of Regional Science, 2021, vol. 61, issue 2, pp. 299–328. 28. Schmitt G. Why Is the Agriculture of Advanced Western Economies Still Organized by Family Farms? Will This Continue to be so in the Future? European Review of Agricultural Economics, 1991, vol. 18, issue 3–4, pp. 443–458. 29. Seven U., Tumen S. Agricultural Credits and Agricultural Productivity: Cross-Country Evidence. The Singapore Economic Review, 2020, vol. 65, no. 1, pp. 161–183. 30. Shamsi N.I., Farjana T. Impact of Financial Leverage on Firm Performance: A Panel Data Study. Global Review of Accounting and Finance, 2017, vol. 8, no. 2, pp. 62–82. 31. Spitsin V., Vukovic D., Anokhin S., Spitsina L. Company Performance and Optimal Capital Structure: Evidence of Transition Economy (Russia). Journal of Economic Studies, 2021, vol. 48, no. 2, pp. 313–332. 32. Uzun V.Ya., Shagaida N.I. The Mechanisms and the Results of the Agrarian Reform in Post-Soviet Russia. SSRN, 2015, 99 p. Available at: 33. Vasilyeva O.G., Bilko A.M. Do Subsidies Drive Productivity? Farm-Level Evidence from the Russian Far East. Voprosy Ekonomiki [Economic Issues], 2022, vol. 2, pp. 120–146. 34. Vasilyeva O.G., Bilko A.M. Evaluation of the Scale Effect in Agriculture of the Amur Region. Prostranstvennaya Ekonomika = Spatial Economics, 2016, no. 2, pp. 104–122. 35. Zhengfei G., Lansink A.O. The Sources of Productivity Growth in Dutch Agriculture: A Perspective from Finance. American Journal of Agricultural Economics, 2006, vol. 88, issue 3, pp. 644–656. 36. Zhuang J., Gunatilake H.M., Niimi Y., Khan M.E., Jiang Y., Hasan R., Khor N., Martin A.L., Bracey P., Huang B. Financial Sector Development, Economic Growth, and Poverty Reduction: A Literature Review. Asian Development Bank Economics. Working Paper Series, 2009, no. 173, 46 p. http://dx.doi.org/10.2139/ssrn.1617022 |
Financing | |
Submitted | 16.09.2024 |
Approved after reviewing | 19.09.2024 |
Accepted for publication | 20.09.2024 |
Available online | 04.10.2024 |