Financial leverage and agency costs in agricultural cooperatives

Abstract

Purpose

The purpose of this paper is to examine the extent to which agency costs of leverage are present in farm supply and marketing cooperatives.

Design/methodology/approach

The authors calculate total factor productivity growth of a sample of agricultural cooperatives from 2005 to 2010 and use regression to determine the effect of leverage on productivity growth.

Findings

The findings indicate that there is a small but statistically significantly negative effect of leverage on productivity growth. This indicates that, at the margin, the costs of leverage outweigh the benefits.

Originality/value

This paper measures the magnitude of what is typically considered an important financial transaction cost. The authors find that the magnitude of this effect is small, indicating that government policy should address other financial issues.

Citation

Russell, L.A., Briggeman, B.C. and Featherstone, A.M. (2017), "Financial leverage and agency costs in agricultural cooperatives", Agricultural Finance Review, Vol. 77 No. 2, pp. 312-323. https://doi.org/10.1108/AFR-09-2016-0074