The effects of capital constraints on the growth of agricultural cooperatives

https://doi.org/10.17221/151/2019-AGRICECONCitation:Yen M., Miranda M., Katchova A. (2020): The effects of capital constraints on the growth of agricultural cooperatives. Agric. Econ. – Czech, 66: 27-33.
download PDF

In this paper, we examine how capital constraints affect the growth of US agricultural cooperatives. Employing a panel data set obtained from CoBank on 669 US agricultural cooperatives over 5 years, we employ system-generalised method of moments to estimate models of cooperative growth that incorporate long-term debt, allocated reserves, and retained earnings as continuous measures of capital constraints. We find that long-term debt use and size have positive impacts on cooperative growth, in violation of Gibrat’s law, which posits that firm size and firm growth are independent. In particular, cash flow, unallocated equity and long-term debt financing are critical contributors to asset growth for small and medium-sized cooperatives.

References:
Barton D., Boland M., Chaddad F., Eversull E. (2011): Current challenges in financing agricultural cooperatives. Choices, 26.
 
Chaddad F., Cook M., Heckelei T. (2005): Testing for the presence of financial constraints in US agricultural cooperatives: An investment behavior approach. Journal of Agricultural Economics, 56: 385–397. https://doi.org/10.1111/j.1477-9552.2005.00027.x
 
Chang Y., Chou R.K., Huang T. (2014): Corporate governance and the dynamics of capital structure: New evidence. Journal of Banking & Finance, 48: 374–385.
 
CoBank (2015): Member Cooperative Financial Data, 2011–2015. [Unpublished proprietary dataset]. CoBank, Greenwood Village, CO, USA.
 
Fagiolo G., Luzzi A. (2006): Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry. Industrial and Corporate Change, 15: 1–39. https://doi.org/10.1093/icc/dtj001
 
Faulkender M., Petersen M. (2012): Investment and capital constraints: Repatriations under the American Jobs Creation Act. The Review of Financial Studies, 25: 3351–3388. https://doi.org/10.1093/rfs/hhs092
 
Fulton M.E., Fulton J.R., Clark J.S., Parliament C. (1995): Cooperative growth: Is it constrained? Agribusiness, 11: 245–261. https://doi.org/10.1002/1520-6297(199505/06)11:3<245::AID-AGR2720110306>3.0.CO;2-J
 
Lerman Z., Parliament C. (1990): Comparative performance of cooperatives and investor-owned firms in US food industries. Agribusiness, 6: 527–540.  https://doi.org/10.1002/1520-6297(199011)6:6<527::AID-AGR2720060602>3.0.CO;2-R
 
Lerman Z., Parliament C. (1993): Financing growth in agricultural cooperatives. Review of Agricultural Economics, 15: 431–441. https://doi.org/10.2307/1349479
 
Li Z., Jacobs K.L., Georgeanne M.A. (2015): The cooperative capital constraint revisited. Agricultural Finance Review, 75: 253–266. https://doi.org/10.1108/AFR-11-2014-0034
 
Oliveira B., Fortunato A. (2006): Firm growth and liquidity constraints: A dynamic analysis. Small Business Economics, 27: 139–156. https://doi.org/10.1007/s11187-006-0006-y
 
U.S. Department of Agriculture (2014): Agricultural Cooperative Statistics 2012–2014. [Dataset]. U.S. Department of Agriculture, Washington, D.C.
 
Wang Y. (2016): The optimal capital structure in agricultural cooperatives under the revolving fund cycles. Agricultural Economics – Czech, 62: 45–50. https://doi.org/10.17221/204/2015-AGRICECON
 
Barton D., Boland M., Chaddad F., Eversull E. (2011): Current challenges in financing agricultural cooperatives. Choices, 26.
 
Chaddad F., Cook M., Heckelei T. (2005): Testing for the presence of financial constraints in US agricultural cooperatives: An investment behavior approach. Journal of Agricultural Economics, 56: 385–397. https://doi.org/10.1111/j.1477-9552.2005.00027.x
 
Chang Y., Chou R.K., Huang T. (2014): Corporate governance and the dynamics of capital structure: New evidence. Journal of Banking & Finance, 48: 374–385.
 
CoBank (2015): Member Cooperative Financial Data, 2011–2015. [Unpublished proprietary dataset]. CoBank, Greenwood Village, CO, USA.
 
Fagiolo G., Luzzi A. (2006): Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry. Industrial and Corporate Change, 15: 1–39. https://doi.org/10.1093/icc/dtj001
 
Faulkender M., Petersen M. (2012): Investment and capital constraints: Repatriations under the American Jobs Creation Act. The Review of Financial Studies, 25: 3351–3388. https://doi.org/10.1093/rfs/hhs092
 
Fulton M.E., Fulton J.R., Clark J.S., Parliament C. (1995): Cooperative growth: Is it constrained? Agribusiness, 11: 245–261. https://doi.org/10.1002/1520-6297(199505/06)11:3<245::AID-AGR2720110306>3.0.CO;2-J
 
Lerman Z., Parliament C. (1990): Comparative performance of cooperatives and investor-owned firms in US food industries. Agribusiness, 6: 527–540.  https://doi.org/10.1002/1520-6297(199011)6:6<527::AID-AGR2720060602>3.0.CO;2-R
 
Lerman Z., Parliament C. (1993): Financing growth in agricultural cooperatives. Review of Agricultural Economics, 15: 431–441. https://doi.org/10.2307/1349479
 
Li Z., Jacobs K.L., Georgeanne M.A. (2015): The cooperative capital constraint revisited. Agricultural Finance Review, 75: 253–266. https://doi.org/10.1108/AFR-11-2014-0034
 
Oliveira B., Fortunato A. (2006): Firm growth and liquidity constraints: A dynamic analysis. Small Business Economics, 27: 139–156. https://doi.org/10.1007/s11187-006-0006-y
 
U.S. Department of Agriculture (2014): Agricultural Cooperative Statistics 2012–2014. [Dataset]. U.S. Department of Agriculture, Washington, D.C.
 
Wang Y. (2016): The optimal capital structure in agricultural cooperatives under the revolving fund cycles. Agricultural Economics – Czech, 62: 45–50. https://doi.org/10.17221/204/2015-AGRICECON
 
download PDF

© 2020 Czech Academy of Agricultural Sciences