External Equity Financing of Agrifood Firms

Ph.D. Dissertation, University of Missouri, Columbia, MO, EUA.

ABSTRACT: This dissertation investigates the determinants that influence a firm‘s decision
to use external private equity in agriculture. Scholars have recognized the benefits of external
equity finance for agricultural firms (i.e., capital derived from a source other than retained
earnings and existing owners) and the use of external equity in agriculture has increased
since 1990. This is important because this source of capital allows farms to
exploit business opportunity, particularly for companies that pose risks that discourage
debt capital, and because private equity has fostered entrepreneurial activity. However,
the literature addressing this phenomenon is limited. The asset specificity approach
(Williamson 1988) offers insightful contributions to understand the choice of financial
mechanisms. This approach brings additional insights and complements agency—the
dominant perspective in finance. The analysis focuses on the differential redeployability
of the assets involved in the production of different agricultural product. I construct an
international dataset of agricultural companies that receive external private equity finance
to test hypotheses about the determinants of using external equity finance. Results show
that the attributes of the assets involved in agriculture are important factors to explain
financing choices in agriculture. This research contributes to the understanding of the role
of asset specificity to explain financing decisions and to the identification of what types
of asset specificity play an important role in agriculture.

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