Mondelli, M and P. Klein
Managerial and Decision Economics, forthcoming
Unlike most other mature industries, the agricultural production sector is domi-nated by family firms, partnerships, and cooperatives, with few corporations and limited access to capital derived from a source other than retained earnings and existing owners. However, use of external equity capital in agriculture has in-creased dramatically since 1990. This funding source allows farms to exploit en-trepreneurial opportunities not easily financed by debt. Following Williamson (1988), we view debt and equity as alternative governance structures and argue that transaction cost economics offers insights on firms’ financial structure be-yond those provided by agency theory. We relate capital structure to asset speci-ficity, a particularly important attribute in agricultural production. We construct an international dataset of agricultural companies receiving external private equity and show that the attributes of the assets involved in production are important determinants of financial structure.