Asymmetric information, capital structure and agricultural investment
Carl J. Lagerkvist and Kent D. Olson*
Keywords: Asymmetric information, Agency cost, Agricultural Finance, Investment.
JEL Classification: D29, D82, E22, Q12, Q14.
Paper presented at the annual meeting of the American Agricultural Economics Association in Chicago,
August 5-8 2001.
* Lagerkvist is a Research associate in the Department of Economics, the Swedish University of Agricultural Sciences,
P.O. Box 7013, SE-750 07 Sweden, e-mail: email@example.com. Olson is a Professor in the Department of
Applied Economics, University of Minnesota. We appreciate comments from Hans Andersson and Monica Campos. The
authors initialized this paper while Lagerkvist visited the Department of Applied Economics at the University of
Minnesota. He gratefully acknowledges the hospitality shown.
Copywright 2001 by Carl Johan Lagerkvist and Kent Olson. All rigths reserved. Readers may take verbatim copies for
non-commercial purposes by all means, provided that this copywright notice appears on all such copies.
Capital structure has proved to be a perennial puzzle in finance. If capital market imperfections
through informational asymmetries and agency problems are present in the lender - borrower
relationship the financial and investment decisions of the farmer are simultaneous and financial
decisions affect the growth and investment opportunities potentially imposing a trade- off between
production efficiency and financial structure. Supportive, although scant, evidence exists for the
presence of capital market imperfection as well as the coherent impact on agricultural investment in
the U.S. (Hubbard & Kashyap; Ahrendsen, Collender & Dixon; Bierlen & Featherstone) as well as
abroad (Phimister). Recent results by Nasr, Barry and Ellinger provide evidence of a lack of
separation between financing and production using agency