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Impacts of Financial Characteristics and the Boom-Bust Cycle on the Farm Inventory-Cash Flow Relationship

Published online by Cambridge University Press:  28 April 2015

Ralph Bierlen ,
Bruce L. Ahrendsen  and
Bruce L. Dixon
Ralph Bierlen
Affiliation:
Department of Agricultural Economics and Agribusiness at the University of Arkansas
Bruce L. Ahrendsen
Affiliation:
Department of Agricultural Economics and Agribusiness at the University of Arkansas
Bruce L. Dixon
Affiliation:
Department of Agricultural Economics and Agribusiness at the University of Arkansas
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Abstract

The sensitivity of farm inventory investment to movements in cash flow is tested. Inventories should be sensitive to shifts in cash flow because inventory investment is readily reversible and inventories are a significant portion of assets. Investment models estimated with Kansas farm panel data indicate that: (a) farms absorb internal finance shocks by adjusting inventories, (b) the inventory investment of livestock and high-debt farms are more sensitive to movements in cash flow than crop and low-debt farms, and (c) inventory investment is more sensitive to cash flow during the 1981-86 bust and the 1987-92 recovery than during the 1975-80 boom.

Keywords

cash flowcredit constraintsfarm cyclesfarm inventoriesinvestmentinvestment models
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 30 , Issue 2 , December 1998 , pp. 363 - 377
Copyright
Copyright © Southern Agricultural Economics Association 1998

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