Financial stress and farm bankruptcies in US agriculture

Financial stress and farm bankruptcies in US agriculture PurposeThe purpose of this paper is to evaluate farm financial stress within the USA over the past 20 years and the agricultural and economic factors which have impacted farm businesses. The effect of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress is further evaluated. In particular, Chapter 12 bankruptcies – which can only be filed by farmers – were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law.Design/methodology/approachChapter 12 bankruptcy filings from 1997 until 2016 are used as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre- and post-BAPCPA regimes are utilized.FindingsThe results show that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. The findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies.Originality/valueThe authors provide an analysis of the post-BAPCPA regime on farm bankruptcies that has not been evaluated within the literature yet. Further, the findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Financial stress and farm bankruptcies in US agriculture

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0002-1466
DOI
10.1108/AFR-05-2017-0030
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to evaluate farm financial stress within the USA over the past 20 years and the agricultural and economic factors which have impacted farm businesses. The effect of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on farm financial stress is further evaluated. In particular, Chapter 12 bankruptcies – which can only be filed by farmers – were only a temporary measure until BAPCPA made Chapter 12 a permanent fixture in bankruptcy law.Design/methodology/approachChapter 12 bankruptcy filings from 1997 until 2016 are used as a proxy for farm financial stress. Panel fixed effects models are used to determine relevant factors affecting financial stress for farmers from agricultural and macroeconomic perspectives. Further, models incorporating pre- and post-BAPCPA regimes are utilized.FindingsThe results show that macroeconomic factors (interest and unemployment rates) are strong predictors of farm bankruptcies for farms while agricultural land values are the only consistent strong predictor among the agricultural factors. When evaluating the post-BAPCPA regime, only agricultural land values continue to be a significant predictor of farm bankruptcies. The findings also indicate a dynamic relationship with agricultural land values, where current year values are negatively related but previous year land values are positively related to bankruptcies.Originality/valueThe authors provide an analysis of the post-BAPCPA regime on farm bankruptcies that has not been evaluated within the literature yet. Further, the findings illuminate discussion on a potentially dynamic relationship with financial stress and agricultural land values.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: Aug 6, 2018

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