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Credit Scoring, Loan Pricing, And Farm Business Performance

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  • Barry, Peter J.
  • Ellinger, Paul N.

Abstract

In light of recent developments in agricultural credit evaluations, this study employs a multiperiod simulation model that endogenizes farm investment decisions, credit evaluations, and loan pricing based on the credit scoring procedures of agricultural lender. Model results show that credit-scored pricing yields time patterns of performance, credits classifications, and interest rates that parallel the firm's investment, financing, and debt servicing activities. Moreover, the lender's price responses dampen growth incentives as credit worthiness diminished, stimulate growth as credit improves, and lead to similar capital structures over time.

Suggested Citation

  • Barry, Peter J. & Ellinger, Paul N., 1989. "Credit Scoring, Loan Pricing, And Farm Business Performance," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-11, July.
    • Handle: RePEc:ags:wjagec:32464
    DOI: 10.22004/ag.econ.32464
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    References listed on IDEAS

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    1. Schnitkey, Gary D. & Barry, Peter J. & Ellinger, Paul N., 1987. "A Microcomputer Analysis of Farm Financial Performance," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 19(2), pages 203-209, December.
    2. Hardy, William E. & Weed, Johno B., 1980. "Objective Evaluation for Agricultural Lending," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 12(1), pages 159-164, July.
    3. Hardy, William E., Jr. & Weed, Johno B., 1980. "Objective Evaluation For Agricultural Lending," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 12(1), pages 1-6, July.
    4. Fischer, Martin L. & Moore, Karen, 1986. "An Improved Credit Scoring Function for the St. Paul Bank for Cooperatives," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 1, pages 1-11.
    5. Fischer, Martin L. & Moore, Karen, 1986. "An Improved Credit Scoring Function For The St. Paul Bank For Cooperatives," 1986 Regional Committee NC-161, October 7-8, 1986, St. Paul, Minnesota 127224, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    6. S. T. Sonka & B. L. Dixon & B. L. Jones, 1980. "Impact of Farm Financial Structure on the Credit Reserve of the Farm Business," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 565-570.
    7. Peter J. Barry & C. B. Baker, 1971. "Reservation Prices on Credit Use: A Measure of Response to Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 53(2), pages 222-227.
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    Citations

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    Cited by:

    1. Bramma, Keith M., 2000. "Pricing farm loans for credit risk," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123607, Australian Agricultural and Resource Economics Society.
    2. Sanjay J. Bhayani & Butalal Ajmera, 2011. "A Study on Performance Evaluation of Dinesh Mills Ltd," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 2(6), pages 114-123, September.
    3. Chisasa, Joseph, 2015. "Sources of Growth in South African Agriculture - A Corporate Finance Perspective," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 2015(35).
    4. Chisasa, Joseph, 2015. "Sources Of Growth In South African Sources Of Growth In South African Agriculture – A Corporate Finance Perspective," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 38(4).
    5. Allen M. Featherstone & Christine A. Wilson & Terry L. Kastens & John D. Jones, 2007. "Factors affecting the agricultural loan decision‐making process," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 67(1), pages 13-33, May.
    6. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Working papers 122846, Factor Markets, Centre for European Policy Studies.
    7. Mário Santiago Céu & Raquel Medeiros Gaspar, 2022. "Vegetative cycle and bankruptcy predictors of agricultural firms," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(12), pages 445-454.
    8. Christine Wilson & Allan Featherston & Terry Kastens & John Jones, 2006. "Determining What's Really Important to Lenders: Factors Affecting the Agricultural Loan Decision-Making Process," Working Papers 06-07, Purdue University, College of Agriculture, Department of Agricultural Economics.
    9. Turvey, Calum G. & Ellinger, Paul N., 2002. "A Comparative Study of the Financial Performance of Grain and Oilseed Farms in Ontario and Illinois," 2002 Regional Committee NC-221, October 7-8, 2002, Denver, Colorado 132376, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    10. Zhao, Jianmei & Barry, Peter J. & Katchova, Ani L., 2008. "Signaling Credit Risk in Agriculture: Implications for Capital Structure Analysis," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(3), pages 1-16, December.

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    Keywords

    Agricultural Finance;

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