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Borrowing Behavior Of The Proprietary Firm: Do Some Risk-Averse Expected Utility Maximizers Plunge?

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  • Collins, Robert A.
  • Gbur, Edward E.

Abstract

When a proprietor's liability is limited, borrowing behavior for an expected utility maximizer may vary widely. Proprietors with little to lose may rationally choose very large debt levels while others may choose to finance with 100% equity. This article presents a theory to explain these widely observed variations in behavior.

Suggested Citation

  • Collins, Robert A. & Gbur, Edward E., 1991. "Borrowing Behavior Of The Proprietary Firm: Do Some Risk-Averse Expected Utility Maximizers Plunge?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 16(2), pages 1-8, December.
    • Handle: RePEc:ags:wjagec:32606
    DOI: 10.22004/ag.econ.32606
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    References listed on IDEAS

    as
    1. Ahrendsen, Bruce L. & Collender, Robert N., 1989. "Leverage Decisions In The Presence Of Bankruptcy Laws," Department of Economics and Business - Archive 259451, North Carolina State University, Department of Economics.
    2. Allen M. Featherstone & Charles B. Moss & Timothy G. Baker & Paul V. Preckel, 1988. "The Theoretical Effects of Farm Policies on Optimal Leverage and the Probability of Equity Losses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(3), pages 572-579.
    3. Robert A. Collins, 1985. "Expected Utility, Debt-Equity Structure, and Risk Balancing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(3), pages 627-629.
    4. Robison, Lindon J. & Barry, Peter J. & Burghardt, William G., 1987. "Borrowing Behavior Under Financial Stress By The Proprietary Firm: A Theoretical Analysis," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 12(2), pages 1-8, December.
    5. Stephen C. Gabriel & C. B. Baker, 1980. "Concepts of Business and Financial Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 560-564.
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    Cited by:

    1. Anton Miglo, 2020. "Zero-Debt Policy under Asymmetric Information, Flexibility and Free Cash Flow Considerations," JRFM, MDPI, vol. 13(12), pages 1-25, November.
    2. Robison, Lindon J., 1994. "Expanding The Set Of Expected Utility And Mean Standard Deviation Consistent Models," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271676, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    3. Imran Umer Chhapra & Muhammad Kashif, 2019. "Higher Co-Moments and Downside Beta in Asset Pricing," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(1), pages 129-155.

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