Debt financing and efficiency in agricultural firms

There is unanimity in pointing to the development of the financial system as one of the main causes of the economic growth. However the effects of different types of financial sources at a microeconomic level are not so evident. Investigating these issues is an interesting via that can shed light on how to improve management. In this work the effects of large- and short-term debts on efficiency are tested on a set of agricultural firms. Accounting data of crop, livestock, mixed and service firms are used. First, the efficiencies of the farms are obtained by using nonparametric methods (input-oriented DEA). Then, in a second stage, censored regressions are ran with different kinds of explicative variables, including financial ratios. The results show a significant and positive relationship between short-term indebtedness and efficiency, which would be agree with some theories positing that firms with higher short-run obligations make additional efforts to satisfy their payments, and this leads to an improvement of efficiency. To consolidate this kind of financing by encouraging stable relationships between debtors and creditors can be a way of boosting efficiency.