Centro de Investigaciones Económicas - CINVE

External Equity Financing of Agrifood Firms
    • Mario P. Mondelli
    • 11/2011

    Ph.D. Dissertation, University of Missouri, Columbia, MO, EUA.

    ABSTRACT: This dissertation investigates the determinants that influence a firm‘s decision to

    use external private equity in agriculture. Scholars have recognized the benefits of

    external equity finance for agricultural firms (i.e., capital derived from a source other

    than retained earnings and existing owners) and the use of external equity in agriculture

    has increased since 1990. This is important because this source of capital allows farms to

    exploit business opportunity, particularly for companies that pose risks that discourage

    debt capital, and because private equity has fostered entrepreneurial activity. However,

    the literature addressing this phenomenon is limited. The asset specificity approach

    (Williamson 1988) offers insightful contributions to understand the choice of financial

    mechanisms. This approach brings additional insights and complements agency—the

    dominant perspective in finance. The analysis focuses on the differential redeployability

    of the assets involved in the production of different agricultural product. I construct an

    international dataset of agricultural companies that receive external private equity finance

    to test hypotheses about the determinants of using external equity finance. Results show

    that the attributes of the assets involved in agriculture are important factors to explain

    financing choices in agriculture. This research contributes to the understanding of the role

    of asset specificity to explain financing decisions and to the identification of what types

    of asset specificity play an important role in agriculture.