Examining the financial performance of agricultural cooperatives in the USA

Krishna Prasad Pokharel · Madhav Regmi · Allen M. Featherstone · David Walter Archer

44 citations0/0 files storedAgricultural Finance Review

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Cooperative Studies and Economics Agricultural economics and policies Financial Distress and Bankruptcy Prediction

Abstract

Purpose The purpose of this paper is to identify financial stress and the causes of financial stress for agricultural cooperatives and provide management recommendations to stakeholders including cooperatives’ managers, boards of directors and lenders. Design/methodology/approach This research used the geometric mean of the real rate of return on equity to identify financially stressed agricultural cooperatives. The real rate of return on equity allows the allocation of total financial stress among the return on assets, leverage and interest rate issues. Findings This study found that financially non-stressed agricultural cooperatives had a higher rate of return on equity and rate of return on assets, but lower leverage ratios and interest rates than stressed agricultural cooperatives. Further, non-stressed cooperatives had higher total assets and sales compared to stressed cooperatives. This suggests that smaller cooperatives are more likely to face financial stress than larger cooperatives. The decomposition of the financial problem showed that a substantial percentage of financial stress was correlated with a low return on assets or profitability. A smaller percentage of financial stress was due to financing decisions. Originality/value This study provides value by measuring the impact of profitability, leverage and interest rate on the financial performance of agricultural cooperatives. Results showed that a substantial proportion of financial stress was associated with a low return on assets. This indicates that profitability is a problem for agricultural cooperatives. This study also examines profitability during a period of volatile returns in production agriculture.

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References

1982The Choice Between Equity and Debt: An Empirical Study 2013Financial performance of publicly‐traded agribusinesses 2005Testing for the Presence of Financial Constraints in US Agricultural Cooperatives: An Investment Behaviour Approach 2011Does Farm Size and Specialization Matter for Productive Efficiency? Results from Kansas 2007Determinants of Return on Equity in U.S. Local Farm Supply and Grain Marketing Cooperatives 2005Cooperative Performance and Board of Director Characteristics: A Quantitative Investigation 1985Incidence, Intensity, and Duration of Financial Stress among Farm Firms

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