Financing strategies under combined capital structure theories: A farm-level simulation analysis

Jianmei Zhao, Peter J. Barry, Gary D. Schnitkey

Research output: Contribution to journalReview articlepeer-review


A stochastic, multi-period simulation mode] is developed based on the prevalent capital structure theories, in searching for and identifying an optimal combination of related financing strategies. The model reflects both conceptual and empirical implications of the pecking order, trade-off, and signaling theories on farm business financing, investment, and expansion process. The comparisons of simulation output indicate that farm businesses could expand at a moderate speed accompanied by financial health when they concurrently adopt these financing tactics. Pecking order financing benefits short-term financial management, trade-off strategy effectively adjusts farm capital structure, and the signaling theory enables the adoption of risk adjusted interest rate policies between the farm borrower and the lender.

Original languageEnglish (US)
Pages (from-to)321-338
Number of pages18
JournalAgricultural Finance Review
Issue number2
StatePublished - Nov 1 2008


  • Pecking order
  • Signaling theory
  • Simulation
  • Trade-off

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics, Econometrics and Finance (miscellaneous)


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