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Risk, Economic Value Added, and Capital Structure

Michael Boehlje and, Allan Gray (May, 2003)

Summary

Most farm businesses use substantially less debt and less leverage than comparably sized non farm and/or corporate businesses. Most farm term loans are structured with amortization schedules that result in a reduced indebtedness over time, whereas many non farm businesses maintain a relatively constant indebtedness during their lifetime. And farmers appear to be highly motivated to reduce their indebtedness and eventually be debt free, whereas non farm businesses appear less focused on this goal.