Am. Featherstone et Aa. Alkheraiji, DEBT AND INPUT MISALLOCATION OF AGRICULTURAL SUPPLY AND MARKETING COOPERATIVES, Applied economics, 27(9), 1995, pp. 871-878
Kim and Maksimovic provide an empirical model to examine the effect of
debt on a firm. Their model is adapted to examine agricultural supply
and marketing cooperatives. Using a short-run variable cost function,
we find firm efficiency decreases as debt increases. A US$1 increase
in indebtedness increases total short-run variable costs by US$0.0167
or roughly 1.67%. Debt tends to shift input usage away from labour inp
uts. A test developed by Conrad and Unger is applied to determine whet
her the agricultural supply and marketing cooperatives are at long-run
equilibrium capacity. It is found that most of the cooperatives were
overinvested in capacity. However, debt does not explain this overinve
stment. Finally, the effect of debt on total productivity over the stu
dy period is examined. It is found that debt has had a small positive
impact on total factor productivity growth. Scale economies and non-op
timal capacity had large impacts on total factor productivity. Althoug
h debt is associated with short-run misallocation of resources, we fin
d little evidence that debt is associated with long-run suboptimal cap
acity.