FUNDAMENTAL Q, CASH FLOW, AND INVESTMENT - EVIDENCE FROM FARM PANEL-DATA

This study used a 1976-1992 panel data set to test whether farm machin ery investors face finance constraints. Tests were based on fundamenta l q investment equations in which cash flow was added as an additional explanatory variable. Results indicated that (1) credit constraints w ere generally not a problem during the 1970s boom, (2) credit constrai nts became a problem during the 1980s and early 1990s because of tight er credit and/or more conservative financial managerial styles, (3) th e investment-cash flow relationships of low-debt and older-operator fa rms were not significantly affected by farm business cycles, and (4) t he investment-cash flow relationships of high-debt and young-operator farms were affected strongly by business cycles. Debt level was the st rongest determinant of credit constraints; asset size and operator age were less important.