Determinants of loan demand in agriculture: empirical evidence from Germany
Abstract
Purpose
The purpose of this paper is to empirically investigate the influencing factors of loan demand in agriculture. With the structural changes that agriculture is undergoing and the accordingly higher financing requirements and volumes, the analysis of loan demand in agriculture is of particular interest.
Design/methodology/approach
Detailed actual loan data at farm level, which is provided by a major German development bank for the agricultural sector, is used for the analysis. The data set covers the period from 2010 to 2014 and consists of 68,430 observations. Due to the data structure, an ordinary least square regression is conducted with the loan amount as the dependent variable. Many explanatory variables are included, such as the interest rate, the intended use of the loan, grace periods, the gross value added (GVA) and the business climate index for agriculture.
Findings
Amongst others, the authors find that interest rate, GVA, grace periods and farmers’ business expectations have significant effects on the loan demand in agriculture. According to the results, the interest rate has a significant negative effect, whereas the granted grace periods, the GVA in agriculture and farmers’ business expectations have significant positive effects on the loan demand.
Originality/value
This paper investigates the determinants of loan demand in agriculture in a developed country by using unique and comprehensive data at loan and farm level. Amongst others, elasticities of loan demand in agriculture are determined.
Keywords
Acknowledgements
The authors are grateful to the Landwirtschaftliche Rentenbank. At this point, the authors would like to offer special thanks to Horst Reinhardt, Christian Bock, Klaus Hollenberg, and Florian Lißmann for their valuable support. Furthermore, the authors would like to thank the editor and two anonymous referees for helpful and constructive comments on an earlier version of this paper. The authors gratefully acknowlegde financial support of the German Science Foundation (DFG).
Citation
Fecke, W., Feil, J.-H. and Musshoff, O. (2016), "Determinants of loan demand in agriculture: empirical evidence from Germany", Agricultural Finance Review, Vol. 76 No. 4, pp. 462-476. https://doi.org/10.1108/AFR-05-2016-0042
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited