Sources of Growth in South African Agriculture - A Corporate Finance Perspective
The capital structure theory has been applied extensively in corporate fi rms with mixed results. This article examines the role of capital structure on the performance of firms in South Africa's agricultural sector following the pecking order theory. Survey data was collected from smallholder farmers in Mpumalanga and North West provinces during 2013. A total of 500 respondents were included in the survey using the multistage sampling technique of which 362 responses were received. Using the structural equation modeling approach, the study observes a positive and signifi cant relationship between capital structure and the performance of smallholder farmers. Both short-term and long-term debt contributes to improved productivity through the purchase of working capital requirements and the acquisition of capital equipment. Furthermore, the study reveals that land size has a positive influence on agricultural output. These empirical results suggest that channelling debt capital to farmers will improve their productivity. All models fit indices applied confirm the model was a good fit to the data.
Agriculture; Capital structure
Ana, S., Dragan, G., Monica, C. (2012). Capital structure and financial performance of agricultural companies - evidences from the Macedonian agricultural sector transition (p. 1-20). Paper presented the 132nd seminar of the European Association of Agricultural Economists (EAAE).
Baiphethi, M. N., Jacobs, P. T. (2009). The contribution of subsistence farming to food security in South Africa. Agrekon, 48(4), 459-482.
Barry, P. J., Ellinger, P. N. (1988). Credit scoring, loan pricing, and farm business performance. West. J. Agric. Econ., 14(1), 45-55.
Bernard, O. A. (2009). An empirical analysis of credit supply and agricultural output in Nigeria. Retrieved July 10th 2012 from: http://www.scribd.com/doc/23834331/ Credit-SS-Agric-Output.
Bratka, V., Praulins, A. (2009). Efficiency of borrowed capital in Lativian agricultural holdings. Econ. Manag., 14, 138-144.
Byiers, B., Rand, J., Tarp, F., Bentzen, J. (2010). Credit demand in Mozambican manufacturing. J. Int. Dev., 22(1), 37-55.
Chisasa, J., Makina, D. (2013). Bank credit and agricultural output in South Africa: A Cobb-Douglas empirical analysis. Int. Bus. Econ. Res. J., 12(4), 387-398.
Chisasa, J., Makina, D. (2012). Trends in credit to smallholder farmers in South Africa. Int. Bus. Econ. Res. J., 11(7), 771-783.
Coetzee, G., Meyser, F., Adam, H. (2002). The financial position of South African agriculture. Department of Agricultural Economics, Extension and Rural Development. Working paper. Pretoria: University of Pretoria.
DBSA (Development Bank of Southern Africa) (2011). Annual Report. Retireved March 3rd 2014 from: http://www.dbsa.org.
Ebrati, M. R., Emadi, F., Balasang, R. S., Safari, G. (2013). The impact of capital structure on firm performance: Evidence from Tehran Stock Exchange. Aust. J. Basic Appl. Sci., 7(4), 1-8.
Enoma, A. (2010). Agricultural credit and economic growth in Nigeria: An empirical analysis. Bus. Econ. J., 14, 1-7.
Fatoki, O., Odeyemi, A. (2010). Which new small and medium size enterprises in South Africa have access to bank credit? Int. J. Bus. Manag., 5(10), 128-136.
Garson, D. (2012). Regression analysis, from Statnotes: Topics in multivariate analysis GD Garson. Retrieved June 17th 2013 from: faculty.chass.ncsu.edu/garson/
Hazell, P. B. R., Hojatti, B. (1995). Farm/non-farm growth linkages in Zambia. J. Afr. Econ., 4(3), 406-435.
Hubbard, R. G. (1998). Capital market imperfections and investment. J. Econ. Lit., XXXVI, 193-225.
Jensen, M., Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs and capital structure. J. Financ. Econ., 3, 11-25.
Khan, R. E. A., Hussain, T. (2011). Demand for formal and informal credit in agriculture: A case study of cotton growers in Bahawalpur. Interdiscipl. J. Contemp. Res. Bus., 2(10), 308-314.
Kumar, A., Singh, K. M., Sinha, S. (2010). Institutional credit to agricultural sector in India: Status, performance and determinants. Agric. Econ. Res. Rev., 23, 223-264.
Machethe, C. L. (2004). Agriculture and Poverty in South Africa: Can Agriculture Reduce Poverty? (p. 1-14). Paper presented at the Overcoming Underdevelopment Conference held in Pretoria on 28-29 October 2004.
Mitchell, S., Andersson, N., Ngxowa, N., Merhi, M. (2008). A community-based impact assessment of the Wild Coastspatial development initiative, 1997-2004. Dev. South. Afr., 25(1), 119-132.
Modigliani, F., Miller, M. H. (1958). The cost of capital, corporate finance and the theory of investment. Am. Econ. Rev., 48(3), 261-297.
Myers, S.C., Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. J. Agric. Econ., 1, 61-76.
Nosa, O. A., Ose, E. D. (2010). Capital structure and corporate performance in Nigeria: An empirical investigation. AAU J. Manag. Sci., 1(1), 43-52.
Nurmet, M. (2011). Financial structure of agricultural firms. Manag. Theory Stud. Rural Bus. Infrastruct. Dev., 1(25), 187-193.
Olawale, F., Garwe, D. (2010). Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. Afr. J. Bus. Manag., 4(5), 729-738.
O'Toole, C. M., Newman, C., Hennessy, T. (2014). Financing constraints and agricultural investment: Effects of the Irish financial crisis. J. Agric. Econ., 65(1), 152-176.
Patrick, G. F., Eisgruber, L. M. (n.d). The impact of managerial ability and capital structure on growth of the farm firm.
Quirk, K. J., Keith, T. Z., Quirk, J. T. (2001). Employment during high school and student achievement: Longitudinal analysis of national data. J. Edu. Res., 95(1), 4-10.
Raykov, T., Marcoulides, G. A. (2000). A method for comparing completely standardised solutions in multiple groups. Struct. Equat. Model., 7, 292-308.
RSA, DAFF (Republic of South Africa, Department of Agriculture, Forestry and Fisheries). (2011). Abstract of agricultural statistics. Retrieved Jan 9th 2015 from: http:// www.daff.gov.za.
Salim, M., Yadav, R. (2012). Capital structure and firm performance: Evidence from Malaysian Listed Companies. Procedia Soc. Behav. Sci., 65, 156-166.
SARB (South African Reserve Bank). (2013). Annual report - 2013. Retrieved Jan 15th 2015 from: https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/4011/Annual+Report+2008.pdf.
Schneider, K., Gugerty, M. K. (2011). Agricultural productivity and poverty reduction: Linkages and pathways. Evans Sch. Rev., 1(1), 56-74.
Schreiber, J. B., Nora, A., Stage, F. K., Barlow, E. A., King, J. (2006). Reporting structural equation modeling and confirmatory factor analysis results: A review. J. Educ. Res., 99(6), 323-338.
Sial, M. H., Awan, M. S., Waqas, M. (2011b). Role of institutional credit on agricultural production: A time series analysis of Pakistan. Int. J. Econ. Financ., 3(2), 126-132.
Singh, S., Kaur, M., Kingra, H. S. (2009). Inadequacies of institutional agricultural credit system in Punjab State. Agric. Econ. Res. Rev., 22, 309-318.
Soumadi, M. M., Hayajneh, O. S. (2012). Capital structure and corporate performance: Empirical study on the public Jordanian shareholdings firms listed in the Amman Stock Market. Eur. Sci. J., 8(22), 173-189.
Stats SA (Statistics South Africa). Statistical Release P0302. Mid-year population estimates 2014. Retrieved Jan 13th 2015 from http://beta2.statssa.gov.za/publications/P0302/ P03022014.pdf.
Sufi , A. (2009). Bank lines of credit in corporate finance: An empirical analysis. Rev. Financ. Stud., 22(3), 1057-1088.
Tomer, A., Pugesek, B. H. (2003). Guidelines for the implementation and publication of structural equation models. In: B. H. Pugesek, A. Tomer, A. von Eye (Eds.). Structural equation modeling: Applications in ecological and evolutionary biology. Cambridge: Cambridge University Press.
Udoh, E. (2011). An examination of public expenditure, private investment and agricultural sector growth in Nigeria: Bounds testing approach. Int. J. Bus. Soc. Sci., 2(13), Special Issue, 285-292.
Wyne, A. T., Lyne, M. C. (2003). An empirical analysis of factors affecting the growth of small-scale poultry enterprises in KwaZulu-Natal. Dev. South. Afr., 20(5), 563-577.
Zhengfei, G., Lansik, A. O. (2006). The source of productivity growth in Dutch agriculture: A perspective from finance. Am. J. Agric. Econ., 88(3), 644-656.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
This journal permits and encourages authors to post items submitted to the journal on personal websites or institutional repositories both prior to and after publication, while providing bibliographic details that credit, if applicable, its publication in this journal.