Factors influencing use of split-lines of credit and internal capital rationing among PCA borrowers
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Farmers’ use of credit has been studied extensively because debt capital is an integral part of present-day agricultural financial management. However, very little is known about split-lines of credit or multiple sources of credit financing. The study used logit analysis to determine factors influencing the use of split-lines of credit financing. Whether farmers used multiple lenders to acquire their operating credit was specified as the dependent variable (0 or 1 variable). Factors influencing internal capital rationing were investigated by use of multiple regression technique. Internal capital rationing was specified as: (1-(Total operating credit / Maximum possible investment) x 100 Data for PCA borrowers in the Sixth Farm Credit District from 1980 to 1982 were used for testing various hypotheses. Two-hundred seventy farmers were randomly selected for the empirical analyses. The results of the study indicated that farmers with higher leverage ratios were more likely to use split-lines of credit financing. Owner equity was positively related to internal capital rationing. Total operating credit and the interest to liability ratio were negatively correlated to internal capital rationing.
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