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© 1998 Oxford University Press and the Foundation for the European Review of Agricultural Economics

research-article

Predicting financial stress in farm businesses

JEREMY R. FRANKS*

School of Economic Studies, University of Manchester, Dover Street Building, Oxford Road, Manchester, M13 9PL. UK.

Received August 1, 1997;

Summary

This study uses a multinomial logit (MNL) model to examine financial strategies which may influence the likelihood of a farm becoming financially stressed in the next year. The model is operationalised by categorising farms into one of three financial stress categories and accompanied by a comprehensive range of specification tests. The MNL model highlights the importance of industry and farm-specific factors on the incidence of financial stress. The model confirms the importance of increasing returns to equity as a strategy for reducing the likelihood of being classified as financially stressed

Keywords: financial stress, prediction, financial strategy, multinomial logit model


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