The Impact of Managerial Ability and Capital Structure on Growth of the Farm Firm

Abstract

Abstract A simulation model of farm firm behavior in a dynamic environment with elements of uncertainty was developed. The decision maker's formulation of expectations regarding future prices and yields, his selection of alternative farm plans, evaluation of the expected outcomes of the plans with respect to four goals, and implementation of the plan offering the highest level of overall satisfaction are explicitly considered. The expectations, goals, and resource position of the firm are adjusted to reflect the outcome of the particular plan implemented, and the process is repeated for the next year. A case was simulated for a period of 20 years under three different levels of managerial ability and 27 different capital market structures. It is concluded that managerial ability and long‐term loan limits are the major factors, among those considered, influencing farm firm growth.