A Comparative Study of Capital Structure Determinants: Agricultural Businesses in Central-Eastern vs. Western EU Countries

Abstract

This article undertakes a comparative analysis to investigate the distinctive determinants of capital structure in agricultural businesses located in Central and Eastern Europe (CEE) and Western Europe (WE). Given the unique financing characteristics inherent to agricultural enterprises and the substantial economic and historical distinctions between these regions, the exploration of financing strategies within this sector constitutes a crucial research task. The study incorporates financial data from agricultural firms operating in 12 European Union (EU) countries from 2000 to 2020, sourced from the BACH‑ESD database. The primary analytical approach involves the application of panel data regressions, separately conducted for the two specified groups of 12 EU countries. The comparative analysis investigates the consistency of factors that affect the capital structure of agricultural firms between CEE and WE countries. The findings reveal that although there is no significant divergence in capital structure across countries, the influence of individual factors exhibits variability across the two macro‑regions. The comparative analysis provides valuable insights for policymakers, financial institutions, and agricultural businesses in both groups of countries. Understanding the nuances of capital structure determinants specific to each region can aid in the development of more targeted and effective financing policies. Moreover, agricultural businesses should consider region‑specific factors when making financial decisions. This research contributes to the existing literature by shedding light on the differences and similarities in the capital structure determinants of agricultural businesses in CEE and WE. It not only deepens our understanding of how financing strategies vary across regions but also highlights the importance of recognising the unique financial landscape of agricultural enterprises. By doing so, this study adds substantial value to the field of agricultural finance and provides grounds for more informed decision‑making in the sector.

Keywords

• pecking‑order theory
• trade‑off theory
• agriculture holdings
• leverage
• farm finance