Pennings, Joost M.E.

By: Aderajew, Tamirat S.; Du, Xiaoxue; Pennings, Joost M. E.; Trujillo-Barrera, Andres
The risk-balancing hypothesis (RBH) suggests that farms will take less business risk as their financial risk increases, but existing literature provides empirical evidence that the RBH might be invalid under certain circumstances. We present a unified model that explains the conditions under which the RBH holds or is invalidated by recognizing the role of latent heterogeneity among farms. We generalize the RBH idea and trace the source of credit risk back to latent heterogeneity among farms. We then apply recent literature to longitudinal data from a panel of Dutch farms and classify segments using a finite mixture regression fixed-effects model and find that the RBH may not apply to all groups in the same way.
By: Costa, Geraldo Jr.; Trujillo-Barrera, Andres; Pennings, Joost M.E.
We analyze the relationships among liquidity costs, volume, and volatility in the Brazilian agricultural futures market, along with the role of market concentration. We estimate a structural three-equation IV–GMM model using data from Bolsa, Brasil, Balcão corn and live cattle contracts from March 2014 to February 2016. Results show a negative association between liquidity costs and volume and a positive association between liquidity costs and volatility. Market concentration impacts corn and live cattle differently. Concentration contributes to volume reduction for live cattle and to liquidity costs reduction for corn. Our findings shed light on the microstructure of emerging markets.
By: Franken, Jason R.V.; Pennings, Joost M.E.; Garcia, Philip
Risk reduction and transaction costs are often used to explain contracting in the U.S. hog industry with little empirical support. Using a unified conceptual framework that draws from risk behavior and transaction cost theories, in combination with unique survey and accounting data, we demonstrate that risk preferences and asset specificity impact Illinois producers’ use of contracts and spot markets. In particular, producers’ investments in specific hog genetics and human capital are related to selection of long-term marketing contracts over spot markets. Producers who perceive greater levels of price risk and/or are more averse are more (less) likely to use contracts (spot markets).
By: Pennings, Joost M.E.; Isengildina, Olga; Irwin, Scott H.; Good, Darrel L.
A conceptual framework is developed which provides insight into the factors affecting the impact of market advisory service (MAS) recommendations on producer pricing decisions. Data from a survey of 656 U.S. producers reveal that the perceived performance of the MAS, the way in which MAS recommendations are delivered, as well as the match between MAS and producers' marketing philosophy, are important factors explaining the impact of MAS recommendations. Risk attitude does not affect the impact of MAS recommendations on producers' decisions, suggesting producers are more interested in the price-enhancing characteristics of MAS advice than in its risk-reducing features. Key words: market advisory services, ordered probit model, producers' marketing decisions