Jeffrey R. Stokes, Jonathan B. Dressler and Lakshmi Balasubramanyan
Some past studies of credit risk ratings migration have found trend reversals and evidence that the data‐generating process is nonstationary. Using a sample of Farm Credit System…
Abstract
Some past studies of credit risk ratings migration have found trend reversals and evidence that the data‐generating process is nonstationary. Using a sample of Farm Credit System mortgages, we find no compelling statistical evidence of either phenomenon. We do find evidence that our sample of loans may be characterized by two types of borrowers – namely, movers and stayers. This type of borrower heterogeneity is unobserved because movers who do not migrate are indistinguishable from stayers who never migrate. We report on the development of a flexible nonparametric model for estimating transition probabilities. The model can also be used to estimate nonstationary transition probabilities and an example is provided.
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Brent A. Gloy and Jonathan B. Dressler
Anaerobic digestion (AD) of livestock waste is a potential source of renewable energy and can reduce the methane emissions associated with livestock waste storage. Because AD is…
Abstract
Purpose
Anaerobic digestion (AD) of livestock waste is a potential source of renewable energy and can reduce the methane emissions associated with livestock waste storage. Because AD is capital intensive, lenders will play a key role in the adoption of this technology. The purpose of this paper is to describe some of the barriers that currently make lenders reluctant to finance AD systems and provide recommendations for public policies that would reduce these barriers, making financing more available and encouraging farmers to adopt digester systems.
Design/methodology/approach
This paper describes some of the barriers that currently make lenders reluctant to finance AD systems and makes recommendations for public policies that would reduce these barriers, thus making finance available.
Findings
AD systems face a number of financial barriers which make lenders reluctant to finance them. Many of these barriers can be overcome by adopting policies and programs designed to improve the understanding of the financial situation associated with AD adoption and establishing markets that reward livestock operations for achieving the benefits associated with AD installation. Some of the more important potential solutions include developing mechanisms to collect and analyze data associated with AD system economics and developing markets that reward livestock operations for producing the non‐market outputs of renewable energy and methane emission reductions.
Originality/value
The ability to attract financing is a key barrier to the widespread adoption of anaerobic digester systems. This paper describes these challenges and identifies solutions which would reduce these barriers and lead to greater adoption of AD on the US livestock operations.
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Jonathan B. Dressler and Jeffrey R. Stokes
This paper aims to identify factors that affect agricultural mortgage default and prepayment.
Abstract
Purpose
This paper aims to identify factors that affect agricultural mortgage default and prepayment.
Design/methodology/approach
Using a sample of farm credit system loans, prepayment and default are modeled as competing risks with potentially non‐stationary covariates using a statistical/econometric technique called survival snalysis (SA).
Findings
The analysis suggests that the primary drivers of prepayment and default are the rate of interest charged by the lender at origination and the borrower's current ratio at origination. Tests of the existence of a geographic effect indicate that despite bank management belief to the contrary, branches may not be homogeneous.
Research limitations/implications
This analysis would be improved if more data were available in an easily obtainable manner to control for unobserved heterogeneity. Unobserved heterogeneity or incomplete specification within a model can be problematic. Inferences among regression coefficients can be problematic in that the estimates have inflated variances and unreliable test statistics. In addition, more frequent measures of the time‐varying covariates could be obtained to improve upon the SA models presented above. Future analyses could also incorporate other sections of the agricultural credit association portfolio, as well as a comparison to variable rate notes. One other logical next step would be to obtain loan collateral values to obtain estimates of the exposure at default, and the loss given default, or the estimates needed for the advanced internal ratings based approach described in the Basel Accords.
Originality/value
This paper provides a method for lenders to measure and model mortgage termination, an important consideration for risk managers when determining capital adequacy described in the Basel Accords.
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Jonathan B Dressler and Loren Tauer
A family member may work for the family business even though the direct financial benefits he or she may receive in the form of a salary may be lower than what could be earned…
Abstract
Purpose
A family member may work for the family business even though the direct financial benefits he or she may receive in the form of a salary may be lower than what could be earned working for a non-family business. The lower amount may be accepted because of benefits of association with the family business. This psychic non-pecuniary return has been called socioemotional wealth in the family business research literature. The purpose of this paper is to propose a method to estimate socioemotional wealth and apply that technique to a group of family dairy farms to estimate socioemotional wealth for those family farms.
Design/methodology/approach
A panel regression method was used to empirically allocate net farm income to the unpaid factors of equity, labor, and management provided by a family member in a family farm partnership. The estimated returns of labor plus management are compared to the market salary earned by farm managers who manage farms. The difference between the higher hired farm manager salary and what the family manager earns in the family farm from labor and management is an estimate of the non-pecuniary return the family member receives from managing the family farm as compared to managing the non-family farm.
Findings
Differences in managers’ salary working for the non-family farm and the implied family manager financial compensation estimates indicate that family business managers’ non-pecuniary return from managing the family farm had an implied economic value averaging $22,026 per year over 1999-2008. Assuming that the manager would be indifferent between working for the family farm or the non-family farm if the sum of pecuniary and non-pecuniary returns were the same, the non-pecuniary annual benefits of $22,026 accrues in the form of socioemotional wealth associated as a member in the family business.
Originality/value
Although the literature discusses how family members may accept a lower salary working for the family business than they could earn doing comparable work in a non-family business because of non-financial rewards they experience working for the family business, there have been no estimates of the value of this pecuniary benefit. The authors arrive at an estimate using a group of family dairy farm businesses that have multiple family managers.
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Collateral consequences (CCs) of criminal convictions such as disenfranchisement, occupational restrictions, exclusions from public housing, and loss of welfare benefits represent…
Abstract
Collateral consequences (CCs) of criminal convictions such as disenfranchisement, occupational restrictions, exclusions from public housing, and loss of welfare benefits represent one of the salient yet hidden features of the contemporary American penal state. This chapter explores, from a comparative and historical perspective, the rise of the many indirect “regulatory” sanctions flowing from a conviction and discusses some of the unique challenges they pose for legal and policy reform. US jurisprudence and policies are contrasted with the more stringent approach adopted by European legal systems and the European Court of Human Rights (ECtHR) in safeguarding the often blurred line between criminal punishments and formally civil sanctions. The aim of this chapter is twofold: (1) to contribute to a better understanding of the overreliance of the US criminal justice systems on CCs as a device of social exclusion and control, and (2) to put forward constructive and viable reform proposals aimed at reinventing the role and operation of collateral restrictions flowing from criminal convictions.