the determinants of industrial r d a funds flow simultaneous equation approach in this paper a general flow of funds model explaining aggregate rd b although some previous studies using u s data have concluded that rd c consistent with recent studies no evidence of crowding out of private expenditures by government expenditures could be found

when do high stock returns trigger equity issues abstract one of the most prominent stylized facts in corporate finance is that equity issues tend to follow periods of high stock returns we document that firms exhibit such timing behavior only in response to high returns that coincide with strong institutional investor demand when not accompanied by institutional purchases stock price increases have little impact on the likelihood of equity issuance the results highlight the importance of market reception for the timing of equity issues

business unit strategy and changes in the product r d budget this study of changes in product r d intensity in business units supplements past studies by including two major classes of independent variables which have not been examined previously the competitive strategy of the business and role of the business in the overall corporate portfolio multiple regression analysis is used on a sample drawn from the pims data base the results suggest that r d decisions in growth businesses are responsive to competition evolving strategies and intra firm resource flows in mature businesses a pattern of stability and r d equilibrium is evident even in the face of changes by competitors managerial implications are noted

r d management and corporate financial policy the hypothesis that firms simultaneously determine their research and development investment dividend and new debt policies generally is substantiated in the financial literature the determinants of research and development dividend investment and financing decisions of 140 firms are estimated econometrically during the 1978 1982 period management gains insights into the interactions of pursuing research and development expenditures paying dividends and undertaking investments

the debt equity choice when firms adjust their capital structures they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt in contrast to previous empirical work out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio and that the target ratio may change over time as the firm s profitability and stock price change a separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision

how does financial distress affect small firms financial structure this paper provides new evidence on the financial structure of small firms by emphasizing the role played by financial distress we specify a model of debt adjustments that allows us to investigate the specific nature of the adjustment process towards target debt levels in small firms which is then extended to account for the effect of financial distress on financial structure decisions our models were estimated by the generalized method of moments on a data panel of small portuguese firms during a period of recession in which a substantial proportion of the companies analyzed faced a financial distress situation we find that small firms do adjust their debt ratios towards target levels the speed of adjustment being faster in the shorter term our results also indicate that there are major differences in the determinants of long term and short term debt highlighting the role played by debt maturity in explaining a firm s financial structure finally random behavior is observed in financially distressed firms who seem to be disoriented when making their financial structure decisions

are observed capital structures determined by equity market timing contrary to baker and wurgler 2002 i find that the importance of historical average market to book ratios in leverage regressions is not due to past equity market timing al though equity transactions may be timed to equity market conditions they do not have sig nificant long lasting effects on capital structure debt transactions exhibit timing patterns that are unlikely to induce a negative relation between market to book ratios and leverage i also find that historical average market to book ratios have significant effects on current financing and investment decisions implying that they contain information about growth opportunities not captured by current market to book ratios

the bright side of managerial over optimism human estimation and inference are subject to systematic biases such as overconfidence and over optimism in contrast to prior research that has identified multiple negative consequences of these biases we focus on positive effects we empirically examine a setting in which over optimism a is a related but different bias from overconfidence b emerges dynamically in a rational economic framework and c generates higher managerial effort importantly this additional effort improves firm profitability and market value

optimism bias portfolio delegation and economic welfare this study explores the effects of investor optimism bias in a portfolio delegation framework we show that the optimistic investor increases his portfolio delegation while the risk averse manager reduces investment in the risky asset the investor suffers welfare loss due to lower expected return but the manager enjoys increased compensation the investor s optimism bias aggravates the moral hazard problem

goal setting for effective corporate planning the hypothesis that firms simultaneously determine their research and development investment dividend and new debt policies generally is substantiated in the financial literature the strategic planning model advocated in this study offers an alternative to the generally accepted goals of maximizing the return on equity or growth in earnings per share

capital structure and small public firms abstract most analyses of capital structure from both a theoretical and an empirical viewpoint focus on large corporations as a result of data availability problems empirical studies deal with large corporations theoretical frameworks typically use illustrations and casual empirical evidence involving large firms only limited amounts of research focus on small growing entrepreneurial corporations and the factors affecting the capital structures of these firms much of current theory in capital structure deals with factors that are not easily and objectively quantified by outside researchers these factors include items such as expected bankruptcy costs information asymmetries between management and the financial marketplace agency costs of monitoring management and managerial risk preferences this paper reports on a survey sent to over 400 small high growth corporations questions on the survey were derived from various strands of the theoretical financial literature on capital structure over 27 of the surveys were completed and returned and give insight into the motivations and preferences of chief financial officers from over 100 small high growth corporations examination of the responses shows that contrary to financial theory factors dealing with bankruptcy costs agency costs and information asymmetries play little if any major role in affecting capital structure policy rather the responding financial officers seem to follow a pecking order in financing their firm s needs use internal cash as much as possible issue debt if necessary issue equity only as a last resort while being concerned with market conditions and their own preferences the following are implications of these findings first financial theory which is more and more focusing on micro factors while still theorizing efficient macro markets may be incorrectly ignoring the effect that management risk perceptions and preferences play in making capital structure decisions thus additional work is necessary to include the management in theories of capital structure second this survey allows outsiders to peer inside the managerial black box and gain insight into the factors that motivate and impact capital structure decisions it provides an empirical basis to help determine which influences are important third managers of entrepreneurial firms and investors in venture capital can compare their own beliefs perceptions and motivations against the mean results obtained from our sample of high growth firms

impact of firm performance expectations on ceo turnover and replacement decisions abstract our analysis suggests that boards focus on deviation from expected performance rather than performance alone in making the ceo turnover decision especially when there is agreement less dispersion among analysts about the firm s earnings forecast or there are a large number of analysts following the firm in addition our results suggest that boards are more likely to appoint a ceo that will change firm policies and strategies i e an outsider when forecasted 5 year eps growth is low and there is greater uncertainty more dispersion among analysts about the firm s long term forecasts

the effects of optimism bias in teams this article imports a behavioural perspective into a team context to study the effort coordination problem among agents specifically we investigate how the presence of optimism bias impacts the severity of the free rider problem the organizational structure of the team and the compensation contracts offered to agents in equilibrium the results indicate that all agents become more reluctant to exert effort and the team welfare decreases when some of its agents are optimistic suggesting that optimism aggravates the free rider problem in teams appointing a team leader makes all agents work harder and the team benefits more by having the optimistic agent as its leader these findings are in sharp contrast to the effects of overconfidence as identified in the literature it is advisable to pay the optimistic agents less than the rational agents encouragingly optimistic agents can learn about their own bias in the long run leaving their team without too much detriment of optimism

financing preferences evidence from the korean market we investigate the financing decisions of korean firms during the period of 1996 2015 korean firms follow a matching strategy for funding their cash needs cash inflows from investing activities a

mood firm behavior and aggregate economic outcomes abstract this study examines whether mood affects the aggregate state level macroeconomy through its impact on firm level decisions using sky cloud cover as a proxy for mood we show that mood affects the economic expectations of small business managers after relatively sunnier periods managers have more optimistic expectations and the component of their expectations related to mood influences hiring and investment decisions consequently mood affects state level job creation and new business starts especially during periods of greater economic uncertainty these results suggest that mood induced economic expectations influence firm level managerial decisions and state level macroeconomic fluctuations

a reexamination of the empirical relationship between investment and financing decisions several studies see 7 15 9 and 16 have attempted to ascertain the empirical relationships that exist between the financing and investment decisions of firms the primary impetus for these efforts was provided by modigliani and miller mm 20 21 when they demonstrated that under the assumption of perfect capital markets the optimal investment decisions of a firm are separable from its financing decisions in the presence of market imperfections interdependencies between these decisions that violate the basic mm propositions may exist therefore the studies referred to above have essentially focused upon determining whether market imperfections have been of sufficient magnitude to lead to joint determination of investment and financing decisions though the original mm propositions were introduced more than two decades ago the nature of the empirical relationship between investment and financing decisions remains a controversial issue the fact that this matter is still unresolved is not attributable to a lack of attention for the original propositions have been examined in the presence of taxes bankruptcy costs and agency costs with no clear consensus emerging

ceo optimism and forced turnover abstract we show theoretically that optimism can lead a risk averse chief executive officer ceo to choose the first best investment level that maximizes shareholder value optimism below above the interior optimum leads the ceo to underinvest overinvest hence if boards of directors act in the interests of shareholders ceos with relatively low or high optimism face a higher probability of forced turnover than moderately optimistic ceos face using a large sample of turnovers we find strong empirical support for this prediction the results are consistent with the view that there is an interior optimum level of managerial optimism that maximizes firm value

stocking up executive optimism option exercise and share retention abstract we show that an executive is optimistic about her company s prospects if and only if she retains some of the shares received whenever she exercises company stock options empirically an indicator of optimism based on this idea matches the expected relations between optimism and corporate decision making better than commonly used indicators based on the timing of option exercise this makes sense as our model of an executive s optimal option exercise and portfolio choice demonstrates that the timing of option exercise depends just as much on stock and other executive characteristics as it does on optimism

overconfidence ceo selection and corporate governance we develop a model that shows that an overconfident manager who sometimes makes value destroying investments has a higher likelihood than a rational manager of being deliberately promoted to ceo under value maximizing corporate governance moreover a risk averse ceo s overconfidence enhances firm value up to a point but the effect is nonmonotonic and differs from that of lower risk aversion overconfident ceos also underinvest in information production the board fires both excessively diffident and excessively overconfident ceos finally sarbanes oxley is predicted to improve the precision of information provided to investors but to reduce project investment

comparative statics under uncertainty for a class of economic agents abstract this paper explores trade offs between assumptions on risk preferences ordinal preferences under certainty and cumulative distribution function cdf changes of an exogenous random variable needed for determinate comparative statics results specifically we ask absent restrictions on risk preferences what cdf changes lead all agents whose choice under certainty is monotonic in the exogenous variable to increase their choice variable under uncertainty we find that the desired class of changes are those satisfying monotone likelihood ratio mlr dominance we also note that mlr improvements are behaviorally identical to decreased risk aversion a result that illuminates the relationship between changes in risk and risk aversion journal of economic literature classification number d81

the rules of the game international money in historical perspective no world central bank issues a separate currency for commerce across national boundaries instead a system of national monies works more or less well in providing a medium of exchange and unit of account for current international transactions as well as a store of value and standard of deferred payment for longer term borrowing and lending how do national governments and banking institutions interact to provide international money for merchants and investors by necessity this monetary interaction changes with time place political circumstances and financial technology to better understand its historical evolution let us follow robert mundell and distinguish between a monetary system and a monetary order

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

target behavior and financing how conclusive is the evidence the notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance yet how definitive is the evidence we address this issue by generating samples where financing is unrelated to a firm s current debt ratio or a target we find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples taken together our findings suggest that a number of existing tests of target behavior have no power to reject alternatives

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

the role of target leverage in security issues and repurchases the paper examines whether security issues and repurchases adjust the capital structure toward the target the time series patterns of debt ratios imply that only debt reductions are initiated to offset the accumulated deviation from target leverage the importance of target leverage in earlier debt equity choice studies is driven by the subsample of equity issues accompanied by debt reductions unlike debt issues and reductions equity issues and repurchases have no significant lasting effect on capital structure therefore even firms that have target debt ratios can engage in timing the equity market

the impact of ceo turnover on equity volatility this study investigates the effect on stock price volatility of a significant event in the life of the firm a change in its ceo we find significant long lived increases in volatility following ceo turnover after controlling for firm characteristics and marketwide volatility these increases are larger after forced departures and outside successions following voluntary departures stock prices also respond more strongly to earnings announcements following turnovers these results are consistent with more informative signals of value driving the increased volatility helping resolve two sources of uncertainty possible changes in the firm s strategy and doubt about the successor ceo s ability

endogenously chosen boards of directors and their monitoring of the ceo author s hermalin benjamin e abstract this paper develops a model in which the effectiveness of a board s monitoring of the ceo depends on the board s independence the independence of new directors is determined through negotiations implicit or explicit between the existing directors and the ceo the ceo s bargaining position and thus influence over the board selection process depends on an updated estimate of the ceo s ability based on prior performance many empirical findings about board structure and performance arise as equilibrium phenomena in this model we also explore the implications of this model for proposed regulations of corporate governance structures please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

executive overconfidence and compensation structure we examine the impact of overconfidence on compensation structure our findings support the exploitation hypothesis firms offer incentive heavy compensation contracts to overconfident chief executive officers ceos to exploit their positively biased views of firm prospects overconfident ceos receive more option intensive compensation and this relation increases with ceo bargaining power exogenous shocks sarbanes oxley act of 2002 sox and financial accounting standard fas 123r provide additional support for the findings overconfident non ceo executives also receive more incentive based pay independent of ceo overconfidence buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence

the limits of international organization systematic failure in the management of international relations contributors to the literature on international organization io have traditionally been overly optimistic about the ability of multilateral management to stabilize in ternational relations and have tended to ignore the destabilizing effects of io while recent revisionist scholarship has acknowledged both the potential for organizational failure and the conditionality of management it has tended to focus on how io fails within specific issue areas and institutions this article offers a typology of the inherent systematic failures of io across issue areas and institutions and thereby seeks to bridge the gaps in our understanding of why many different institutions and managerial schemes have adverse effects it argues that io is prone to failure 1 when it attempts to manage complex tightly coupled systems of relations and issues 2 when it serves as a substitute either for more substantive and long term resolutions to international problems or for responsible domestic or foreign policy 3 when it intensifies international disputes and 4 when it generates moral hazard in offering a general theoretical approach to understanding the destabilizing effects of io the analysis is intended to serve both as a focal point for understanding critical approaches to the study of io and as an alternative rationale for eliminating the excesses of multilateral management

key currency status an exorbitant privilege and an extraordinary risk abstract what are the costs and benefits of the dollar s status as the key currency in the international monetary system here we present a calibrated two country model in which all exports are invoiced in the key currency and government bonds denominated in the key currency are held internationally to facilitate trade and as official reserve assets we show that the exorbitant privilege accruing to the key currency country comes from three sources 1 a bond seigniorage that we estimate to be worth about a half a percent of consumption per period to the united states 2 asymmetric responses to exogenous shocks that are worth an additional quarter of a percent of consumption per period and 3 a macroeconomic hegemony in monetary and fiscal policy reflecting the fact that the key currency s policy instruments are more potent but there is also an exorbitant risk to being the key currency country we show that the costs of a potential dumping of key currency bonds are also substantial moreover there appear to be no obvious monetary or fiscal policy responses that would lower the costs significantly

managerial biases and debt contract design the case of syndicated loans we examine whether managerial overconfidence impacts the use of performance pricing provisions in loan contracts performance sensitive debt psd managers with biased views may issue psd because

estimating the value of employee stock option portfolios and their sensitivities to price and volatility the costs associated with compiling data on employee stock option portfolios is a substantial obstacle in investigating the impact of stock options on managerial incentives accounting choice financing decisions and the valuation of equity we present an accurate method of estimating option portfolio value and the sensitivities of option portfolio value to stock price and stock return volatility that is easily implemented using data from only the current year s proxy statement or annual report this method can be applied to either executive stock option portfolios or to firm wide option plans in broad samples of actual and simulated ceo option portfolios we show that these proxies capture more than 99 of the variation in option portfolio value and sensitivities sensitivity analysis indicates that the degree of bias in these proxies varies with option portfolio characteristics and is most severe in samples of ceos with a large proportion of out of the money options however the proxies explanatory power remains above 95 in all subsamples

hegemons ios and markets the case of the substitution account for eighteen months between 1978 and 1980 the international monetary fund and imf members attempted to reform the international monetary system by establishing a substitution account designed to enhance the stability of the monetary system the proposed substitution account would have accepted dollar deposits from foreign central banks in return issuing certificates denominated in special drawing rights the collapse of negotiations about the account in early 1980 confirms the hypothesis of hegemonic stability theorists that the distribution of systemic costs is problematic in the absence of a hegemonic power the case thereby qualifies recent assertions that a small group of nations can supply stability to the international economy however two factors outside the realm of hegemonic theory also helped produce the outcome of the negotiations the division of power within the united states between congress and the executive and changes in international market conditions during 1979 and early 1980

tax exempt debt and the capital structure of nonprofit organizations an application to hospitals the availability of tax exempt financing provides nonprofit np organizations with their own tax based incentives to issue debt in this article we develop a theoretical model in which nps gain an indirect arbitrage from tax exempt debt issuance constrained by 1 the requirement that fixed investment exceed tax exempt debt flows the project financing constraint and 2 the constraint against share issuance these constraints cause them to impute tax benefits to projects that afford access to the tax exempt bond market empirical tests indicate that np hospitals behave as if they have target levels of tax exempt debt debt targeting is constrained by the availability of capital projects while excess debt capacity stimulates investment financial theorists have generally been reluctant to apply the tenets of corporate finance to nonprofit institutions in particular there has been little or no follow up to the important work of fama and jensen on the relationships between agency contracting and ownership written over a decade ago current understanding of the financial basis and behaviors of nonprofit institutions is limited to three basic insights provided by their prior work 1 the attenuation of residual claims characteristic of nonprofit organizations addresses the agency problems associated with private donations fama and jensen 1983b 2 like other organizations nonprofits require decision systems that separate the processes of management and control fama and jensen 1983a and 3 given certain preconditions investment opportunities available to nonprofits can be evaluated with the net present value rule using discount rates defined by outside capital markets fama and jensen 1985 these observations comprise much of what is currently known about nonprofit corporate financial behavior foremost among the set of unresolved issues is the theory of debt issuance by nonprofits an area not explicitly addressed by the fama and jensen

corporate behavior in adjusting to capital structure and dividend targets an econometric study this study of financing decisions by u s corporations examines the issuance of long term debt issuance of short term debt maintenance of corporate liquidity issuance of new equity and payment of dividends given costs and imperfections inherent in markets a firm s financial behavior is characterized as partial adjustment to long run financial targets individual firm data are used so that speeds of adjustment are allowed to vary by company and over time the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment this study of financing decisions by u s corporations examines the issuance of long term debt short term debt and equity the maintenance of corporate liquidity and the payment of dividends the firm s financial behavior is characterized as partial adjustment to long run financial targets and individual firm data 1966 1978 are used to estimate firm specific time varying speeds of adjustment the results suggest that financial decisions are interdependent and that firm size interest rate conditions and stock price levels affect speeds of adjustment also the estimated coefficients are more plausible than the very small taggart 28 or very large spies 26 values found in earlier studies section i of the paper introduces the general model in section ii a tractable empirical model is developed section iii presents the data to be used in the study and discusses econometric issues in section iv results and conclusions are offered

demand for risky financial assets a portfolio analysis abstract demand for risky financial assets takes place in portfolio settings the common stochastic orders applied in economics fail to rank demand for assets in such situations even for risk averse investors therefore the evaluation of the relative desirability of risky financial assets requires the establishment of new orders we prove that if returns on risky assets are ordered by the monotone likelihood ratio order then dominating assets will be more desired by all investors with nondecreasing utility functions

the international monetary system forty years after bretton woods review essay in may 1984 a distinguished group of central bankers and economists gathered for a conference at bretton woods to consider the evolution of the world monetary system that was born at that location forty years earlier this volume contains nine essays with accompanying discussion on issues of performance and reform of current international monetary arrangements these papers deal with problems facing the industrialized and the lessdeveloped countries and assess the institutions that have been set up to accommodate these problems the major accomplishments of the original bretton woods conference were of course the establishment of the system of payments based on fixed exchange rates and the organization of the world bank and the international monetary fund as the order developed in the late 40 s and early 50 s each central bank saw it as its duty to intervene in foreign exchange markets to ensure an essentially fixed parity of their currency with respect to the dollar the role of the u s was to guarantee the dollar price of gold at 35 an ounce the system has been called a dollar standard because the dollar played the role of a reserve currency one of the paradoxes of the system as robert triffin pointed out in the early 60 s is that in order to produce a continuing and rapid enough expansion of world reserves the u s had to run balance of payments deficits yet continued deficits by the u s threatened the convertibility of the dollar into gold as it happened the system of fixed parities broke down in the early 70 s not because of a lack of reserves but because a glut of dollars made the bretton woods dollar exchange rates untenable the system eventually evolved into one in which most of the industrialized countries currencies more or less are determined by the market while the currencies of most second and third world countries are pegged to a major currency the floating period has been

managerial overconfidence and accounting conservatism managerial overconfidence overconfident managers overestimate ixwxuhuhwxuqviurpwkhluilupv lqyhvwphqwv 7kxv zh predict that overconfident managers will tend to accelerate good news recognition delay loss recognition and generally use less conservative accounting furthermore we test whether external monitoring helps to mitigate this effect using measures of both conditional and unconditional conservatism we find robust evidence of a negative relation between ceo overconfidence and accounting conservatism we further find that external monitoring does not appear to mitigate this effect our findings add to the growing literature on overconfidence and complements findings in schrand and zechman 2011 that overconfidence affects financial reporting behavior

on the adjustment speed of smes to their optimal capital structure the aim of this paper is to analyse the speed of adjustment of small and medium sized enterprises smes to the target leverage by applying a system gmm technique to spanish panel data collected during the period 1995 2005 we estimate a partial adjustment model in which both target leverage and speed of adjustment are simultaneously endogenized we provide empirical evidence on the determinants of target leverage and the speed of adjustment more specifically the rate of financial flexibility growth opportunities and size are positively related to the speed of adjustment whereas the distance to the optimal ratio of debt shows a negative impact our findings demonstrate that in terms of sample mean a high percentage of spanish smes adjust rationally to their target additionally the smes analysed appeared to be over levered and fairly motivated to adjust annual adjustment speed 26

monotone comparative statics under uncertainty this paper analyzes monotone comparative statics predictions in several classes of stochastic optimization problems the main results characterize necessary and sufficient conditions for comparative statics predictions to hold based on properties of primitive functions that is utility functions and probability distributions the results apply when the primitives satisfy one of the following two properties i a single crossing property which arises in applications such as portfolio investment problems and auctions or ii log supermodularity which arises in the analysis of demand functions affiliated random variables stochastic orders and orders over risk aversion

similarities and differences in small and large corporation beliefs about capital structure policy theoretical researchers posit many factors that affect a firm s capital structure decisions theory also suggests that these influences will have different impacts on small and large firms however empiricists face difficulties in testing these hypotheses due to problems of quantifying the motivations expectations and preferences prevalent in the various theories

a comparison of census nsf r d data vs compustat r d data in a financial decision making model abstract this paper reports the results of a project in which r d data drawn from national science foundation and census bureau studies were substituted in several financial models for r d data drawn from the 1975 1982 compustat tapes the result using the compustat data did not differ significantly from that based on the nsf census data in the aggregate but significant differences were observed for certain industries and certain years the purpose of this paper is to discuss the financial models and determinants of corporate r d expenditures using the different databases and to suggest further questions for research financial support was provided by the center for innovation management studies at lehigh university and the national science foundation

financial structure of farm businesses under imperfect capital markets recent finance studies have considered whether gaps between a firm s costs of internal and external sources of investment funds arising from capital market imperfections influence its investment behavior and funding preferences this study tests the applicability of the pecking order and partial adjustment theories of financial structure to farm businesses by fitting a set of simultaneous financial equations with farm panel data from illinois model results indicate that illinois farms adjust to long run financial targets for equity debt and leasing but that additional financing needs follow a pecking order that is stronger for farms with greater asymmetric information problems copyright 2000 oxford university press