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The Debt Ratio And Risk

The agricultural development has caused still bigger and more expensive farms in Denmark. The debt ratio therefore has increased and has become a severe problem for the farmer. The magnitude of the debt ratio is the highest in Europe. The objective of this study is to analyse the possibility to optimise the debt ratio. In order to analyse the debt ratio 1200 financial statements have been investigated. The study confirms that it is impossible to optimise the debt ratio in line with Modigliani & Miller. On the other hand the study points out an inoptimal range, which is in accordance with the ‘Trade-off Theory of Capital Structure’. That is on the high end of the scale. Finally the study demonstrates a significant correlation between the debt ratio and the financial risk.

Author(s): Svendsen Soren (1)

Organization(s): Danish Research Institute of Food Economics (1)

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