| Price variability for commodities, mounting machinery and input costs, shifting farm policy environment, and changes in the risk environment facing producers have all contributed to the need for improved understanding of risk management at the farm level. The objective of the current study is to use farm-level, cross-section data from the Kansas Farm Management Association record keeping system, to determine whether the variability of net farm income (NFI) and rate of return on equity (ROE) are significantly influenced by farm size, diversification, cost efficiency, debt management, and other farm characteristics.; The current study first attempted to determine the relationships between the coefficient of variation in performance, as measured by NFI and ROE, to socioeconomic and farm characteristics. The findings, however, are inconclusive about these relationships. The absence of a size effect on performance in the cross-sectional models, is similar to conclusions from previous literature by Barry, Escalante, and Bard. Inconsistent impacts of the independent variables on the coefficient of variation for performance is also supported by the previous research. However, conflicting results are discovered and raise questions concerning the robustness of the prior findings.; This study also uses the mean and variance equation system used by Purdy, Langemeier, and Featherstone to examine the impacts of socioeconomic and farm characteristics on risk and mean NFI and ROE. The base model confirmed operating expense efficiency is negatively related to the mean financial performance measures, while the variability in performance is positively related to the debt-to-asset ratio, but negatively related to the percent of gross farm income from government payments. A modified version of the mean-variance system gains little insight about the relationships of performance and farm characteristics, particularly in determining the factors that impact variability of financial performance. The importance of financial efficiency and leverage are reaffirmed, and farm size is found to increase mean performance but at a decreasing rate. When OLS is used instead of 3SLS, the significance of financial efficiency and leverage is reaffirmed. Additionally, reliance on government payments is found to be significantly impact performance.; In general, the current study proves the robustness of the prior literature, and exposes the difficulty that arises when trying to rationalize farm performance. The conclusions of the current study is that the effects of most factors are difficult to determine and establishing generalizable risk management strategies are problematic. |
