What determines the capital structure of farms? Empirical evidence from Poland

The purpose of this paper is to analyse capital structure and its dynamics for farms in Poland, a leading European Union
producer. The theoretical framework is based on the trade-off and pecking order theories of capital structure. We use data from
the Farm Accountancy Data Network (FADN), which is representative of Polish professional farms during the period
2009–2018. We adopt a dynamic partial adjustment model using the generalized method of moments in order to explain the
financing of farms through debt. The results show that Polish farms exhibit low target levels of debt, which they adjust
dynamically, thus partially validating the trade-off theory. While size and growth opportunities positively influence the
indebtedness of farms, profitability and land have the opposite effect. Polish farmers therefore use available internal funds,
especially retained earnings, as a substitute for debt, in line with the pecking order theory.