This article provides pioneering empirical evidence on the selection of acquisition targets by agroholdings in transition economies. We use panel data from Ukraine and Northwest Russia covering the years 2005-2016. Binomial logistic regression models were estimated to analyze the impacts of farm capital strength, financial performance and size on the farm’s likelihood of being acquired by an agroholding. Our results indicate that agroholding target selection considerations tend to change over time and have shifted from farm size to farm performance in both countries. However, agroholdings in both countries prefer to ‘grab lemons’, i.e. acquire poorly performing farms, but they differ with respect to target selection criteria. Agroholdings in Northwest Russia tend to focus on farm profitability, while their Ukrainian counterparts emphasize the capital structure of the target farms.
The corporate farms in Leningrad Oblast are classified into five solvency groups by an index of financial health based on the coverage of farm costs by sales revenue. The two highest solvency groups containing 35% of the oblast farms produce 75% of sales and generate 90% of profit. They rapidly grow by investing in machinery and equipment and can be regarded as having fully adapted to the new market conditions. Their production efficiency is significantly higher than the efficiency of less solvent farms. A regression analysis shows that 50% of the variability in the financial health of Leningrad farms is explained by management quality, while another 30% is explained by farm size (farms employing more labour and more land are characterized by higher solvency). Comparative Economic Studies (2005) 47, 188–199. doi:10.1057/palgrave.ces.8100085
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