3.2.2 Data Processing
The raw data extracted from the database were to be analyzed.
First, the self-employed labor unit costs are not always taken into accounts
into the books, due to accounting regulations. Therefore, the data have been
transformed to include a labor cost for each labor unit at the SMIC (minimum
salary level in France for a FTE, Table 8):
|
Years
|
2006
|
2007
|
2008
|
2009
|
2010
|
|
SMIC before social tax per month
|
1 254.28€
|
1 280.07€
|
1 308.88€
|
1 337.70€
|
1 343.77€
|
Table 8: Cost of each labor unit per month for the
SMIC
Another element had to be transformed in order to have
reliable results: social security contributions. This cost is tax deductible,
but depending on the legal form of the company it can be treated outside of the
balance sheet and profit & loss statements. The calculation of these
contributions depends on many factors, such as the year of installation of the
farmer, his average profits for the last 3 years (an option exists to calculate
it only with last year results). An important element is that only farmers who
operate in limited liability legal form have the possibility to treat these
contributions off-balance sheet. Their results are most of the time
significantly higher, justifying that the added contributions should be on
average higher than the contributions in books. The contributions were
calculated based on the results of the annual accounting results (in reality,
the years' results are taxed over 3 years: N-1, N-2 and N-3 for most farms).
This recalculation introduced a bias in this research, but the accounting
principles of the company have been adapted to avoid this bias for future
researches. For 2012 and after, all social contributions will be recorded in
the database.
|
Years
|
# of companies without
social security contribution in books
|
Average contribution added
|
|
Average contribution in
books
|
Average
contribution for the population
|
|
2006
|
77
|
(12%)
|
7
|
061
|
€
|
7
|
193 €
|
7
|
176 €
|
|
2007
|
110
|
(18%)
|
11
|
871
|
€
|
7
|
009 €
|
7
|
871 €
|
|
2008
|
139
|
(22%)
|
12
|
633
|
€
|
7
|
371 €
|
8
|
551 €
|
|
2009
|
153
|
(25%)
|
10
|
124
|
€
|
8
|
230€
|
8
|
697 €
|
|
2010
|
162
|
(26%)
|
6
|
539
|
€
|
7
|
488 €
|
7
|
241 €
|
Table 9: Social security contributions
3.2.3 Research Questions
The main goal of this analysis is to test the traditionalist
approach which states that an optimal level of debt helps to reduce the WACC
(Brealey, Myers, & Allen, 2008, p. 485). If this theory holds in
agriculture, a positive link between the debt level and profitability or
productivity should be observed. Therefore, the research question can be stated
with two hypotheses.
The dependant variables tested are:
- ROA: return on asset.
- ROE: return on equity.
The Independent variables tested is:
- Level of debt of the company.
First hypothesis:
H0: ROA and ROE tend to increase with the level of debt
of the farms in Isère.
H1: ROA and ROE have no positive links with the level of
debt of the farms in Isère
Second hypothesis:
H0: Financial distress may occur when leverage increases,
reducing ROA or ROE. H1: No signs of financial distress are clearly observed
when the leverage increases.
The second hypothesis is common sense. However it has to be
tested for agriculture. Milk production was really stable for years, because
the market was controlled thanks to the system of quotas. Therefore, as the
volume of production is somehow easy to control, financial performances of the
farms are easy to predict, limiting strongly the risks of financial
distress.
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