The cooperative capital constraint revisited

Abstract

Purpose – There is little reason a priori to expect that a cooperative firm’s capital needs are different from a non-cooperative firm’s needs if the two firms are otherwise similar in function and size and operate within similar market economies. However, the notion that cooperatives face capital constraints that investor-owned firms (IOFs) do not is a persistent theme in the literature. The paper aims to discuss these issues. Design/methodology/approach – The authors revisit this hypothesis with an empirical examination of capital constraints in a panel data set of US agricultural supply and grain cooperatives and IOFs. Findings – The findings are mixed. While the authors find little to suggest that cooperatives face financial constraints on borrowing in the short run, relative to IOFs, the authors do find some evidence that for long-term investments, a capital constraint may exist. Originality/value – These short and long run differences have implications for the survival and growth of agricultural cooperatives. While in the short run, access to debt financing allows these firms to operative profitably, ultimately long-term large investments in technology and fixed assets will be required to maintain competitiveness in this industry.

A Review of the Empirical Literature on Farmer Cooperatives: Performance, Ownership and Governance, Finance, and Member Attitude

“…Considering the results of McKee and Larsen () and Li et al. (), a possible long‐term debt constraint is perhaps explained by the relatively high degree of uncertainty in the agricultural sector as well as the unfamiliarity of the cooperative model to commercial institutions in the financial sector.…”

“…Using the DuPont identity as the framework, Li et al. () also observed a possible constraint on long‐term borrowing for a sample of 100 supply and marketing cooperatives in Iowa. Considering the results of McKee and Larsen () and Li et al.…”

Financing Large-Scale Mitigation by Smallholder Farmers: What Roles for Public Climate Finance?

“…Our cooperative survey suggests that all the cooperatives face constraints in their access to finance for longer-term investments. While there has been considerable research on the capital structure of cooperatives in developed countries (e.g., Barton et al, 2011;Li et al, 2015), there is a gap in related research in Africa.…”

Three essays on commodity markets

“…The horizon problem will further cause the member-producer to discount the patronage refund, which is paid out in the future because older members do not expect to fully benefit from the co-op investment with his money. Li et al (2015) show that the grain marketing co-ops in Iowa carry significantly less long-term debt than IOFs in the same industry. This indicates that co-ops may rely on equity financing for long-lived assets, which compounding with the horizon problem may adversely affect the longevity and growth of co-ops.…”

“…The market share series has y-axis in the unit interval. Empirical literature aiming to explain the continuing restructuring of agricultural co-ops and the diminishing market share have focused on co-op's operating inefficiencies (Sexton et al, 1989;Crooks, 2001;Hailu et al, 2007) and capital constraints (Featherstone et al, 1995;Chaddad et al, 2004;Soboh et al, 2012;Li et al, 2015). These literature often take an agnostic approach with regard to the relationship between the co-ops' objectives and their operating decisions, which limits the implications of relative importance of different factors that contribute to the secular decline of the cooperative as a business model in the grain marketing industry.…”