Investment financing in cooperative firms
DOI:
https://doi.org/10.18533/jefs.v3i02.154Keywords:
Cooperatives, Financing, Labour-managed firms, Portfolio diversification, Vertical integration.Abstract
By general agreement, one of the main obstacles to the growth of producer cooperatives is difficult investment financing, due to inadequate Capitalisation levels and the resulting inability to lodge sufficient collateral with lenders. Moreover, worker-owned firms are considered not very reliable because they suffer from problems of moral hazard and insufficient commitment. Unfortunately, the literature on this issue is not extensive and has weaknesses that are highlighted in the paper. By means of its critical analysis, it is possible to provide evidence that the funding difficulties caused by the particular structure of cooperative firms can be effectively tackled by creating an institutional framework within which cooperatives would be offered a wider range of organizational options comparable to those open to traditional enterprises. Finally, it is proved that the willingness of the members to fund the operations of their cooperative with loan capital may not be enough to mobilize external credit. For member financings to persuade potential providers of funds to place trust in a firm, third-party claims must necessarily qualify as senior debt and be repaid before the claims of the partners are settled.
References
Alchian, A. A., & Demsetz, H., (1972). Production, information costs and economic organizations. American Economic Review, 62: 770-796.
Basterretxea, I., & Martínez, R., (2012). Impact of management and innovation capabilities on performance: Are cooperatives different? Annals of Public and Cooperative Economics, 83: 357–381. http://dx.doi.org/10.1111/j.1467-8292.2012.00467.x
Bowles, S., & Gintis, H., (1993). The democratic firm: an agency-theoretic evaluation, in Bowles, S., Gintis, H., & Gustafsson B. (eds.), Markets and democracy: participation, accountability and efficiency. Cambridge, England: Cambridge University Press: 13-39. http://dx.doi.org/10.1017/CBO9780511983580, http://dx.doi.org/10.1017/CBO9780511983580.003
Bowles, S., & Gintis, H., (1994). Credit market imperfections and the incidence of worker-owned firms. Metroeconomica, 45: 209-223. http://dx.doi.org/10.1111/j.1467-999X.1994.tb00020.x
Brealey, R.A., & Myers, S.C., (1988). Principles of corporate finance. New York, NY: McGraw Hill.
Delbono, F., & Reggiani, C., (2013). Cooperative firms and the crisis: Evidence from some Italian mixed oligopolies. Annals of Public and Cooperative Economics, 84: 383–397. http://dx.doi.org/10.1111/apce.12020
Drèze, J. H., (1976). Some theory of labour management and participation. Econometrica, 44: 1125-1139. http://dx.doi.org/10.2307/1914250
Drèze, J. H., (1989). Labour-management, contracts and capital markets. A general equilibrium approach. Oxford, England: Blackwell.
Drèze, J. H., (1993). Self-management and economic theory: Efficiency, funding and employment, in Bardhan, P. & Roemer, J. E. (eds.), Market socialism: The current debate. New York, NY: Oxford Economic Press.
Eswaran, M. e Kotwal, A., (1989). Why are capitalists the bosses? The Economic Journal, 99: 162-176. http://dx.doi.org/10.2307/2234211
Fehr, E. (1993). The simple analytics of a membership market in a labor-managed economy, in Bowles, S., Gintis, H., & Gustafsson B. (eds.), Markets and democracy: participation, accountability and efficiency. Cambridge, England: Cambridge University Press. http://dx.doi.org/10.1017/CBO9780511983580.017
Gagliardi F., (2009). Banking Market structure, creation and activity of firms: Early evidence for cooperatives in the Italian case. Annals of Public and Cooperative Economics, 80: 605–640. http://dx.doi.org/10.1111/j.1467-8292.2009.00400.x
Gui, B., (1985). Limits to external financing: a model and an application to labor-managed firms, in Jones, D. C., & Svejnar J. (eds.), Advances in the economic analysis of participatory and labor-managed firms (pp. 107-123). Greenwich, England: JAI Press.
Hart, O., (1995). Firms, contracts and financial structure. Oxford, England: Clarendon Press. http://dx.doi.org/10.1093/0198288816.001.0001
Hart, O., (2001). Financial contracting. Journal of Economic Literature, 39:1079-1100. http://dx.doi.org/10.3386/w8285
Hendrikse, G. W .J., & Veerman, C. P., (2001). Marketing cooperatives and financial structure: a transaction costs economics analysis. Agricultural Economics 26: 205-216. http://dx.doi.org/10.1111/j.1574-0862.2001.tb00064.x
Jay, P., (1980). The workers' cooperative economy, in Clayre A. (ed.), The political economy of cooperation and partecipation: A third sector. Oxford, England: Oxford University Press.
Jensen, M. C., & Meckling, W. J., (1976). Theory of the firm: Managerial behaviour, agency and ownership structure. Journal of Financial Economics, 3: 305-360. http://dx.doi.org/10.1016/S0022-5193(76)80085-9
Jensen, M. C., & Meckling, W. J., (1979). Rights and production functions: An applications to labor-managed firms and codetermination. The Journal of Business, 52: 469-506. http://dx.doi.org/10.1086/296060
Jossa, B., (2009). Alchian and Demsetz’s critique of the cooperative firm thirty-six years after. Metroeconomica, 60: 686-714. http://dx.doi.org/10.1111/j.1467-999X.2009.04070.x
Jossa, B., (2014). Producer cooperatives as a new mode of production. New York, NY: Routledge.
Kalecki, M., (1937). The principle of increasing risk. Economica, 4: 440-447. http://dx.doi.org/10.2307/2626879
Kasmir, S., (1996). The myth of mondragon. Cooperatives, politics and working-class life in a basque town. New York, NY: State University of New York Press.
Margison, P., (1993). Power and efficiency in the firm: Understanding the employment relationship, in Pitelis C. (ed.), Transactions costs, markets and hierarchies. Oxford, England: Blackwell.
Maietta O. W. & Sena V., (2010). Financial constraints and technical efficiency: Some empirical evidence for italian producers’ cooperatives. Annals of Public and Cooperative Economics 81: 21–38. http://dx.doi.org/10.1111/j.1467-8292.2009.00404.x
McCain, R. A., (1977). On the optimum financial environment for worker coopera¬tives. Zeitschrift fur Nationalokonomie, 37: 355-384. http://dx.doi.org/10.1007/BF01291379
Meade, J. E., (1972). The theory of labour-managed firms and profit sharing. The Econo¬mic Journal, 82: 402-428.
Meade, J. E., (1980). Labour cooperatives, participation, and value-added sharing, in Clayre A. (ed.), The Political Economy of Cooperation and Participation: a Third Sector. Oxford, England: Oxford University Press.
Meade, J. E., (1989). Agathotopia. The economics of partnership. Aberdeen, UK: Aberdeen University Press.
Mikami K., (2013). Raising capital by issuing transferable membership in a worker cooperative. Annals of Public and Cooperative Economics, 84: 253–266. http://dx.doi.org/10.1111/apce.12013
Nutzinger, H. G., (1975). Investment and financing in a labour-managed firm and its social implications. Economic analysis and workers' management, 9: 181-201.
Oakeshott, R., (1975). Spain's oasis of democracy, in Vanek J., (ed.), Self-management: Economic liberation of man. Harmondsworth, England: Penguin Books.
Oakeshott, R., (1982). Spain: the Mondragon enterprises, in Stephen F. (ed.), the performance of labour managed firms. London, England: Macmillan.
Schlicht, E. & Von Weizsacker, C. C., (1977). Risk financing in labour managed economies: The commit¬ment pro-blem. Zeitschrift fur die Gesamte Staatswissen¬schaft, Special Issue: 53-56.
Sertel, M. R. (1982). Workers and incentives. Amsterdam, Holland: North Holland.
Sertel, M. R., (1987). Workers' enterprises are not perverse. European Economic Re¬view, 31: 1619-1625.
Thomas, A., (1990). Financing worker cooperatives in EC country. Annals of Public and Cooperative Economics, 61: 175-211. http://dx.doi.org/10.1111/j.1467-8292.1990.tb01458.x
Thomas A., Defourny J., (1990). Financing workers' co-operatives and self-managed enterprises. Annals of Public and Cooperative Economics, 61: 167-174. http://dx.doi.org/10.1111/j.1467-8292.1990.tb01458.x, http://dx.doi.org/10.1111/j.1467-8292.1990.tb01457.x
Vanek, J., (1970). The general theory of labor-managed market economies. Ithaca, NY: Cornell University Press.
Vanek, J., (1977). The labor managed economy: Essays by J. Vanek. Ithaca, NY: Cornell University Press.
Waldmann, R. J. e Smith, S. C., (1999). Investment and supply effects of industry-indexed bonds: The labour managed firm. Economic Systems, 23: 245-267. http://dx.doi.org/10.1007/s001830050029
Ward B., (1958). The firm in Illyria; Market syndicalism. American Economic Review, 48: 566-589.
Whyte, W. F. e Whyte, K. K., (1991). Making Mondragon. The growth and dynamic of the worker cooperative complex. Ithaca; NY: JLR Press.
Williamson, O. E., (2000). The new institutional economics: Taking stock, looking ahead. Journal of Economic Literature, 38: 595-613. http://dx.doi.org/10.1257/jel.38.3.595
Downloads
Published
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) after official publication, as it can lead to productive exchanges as well as greater citation of published work (See The Effect of Open Access).
