Regulation, governance and capital structure in cooperatives

Abstract

Capital structure efficiency is viewed as contributing to good financial performance. According to the traditional arguments, cooperatives have difficulties in getting an optimal capital structure. This paper argues that governance rules may explain their less efficient performance. By combining the arguments of the political model of governance and the traditional theory of regulation, a unified approach is developed that makes the link between regulatory governance and capital structure explicit. It is argued that the heterogeneity of cooperatives' members may result in powerful coalitions and in a sub optimal capital structure. The evidence gathered from the empirical literature confirms these results. © 2007 springer.