The Effects of Uncertainty and Capital Source on Cooperative Firm Leverage
2017
McKee, Gregory | Larsen, Ryan
The organizational structure of cooperatives generates a complex linkbetween member equity and overall corporate capital structure. This link isfurther complicated by macroeconomic and firm-based risks. This paperpresents a model of optimal debt ratio, subject to cooperative financialcharacteristics and capital requirements. We test the proposition thatmacroeconomic and idiosyncratic uncertainty tend to decrease the optimaldebt to total asset ratio. We find that macroeconomic and idiosyncratic risknegatively affect optimal borrowing in cooperatives with sales of $25million or less. Conversely, no clear relationship exists between these typesof risk and cooperatives with greater sales. These findings suggest animportant relationship between firm operations and member equity as smallcooperatives contemplate entry into world markets.
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