The Cost of Risky Debt in Cooperatives

R. Srinivasan

Journal of Cooperatives, 2011, vol. 25, 16

Abstract: This article values the debt of an input cooperative that procures a single commodity from farmers and then processes and markets the output, and an otherwise identical firm structured as an investor-owned firm (IOF) using the Black-Scholes option pricing model. The major conclusion of this article is that a cooperative can be designed to be safer for lenders, which implies a lower cost of debt, than an otherwise identical firm structured as an IOF. This conclusion is a logical consequence of the difference between the residual claims of the owners of cooperatives and of IOFs.

Keywords: Demand and Price Analysis; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlcoop:164703

DOI: 10.22004/ag.econ.164703

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