WHAT DETERMINANTS AFFECT THE CAPITAL STRUCTURE OF CONSUMER CO-OPERATIVES? THE CASE OF iCOOP KOREA

Jinseon Seo and Woosuk Choi

Annals of Public and Cooperative Economics, 2016, vol. 87, issue 1, 117-135

Abstract: he capital structure of co-operatives can differ from that of IOB (Investor-Owned Businesses) since the two organizations differ in their aims, governance structures and decision-making principles. This paper examines whether the determinants verified in IOB affect the leverage ratio of consumer co-operatives. Consumer co-operatives in South Korea have been rapidly growing during the last decade. There are two leading theories in finance that explain capital structure: the trade-off and pecking order theories. Focusing on consumer co-operatives in South Korea, the paper aims to analyze empirically what determinants have effect on the capital structure of consumer co-operatives and which of the two theories is more plausible. This study reveals that profitability and firm size have a significantly negative effect on leverage while tangibility and growth have a significantly positive effect on it. In conclusion, it seems that neither of the theories above perfectly accounts for the capital structure of consumer co-operatives because of the differences in governance characteristics between consumer co-operatives and IOB as well as in the costs of bankruptcy, agency, informational asymmetry and securities issuance.

Date: 2016
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