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Pricing and Dividend Policies in Open Credit Cooperatives

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  • William R. Emmons
  • Frank A. Schmid

Abstract

This paper develops a model of pricing and dividend policies in open credit cooperatives (i.e., those doing member and nonmember business). For a fixed distribution of member preferences, the larger the fraction of business done by members, the smaller the optimal dividend and the larger the optimal pricing subsidy. For a fixed fraction of member business, the greater the skewness of member preferences toward loan (deposit)business with the credit cooperative, the larger the optimal dividend and the higher (lower) the optimal loan (deposit) interest rate. Aggregate empirical evidence from the German cooperative banking sector supports a version of the latter prediction.

Suggested Citation

  • William R. Emmons & Frank A. Schmid, 2002. "Pricing and Dividend Policies in Open Credit Cooperatives," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(2), pages 234-255, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200206)158:2_234:padpio_2.0.tx_2-i
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    References listed on IDEAS

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    1. David Canning & Clifford W. Jefferson & John E. Spencer, 2003. "Optimal Credit Rationing in Not-For-Profit Financial Institutions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 243-261, February.
    2. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
    3. William R. Emmons & Willi Mueller, 1997. "Conflict of interest between borrowers and lenders in credit co- operatives: the case of German co-operative banks," Working Papers 1997-009, Federal Reserve Bank of St. Louis.
    4. William R. Emmons & Frank A. Schmid, 1999. "Credit unions and the common bond," Review, Federal Reserve Bank of St. Louis, vol. 81(Sep), pages 41-64.
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    Cited by:

    1. Evans, Lewis & Meade, Richard, 2005. "The Role and Significance of Cooperatives in New Zealand Agriculture, A Comparative Institutional Analysis," Working Paper Series 3847, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Lepetit, L. & Meslier, C. & Strobel, F. & Wardhana, L., 2018. "Bank dividends, agency costs and shareholder and creditor rights," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 93-111.
    3. Evans, Lewis & Meade, Richard, 2005. "The Role and Significance of Cooperatives in New Zealand Agriculture, A Comparative Institutional Analysis," Working Paper Series 18942, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    4. Lewis Evans & Graeme Guthrie, 2006. "A Dynamic Theory of Cooperatives: The Link between Efficiency and Valuation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 364-383, June.
    5. Adalgiso Amendola & Cristian Barra & Marinella Boccia & Anna Papaccio, 2021. "Market Structure and Financial Stability: the Interaction between Profit-Oriented and Mutual Cooperative Banks in Italy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(2), pages 235-259, December.
    6. Ivana Catturani & Ragupathy Venkatachalam, 2014. "Optimal Interest Rates in Cooperative Banks with Non-member Customers," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 181-199, June.
    7. repec:vuw:vuwscr:18942 is not listed on IDEAS
    8. Derek C. Jones & Panu Kalmi, 2013. "Cooperative enterprise," Chapters, in: Luigino Bruni & Stefano Zamagni (ed.), Handbook on the Economics of Reciprocity and Social Enterprise, chapter 8, pages 85-93, Edward Elgar Publishing.
    9. McKillop, Donal & French, Declan & Quinn, Barry & Sobiech, Anna L. & Wilson, John O.S., 2020. "Cooperative financial institutions: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 71(C).

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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