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Cooperatives' Tax "Advantages": Growth, Retained Earnings, and Equity Rotation

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  • Richard E. Caves
  • Bruce C. Petersen

Abstract

Cooperatives are subject to full tax integration for the bulk of their income, while corporations' net income is subject to what is known as a classical form of taxation. This paper derives the condition under which full tax integration gives the cooperative a lower cost of equity capital and develops a model to examine the effect of taxation, together with equity rotation, on the growth path of cooperatives. An examination of some financial data of the largest 100 cooperatives supports our conclusion that cooperatives, under current financial practices, are capable of extremely high short-term growth rates, but they are not sustainable.

Suggested Citation

  • Richard E. Caves & Bruce C. Petersen, 1986. "Cooperatives' Tax "Advantages": Growth, Retained Earnings, and Equity Rotation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 207-213.
    • Handle: RePEc:oup:ajagec:v:68:y:1986:i:2:p:207-213.
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    Citations

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    Cited by:

    1. Michael L. Cook, 2018. "A Life Cycle Explanation of Cooperative Longevity," Sustainability, MDPI, vol. 10(5), pages 1-20, May.
    2. Chaddad, Fabio Ribas & Cook, Michael L., 2002. "An Ownership Rights Typology Of Cooperative Models," Working Papers 26032, University of Missouri Columbia, Department of Agricultural Economics.
    3. Chaddad, Fabio Ribas & Cook, Michael L., 2001. "Testing For The Presence Of Financial Constraints In Agricultural Cooperatives," 2001 Annual meeting, August 5-8, Chicago, IL 20746, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Chaddad, Fabio Ribas & Cook, Michael L., 2002. "Testing For The Presence Of Financial Constraints In U.S," Working Papers 26045, University of Missouri Columbia, Department of Agricultural Economics.
    5. Mats Bergman, 1997. "Antitrust, Marketing Cooperatives, and Market Power," European Journal of Law and Economics, Springer, vol. 4(1), pages 73-92, January.
    6. Xiaoyan Qian & Tava Lennon Olsen, 2020. "Operational and Financial Decisions Within Proportional Investment Cooperatives," Manufacturing & Service Operations Management, INFORMS, vol. 22(3), pages 545-561, May.
    7. Zhang, Tianwei & Mallory, Mindy L., 2010. "Patronage Refunds Paying Decision of Farm Credit System Associations: A Logit Model," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61756, Agricultural and Applied Economics Association.
    8. Hopp, Fredrick Neal, 1994. "A financial analysis of grain marketing and production supply cooperatives, 1985-1991," ISU General Staff Papers 1994010108000017637, Iowa State University, Department of Economics.
    9. Nadav, Carmel & Hammond, Jerome W., 1992. "Financial Structure And The Dynamics Of Investment Decisions In Supply Cooperatives," Staff Papers 13401, University of Minnesota, Department of Applied Economics.

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