Capitalization, equity, and growth in cooperative firms

Cooperatives have unique capitalization and equity management needs that derive from the user-ownership cooperative principles, a revolving equity structure, and special cooperative taxation. They encounter challenges like accumulating sufficient equity from members, managing an optimal capital structure, maintaining sustainable growth, and managing equity redemption. Many of these challenges arise from vaguely defined property rights. A cooperative’s equity redemption strategy must satisfy its internal needs for funds while sustaining member and patron value. Proportionality between patron use and investment is an ideal equity management strategy but creates significant tradeoffs for the cooperative. This chapter identifies the key equity and capitalization issues facing agricultural cooperatives in the U.S., summarizes the current state of knowledge, and highlights opportunities for future research.