Cooperatives' performance relative to investor-owned firms: a non-distorted approach for the wine sector

Antonio D'Amato,Giuseppe Festa,Amandeep Dhir,Matteo Rossi

doi:10.1108/bfj-03-2021-0275

Antonio D'Amato, Giuseppe Festa + Show 2 more

Open Access

https://doi.org/10.1108/bfj-03-2021-0275

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Abstract

PurposeThis study aims to investigate whether significant performance differences between cooperatives and investor-owned firms (IOFs) may exist.Design/methodology/approachBased on data from a sample of Italian wine firms for the period from 2009 to 2018, an adjusted measure of performance called earnings before interests, taxes, depreciations and amortizations gross the raw materials cost was adopted to consider the different objectives of cooperatives relative to those of IOFs.FindingsEmpirical evidence shows that in the context under analysis, cooperatives have performed better than IOFs.Originality/valueDespite the theoretical literature suggesting that the cooperative form of organizations suffers from many weaknesses, these results highlight that cooperatives operating in the wine sector are at least as economically efficient as other organizations, and more specifically, they perform better than for-profit firms. Consequent implications for theory and practice are discussed.

Highlights

Cooperatives, which could be defined as “[. . .] people-centred enterprises owned, controlled and run by and for their members to realize their common economic, social, and cultural needs and aspirations” (International Cooperative Alliance – ICA, www.ica.coop), play a crucial role in the economy at the international scale
This research contributes to the literature on cooperative performance in several ways: First, we consider the different business goals of cooperatives relative to those of investor-owned firms (IOFs), allowing the construction of a more accurate measure of performance; second, we develop an empirical analysis focussed on the Italian wine industry, in which cooperatives play a crucial role in wine production and exports
Research design: dependent and independent variables To investigate whether cooperatives perform better than IOFs, we assumed that these two types of companies differ in their objectives and ownership structures; in IOFs, ownership is assigned to risk capital holders who act as residual claimants, while in cooperatives, ownership is assigned to the same subjects for whose interest the business is assigned, where these subjects are involved as customers or workers or as suppliers of raw materials (Chaddad and Cook, 2004)

Summary

Introduction

Cooperatives, which could be defined as “[. . .] people-centred enterprises owned, controlled and run by and for their members to realize their common economic, social, and cultural needs and aspirations” (International Cooperative Alliance – ICA, www.ica.coop), play a crucial role in the economy at the international scale. Profit maximization is not their objective, as is the case for IOFs, as they instead pursue the maximization of members’ value by offering products and services at affordable prices or, as for cooperatives in the agricultural sector, they can buy raw materials from their members paying higher than market prices (Hart and Moore, 1996) From these considerations, to avoid generating biased results, in this study, we deviate from the usual literature on cooperative performance, which focusses predominantly on classical measures of financial performance, by adopting an adjusted measure based on earnings before interests, taxes, depreciations and amortizations (EBITDA) gross the cost of raw materials. We discuss the implications of the findings and our consequent conclusions

Theoretical background and research hypothesis

Cooperatives

Theoretical and managerial implications

Findings

Conclusion