Governance, organisational design, financial structure and investments in a co-operative firm

This chapter introduces and employs Aoki (1993) “P-network” framework as a theoretical tool to classify and interpret the governance and organizational configuration of cooperative firms. The proposed framework is also employed to discuss some general and desirable features of incentive-compatible financial instruments for cooperative firms. An interesting question is how efficient can the cooperative and participatory governance be in capital-intensive industries. More in general, are cooperatives well equipped to enter hi-tech and capital-intensive industries? To answer this question I have introduced an empirical analysis for the long run pattern of investment and optimal financial structure for a successful Italian producer cooperative of hi-tech mechanics and engineering, operating in the global market. The empirical analysis is based on a theoretical model meant to describe the typical pattern of a classical cooperative firm optimizing its financial structure and simultaneously choosing its optimal level of physical investments. The econometric estimates of the investment function interestingly show a result that turns out to be consistent with the conventional Tobin’s Q model: the investments significantly depend on the spread between the profitability of capital and the cost of capital, where the latter includes both the cost of usury of physical capital and its financial cost of acquisition. The results of the estimates can have a normative interpretation, to the extent that they show the conditions for the optimal allocation of resources for the firm’s investment decision.