Abstract

Credit Co-operatives, Management Steering and the Market for Corporate Control

The choice of a company's - in this case a bank's - legal form of incorporation may be interpreted as a means for demonstrating in a credible manner that management-steering interventions will either be made or not. Incorporating banks especially in the legal form of a co-operative means deliberately renouncing the use of market forces for corporate control purposes as a method of managementdisciplining, which may give credit co-operatives a net efficiency advantage over banks incorporated as public limited companies (AGs) in the eyes of the respective shareholders. Compared with the management of public limited banks, for instance, the management of credit co-operatives is better able, in the absence of take-over threats, to pursue economic power-building and growth objectives, which may be beneficial, ex post, for the co-operative's shareholders as well because of the shift in market shares between the two forms of credit institutions that is associated with oligopolistic market structures. However, basic to the occurrence of such a positive effect is a sufficiently large volume of the co-operative's transactions with non-members.