Does Net Surplus Reveal Cooperative Partner Preferences?

Topic 14; Stage 3; Meso Micro. A positive net surplus in Cooperative accounts arises when partners wait until the end of the year to retrieve part of the residual income. Thus they have renounced to anticipating income via... [ view full abstract ]

Topic 14; Stage 3; Meso Micro.

A positive net surplus in Cooperative accounts arises when partners wait until the end of the year to retrieve part of the residual income. Thus they have renounced to anticipating income via wages or prices throughout the year, apart from incurring in a waiting time cost. Moreover, they have also waived individual rights on this residual income. Once net surplus has arisen, a part must remain in the Cooperative; its future allocation depends on a collective decision. The partner losses the right to individually claim the income. This is why theorists first hypothesize that positive net surplus is either uncommon or low. Cooperative partners prefer to follow a null-net-surplus strategy. Secondly, these theorists claim that a null-surplus-net strategy is present even when cooperatives register a positive net surplus. This is owing to the fact that other flows of income, big enough to counterbalance the positive result, can be transferred from the Cooperative to partners at the same time that the net surplus is shared out.
Our paper aims to verify the second hypothesis in a sample of firms that deposited their accounts in the Official Register of Cooperatives in Galicia (Northwest region of Spain). In public accounts, other flows may be described as residual income apart from net surplus. Our results show that the positive net surplus disappears in some cooperatives when these other residual incomes are added. This confirms the second hypothesis of the theory. Yet, some firms still maintain a positive net surplus. A first group of these firms chooses to invest part of the residual income in the cooperative while a second group decides to fully invest in the cooperative. Our paper explores whether these two different strategies could be indicative of different cooperative partner preferences.