Cooperative and Investor Owned thrifts: A comparison of activities, business lines, performances, and risk

This research is held in a context of post-financial crisis, which started as a US banking crisis and got extended to an international economic downturn. It showed the impact of the depository institutions on the well-being of... [ view full abstract ]

This research is held in a context of post-financial crisis, which started as a US banking crisis and got extended to an international economic downturn. It showed the impact of the depository institutions on the well-being of the economy. Therefore, it is important to assess the strategies adopted by these institutions and the role of their ownership structure on their relational approaches with their customers and, therefore, the financial performances.
In this paper, we focus primarily on the differences between cooperatives and investor-owned thrifts in the US. Cooperative financial institutions are customer owned and rely on the one member one vote rule. This rule might imply some decisional and agency costs that can lead to inefficiencies in the cooperative model. On the other hand, investor-owned financial institutions, even though they are considered more efficient, showed their limits serving their clients and owners simultaneously.
We compare the activities undertaken by cooperative savings and loans also to investor-owned institutions in the US and how these types of activities affect financial performance and risk.
We examine the relational approach adopted by each type of governance while controlling for the institutions ‘characteristics. We compare the choice of market segments and the relational approach on one hand, and their impact on performance and stability of returns using a sample of a strongly balanced panel data of 11280 observations between 1999 and 2014 retrieved the data from SNL Financial Database of 505 cooperatives to 218 investor-owned thrifts.
Research question: Does the ownership structure impact market strategies adopted by thrifts, and how do these two factors impact financial performance?
Results: We find that cooperatives invest more in relationship lending than investor-owned institutions, even though that they rely on both traditional and untraditional activity and invest less in marketing activities. We also find that cooperatives outperform financially and socially investor-owned savings and loan institutions, as well as having a lower risk of default and financial risk. We find that serving business and consumer credit needs leads to better performances. We also find that diversifying in traditional and non-traditional activity leads to lower risks of default without having a significant impact on overall performance.
Main contribution: The main contribution of the paper is to add the ownership structure variable to the strategies features their impact on the financial performance.