Advertisement

Small Business Economics

, Volume 32, Issue 4, pp 439–464 | Cite as

Financial development and the growth of cooperative firms

  • Francesca Gagliardi
Article

Abstract

The purpose of this article is to empirically assess the relationship existing between local financial development and the growth of firms, with a special focus on cooperatives. Using Italian data, a multiplicative interaction model is specified, so as to allow the impact of local banking development to differ between cooperative and non-cooperative firms. The main finding is that although local banking development represents a determinant of firms’ growth, regardless of their legal structure, it plays a special role in boosting the growth of cooperatives. This result provides evidence in favor to the existence of an institutional complementarity relationship between the development of local banking institutions and cooperative firms.

Keywords

Cooperatives Financial development Institutional complementarities 

JEL Classifications

B52 G21 L25 L30 L26 

Notes

Acknowledgments

In writing this version I benefited from the comments of Geoffrey M. Hodgson, Avinash K. Dixit, Douglass C. North, Giovanni Dosi, Jesse M. Fried, Francesco Trivieri, the participants to the European School on New Institutional Economics held in Cargese on 21–25 May 2007, and two anonymous referees. I thank Attilio Pasetto from Capitalia for his kind elucidations. I am also grateful to Mariarosaria Agostino, Elena Granaglia, Rosanna Nisticò and the participants to the Centre for Research in Institutional Economics Workshop held at the University of Hertfordshire on 23–24 January 2007, for their valuable comments and suggestions on earlier versions of this article. Of course, all remaining errors and omissions are mine.

References

  1. Acs, Z., & Audretsch, D. B. (1990). Small firms and entrepreneurship: A comparison between West and East countries. Discussion Paper, MIT Press.Google Scholar
  2. Alchian, A. A., & Woodward, S. (1988). Review: The firm is dead; long live the firm a review of Oliver E. Williamson’s the economic institutions of capitalism. Journal of Economic Literature, 26(1), 65–79.Google Scholar
  3. Almus, M., & Nerlinger, E. A. (1999). Growth of new technology-based firms: Which factors matter? Small Business Economics: An Entrepreneurship Journal, 13(2), 141–154.CrossRefGoogle Scholar
  4. Amable, B. (2000). Institutional complementarity and diversity of social systems of innovation and production. Review of International Political Economy, 7, 645–687.CrossRefGoogle Scholar
  5. Amable, B., Ernst, E., & Palombarini, S. (2005). How do financial markets affect industrial relations: An institutional complementarity approach. Socio-Economic Review, 3(2), 311–330.CrossRefGoogle Scholar
  6. Aoki, M. (2001). Toward a comparative institutional analysis. Cambridge: MIT Press.Google Scholar
  7. Ardishvili, A., Cardozo, S., Harmon, S., & Vadakath, S. (1998). Towards a theory of new venture growth. Paper presented at the 1998 Babson Entrepreneurship Research Conference, Ghent, Belgium.Google Scholar
  8. Audretsch, D. B., Santarelli, E., & Vivarelli, M. (1999). Start-up size and industrial dynamics: Some evidence from Italian manufacturing. International Journal of Industrial Organization, 17, 965–983.CrossRefGoogle Scholar
  9. Bartlett, W., Cable, G., Estrin, S., Jones, D. C., & Smith, S. C. (1992). Labour-managed cooperatives and private firms in North Central Italy: An empirical comparison. Industrial and Labour Relations Review, 46(1), 103–118.CrossRefGoogle Scholar
  10. Banerjee, A. V., & Newman, A. F. (1993). Occupational choice and the process of development. Journal of Political Economy, 101(2), 274–298.CrossRefGoogle Scholar
  11. Basili, M., Duranti, C., & Franzini, M. (2004). Network, trust and institutional complementarities. Rivista di Politica Economica, 1(2), 159–179.Google Scholar
  12. Bayo-Moriones, J. A., Galilea-Salvatierra, P. J., & Merino-Dìaz de Cerio, J. (2002). Participation, cooperatives and performance: An analysis of Spanish manufacturing firms. In T. Kato & J. Pliskin (Eds.), The determinants of the incidence and the effects of participatory organisations (pp. 31–56). Amsterdam: Elsevier.Google Scholar
  13. Becchetti, L., & Trovato, G. (2002). The determinants of growth for small and medium sized firms. The role of the availability of external finance. Small Business Economics: An Entrepreneurship Journal, 19(4), 291–306.CrossRefGoogle Scholar
  14. Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2003). Financial and legal institutions and firm size. Working Paper n. 2997, World Bank Policy Research.Google Scholar
  15. Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraint to growth. Does size matter? Journal of Finance, 1(2), 137–177.CrossRefGoogle Scholar
  16. Bekaert, G., Harvey, C. H., & Lundblad, C. (2005). Does financial liberalization spur growth? Journal of Financial Economics, 77, 3–55.CrossRefGoogle Scholar
  17. Bencivenga, V., & Smith, B. (1991). Financial intermediation and endogenous growth. Review of Economic Studies, 58(2), 195–209.CrossRefGoogle Scholar
  18. Benfratello, L., Schiantarelli, F., & Sembenelli, A. (2006). Banks and innovation: Microeconometric evidence on Italian firms. Working Paper 631, Boston College.Google Scholar
  19. Ben-Ner, A. (1988). The life cycle of worker-owned firms in market economies: A theoretical analysis. Journal of Economic Behavior and Organization, 10, 287–313.CrossRefGoogle Scholar
  20. Blair, M., Kruse, D. L., & Blasi, J. R. (2000). Employee ownership: An unstable form or a stabilizing force? In M. Blair & T. Hockan (Eds.), The new relationship: Human capital in the American corporation (pp. 241–298). Washington: Brookings Institution Press.Google Scholar
  21. Bofondi, M., & Gobbi, G. (2003). Bad loans and entry in local credit markets. Banca d’Italia, Tema di discussione n. 509.Google Scholar
  22. Bonaccorsi di Patti, E., & Dell’Ariccia, G. (2004). Bank competition and firm creation. Journal of Money, Credit and Banking, 36(2), 225–252.CrossRefGoogle Scholar
  23. Bonaccorsi di Patti, E., & Gobbi, G. (2001a). The changing structure of local credit markets: Are small businesses special? Journal of Banking and Finance, 25, 2209–2237.CrossRefGoogle Scholar
  24. Bonaccorsi di Patti, E., & Gobbi, G. (2001b). The effects of bank consolidation and market entry on small business lending. Banca d’Italia, Tema di discussione n. 404.Google Scholar
  25. Bonin, J., Jones, D. C., & Putterman, L. (1993). Theoretical and empirical studies of producer cooperatives: Will ever the twain meet? Journal of Economic Literature, 31, 1290–1320.Google Scholar
  26. Boyer, R. (2005). Coherence, diversity, and the evolution of capitalism: The institutional complementary hypothesis. Evolutionary and Institutional Economics Review, 2(1), 43–80.Google Scholar
  27. Brambol, T., Clark, W. R., & Golder, M. (2006). Understanding interaction models: Improving empirical analysis. Political Analysis, 14, 63–82.CrossRefGoogle Scholar
  28. Carpenter, R. E., & Petersen, C. (2002). The growth of small firms constrained by internal finance. The Review of Economics and Statistics, 84(2), 298–309.CrossRefGoogle Scholar
  29. Cesarini, F. (2003). Il rapporto banca-impresa. Paper presented at the workshop “Impresa, risparmio e intermediazione finanziaria: Aspetti economici e profili giuridici,” Trieste.Google Scholar
  30. Chen, K., Babb, E. M., & Schrader, L. F. (1985). Growth of large cooperative and proprietary firms in the US food sector. Agribusiness, 1, 201–210.CrossRefGoogle Scholar
  31. Churchill, C., & Lewis, V. L. (1983). The five stages of small business growth. Harvard Business Review, 61(3), 30–50.Google Scholar
  32. Cook, M. L. (1995). The future of U.S. agricultural cooperatives: A neo-institutional approach. American Journal of Agricultural Economics, 77, 1153–1159.CrossRefGoogle Scholar
  33. Davidsson, P., & Wiklund, J. (2000). Conceptual and empirical challenges in the study of firm growth. In D. Sexton & H. Landstrom (Eds.), The Blackwell handbook of entrepreneurship (pp. 26–44). Oxford: Blackwell Publishing.Google Scholar
  34. Davidsson, P., Kirchhoff, B., Hatemi, J. A., & Gustavsson, H. (2002). Empirical analysis of business growth factors using Swedish data. Journal of Small Business Management, 40(4), 332–349.CrossRefGoogle Scholar
  35. Dehejia, R., & Lleras-Muney, A. (2003). Why does financial development matter? The United States from 1900 to 1940. NBER Working Paper n. 955.Google Scholar
  36. Delmar, F. (1997). Measuring growth: Methodological considerations and empirical results. In R. Donckels & A. Miettinen (Eds.), Entrepreneurship and SME research: On its way to the next millennium (pp. 199–216). Aldershot: Ashgate.Google Scholar
  37. Delmar, F., Daviddson, P., & Gartner, W. B. (2003). Arriving at the high-growth firms. Journal of Business Venturing, 18, 189–216.CrossRefGoogle Scholar
  38. Demirgüç-Kunt, A., & Maksimovic, V. (1998). Law, finance, and firm growth. The Journal of Finance, 53(6), 2107–2137.CrossRefGoogle Scholar
  39. De Gregorio, J., & Guidotti, P. (1995). Financial development and economic growth. World Development, 23, 433–448.CrossRefGoogle Scholar
  40. Dìaz-Hermelo, F., & Vassolo, R. (2004). The determinants of firm’s growth: An empirical examination. Working Paper, Universidad Austral.Google Scholar
  41. Dixit, A. K. (2007). Economic governance. In: S. Durlauf & L.E. Blume (Eds.), The New Palgrave Dictionary of Economics, forthcoming, Palgrave Macmillan.Google Scholar
  42. Dow, G. (2003). Governing the firm. Cambridge: Cambridge University Press.Google Scholar
  43. Drèze, J. (1993). Self-management and economic theory. In P. Bardhan & J. Roemer (Eds.), Market socialism: The current debate (pp. 253–265). Oxford: Oxford University Press.Google Scholar
  44. Dunne, P., & Hughes, A. (1994). Age, size, growth and survival: UK companies in the 1980s. Journal of Industrial Economics, 42(2), 115–140.CrossRefGoogle Scholar
  45. Dunne, T., Roberts, M. J., & Samuelson, L. (1989). The growth and failure of US manufacturing plants. Quarterly Journal of Economics, 104(4), 671–698.CrossRefGoogle Scholar
  46. Ernst, C. E. (2003). Financial systems, industrial relations, and industry specialization. An econometric analysis on institutional complementarities. In Proceedings of the OeNB Workshop “The Transformation of the European Financial System. Where Do We Go? Where Should We Go?,” Vienna.Google Scholar
  47. Estrin, S., & Jones, D. C. (1988). The determinants of investments in labor managed firms: Evidence from France. Discussion paper n.87, Centre for economic performance, London School of Economics.Google Scholar
  48. Estrin, S., & Jones, D. C. (1992). The viability of employee-owned firms. Evidence from France. Industrial and Labor relations Review, 45(2), 323–338.CrossRefGoogle Scholar
  49. Evans, D. S. (1987). Tests of alternative theories of firm growth. Journal of Political Economy, 95(4), 657–674.CrossRefGoogle Scholar
  50. Fagiolo, G., & Luzzi, A. (2006). Do liquidity constraints matter in explaining firm size and growth? Some evidence from the Italian manufacturing industry. Industrial and Corporate Change, 15(1), 1–39.CrossRefGoogle Scholar
  51. Fernandez, D., & Galetovic, A. (1994). Schumpeter might be right—but why? Explaining the relation between finance, development and growth. Working Paper, School of Advanced International Studies, John Hopkins University.Google Scholar
  52. Flamholtz, E. G. (1986). Managing the transition from an entrepreneurship to a professionally managed firm. San Francisco: Jossey-Bass.Google Scholar
  53. Furubotn, E. G., & Pejovich, S. (1970). Property rights and the behavior of the firm in a socialist state: The example of Yugoslavia. Zeitschrift für Nationalökonomie, 30(5), 431–454.Google Scholar
  54. Gibrat, R. (1931). Les Inegalites Economiques. Paris: Librairie Du Recueil Sirey.Google Scholar
  55. Glancey, K. (1998). Determinants of growth and profitability in small entrepreneurial firms. International Journal of Entrepreneurial Behaviour and Research, 1(4), 18–27.Google Scholar
  56. Goldsmith, R. (1969). Financial structure and development. New Haven: Yale University Press.Google Scholar
  57. Greiner, L. E. (1972). Evolutions and revolutions as organizations grow. Harvard Business Review, 50(4), 37–46.Google Scholar
  58. Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98, 1076–1107.CrossRefGoogle Scholar
  59. Guiso, L., Sapienza, P., & Zingales, L. (2004). Does local financial development matter? The Quarterly Journal of Economics, 119(3), 929–969.CrossRefGoogle Scholar
  60. Hall, P. A., & Gingerich, D. W. (2004). Varieties of capitalism and institutional complementarities in the macroeconomy. An empirical analysis. Discussion Paper n. 04/5, Max Planck Institute for the Study of Societies.Google Scholar
  61. Hoy, F., McDougall, P. P., & Dsouza, D. E. (1992). Strategies and environments of high growth firms. In D. L. Sexton & J. D. Kasarda (Eds.), The state of the art of entrepreneurship (pp. 341–357). Boston: PWS-Kent Publishing.Google Scholar
  62. Jayaratne, J., & Strahan, P. E. (1996). The finance-growth nexus: Evidence from bank branch deregulation. Quarterly Journal of Economics, 111, 639–670.CrossRefGoogle Scholar
  63. Jensen, M. C., & Meckling, W. R. (1976). Theory of the firm: Managerial behaviour, agency costs and capital structure. Journal of Financial Economics, 3(4), 305–360.CrossRefGoogle Scholar
  64. Jossa, B., & Cuomo, G. (1997). The economic theory of socialism and the labour-managed firm. Market, socialism and labour management. Edward Elgar Publishers: Cheltenham-Brookfield.Google Scholar
  65. King, R., & Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108, 717–738.CrossRefGoogle Scholar
  66. Kogut, B., & Zander, U. (1992). Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3(3), 383–397.CrossRefGoogle Scholar
  67. Kumar, M. S. (1985). Growth, acquisition activity and firm size: Evidence from the United Kingdom. Journal of Industrial Economics, 33(3), 327–338.CrossRefGoogle Scholar
  68. Kwast, M., Starr-McCluer, M., & Wolken, J. (1997). Market definition and the analysis of antitrust in banking. The Antitrust Bulletin, 42, 973–995.Google Scholar
  69. La Loggia Albanese, E. (2003). Titoli di partecipazione nelle societa’ cooperative. Rivista di diritto dell’economia, dei trasporti e dell’ambiente, 1, 111–123.Google Scholar
  70. Levin, H. M. (1984). ESOPs and the financing of worker cooperatives. In R. Jackall & H. M. Levin (Eds.), Worker cooperatives in America (pp. 220–245). Berkeley: University of California Press.Google Scholar
  71. Levine, R. (1992). Financial structure and economic development. Working Paper n. 849, the World Bank.Google Scholar
  72. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35, 688–726.Google Scholar
  73. Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. American Economic Review, 88, 537–558.Google Scholar
  74. Lotti, F., Santarelli, E., & Vivarelli, M. (2003). Does Gibrat’s law hold among young, small firms? Journal of Evolutionary Economics, 13, 213–235.CrossRefGoogle Scholar
  75. Mata, J. (1994). Firm growth during infancy. Small Business Economics: An Entrepreneurship Journal, 6(1), 27–40.CrossRefGoogle Scholar
  76. Mathews, R. (2002). Mondragòn: Past performance and future potential. Paper presented at the Capital Ownership Group Conference, the Kent State University, Washington.Google Scholar
  77. Ménard, C. (2004). The economics of hybrid organizations. Journal of Institutional and Theoretical Economics, 160, 345–376.CrossRefGoogle Scholar
  78. Monzon, J. L., Spear-Thomas, A., & Zevi, A. (Eds.) (1996). Cooperatives, Markets and Cooperative Principles. Liège: International Ciriec Association Press.Google Scholar
  79. Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.CrossRefGoogle Scholar
  80. McKinnon, R. (1973). Money and capital in economic development. Washington: Brooking Institutions.Google Scholar
  81. Nicita, A., & Pagano, U. (2004). Institutional complementarities, corporate governance and financial-technological equilibria. Siena memos and papers on law and economics n.28, Università di Siena.Google Scholar
  82. Niskanen, M., & Niskanen, J. (2005). The determinants of firm growth in small and micro firms—evidence on relationship lending effects. Working Paper, University of Kuopio.Google Scholar
  83. Onida, F. (2004). Se il piccolo non cresce. Piccole e medie imprese italiane in affanno. Bologna: Il Mulino.Google Scholar
  84. Pavitt, K. (1984). Patterns of technical change: Towards a taxonomy and a theory. Research Policy, 13, 343–373.CrossRefGoogle Scholar
  85. Pejovich, S. (1969). The firm, monetary policy and property rights in a planned economy. Western Economic Journal, 7(3), 193–200.Google Scholar
  86. Pejovich, S. (1992). Why has the labor-managed firm failed? Cato Journal, 12(2), 461–473.Google Scholar
  87. Penrose, E. (1959). The theory of the growth of the firm. Oxford: Oxford University Press.Google Scholar
  88. Petersen, M. A., & Rajan, R. G. (2002). Does distance still matter? The information revolution in small business lending. Journal of Finance, 57(6), 2533–2570.CrossRefGoogle Scholar
  89. Putterman, L. (1982). Some behavioral perspectives on the dominance of hierarchical over democratic forms of enterprise. Journal of Economic Behavior and Organization, 3, 139–160.CrossRefGoogle Scholar
  90. Putterman, L. (1993). Ownership and the nature of the firm. Journal of Comparative Economics, 17(2), 243–263.CrossRefGoogle Scholar
  91. Rajan, R. G., & Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88, 559–586.Google Scholar
  92. Saint-Paul, G. (1992). Technological choice, financial markets and economic development. European Economic Review, 36(4), 763–781.CrossRefGoogle Scholar
  93. Salani, M. P. (2005). Le basi istituzionali della forma cooperativa. In E. Mazzoli & S. Zamagni (Eds.), Verso una nuova teoria economica della cooperazione (pp. 141–223). Bologna: Il Mulino.Google Scholar
  94. Schlicht, E., von Weizsäcker, C. C. (1977). Risk financing in labour-managed economies: The commitment problem. Zeitschrift für die gesamte staatswissenschaft, 133, 53–66.Google Scholar
  95. Servèn, L. (2003). Real exchange rate uncertainty and private investment in LDCs. Review of Economic and Statistics, 88(1), 212–218.Google Scholar
  96. Shaw, E. (1973). Financial deepening in economic development. New York: Oxford University Press.Google Scholar
  97. Smith, S. C. (2001). Blooming together or wilting alone? Network externalities and Mondragòn and La Lega co-operative networks. Discussion Paper n. 2001/27, World Institute for Development Economics Research, United Nations University.Google Scholar
  98. Staber, U. (1989). Age dependence and historical effects on the failure rates of worker cooperatives: An event history analysis. Economic and Industrial Democracy, 10(1), 59–80.CrossRefGoogle Scholar
  99. Stephen, F. H. (1984). The economic analysis of producers’ cooperatives. London: McMillan.Google Scholar
  100. Stiglitz, J. E. (2004). The role of cooperatives in globalization. Working Paper n. 9, University of Genova.Google Scholar
  101. Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71(3), 393–410.Google Scholar
  102. Sutton, J. (1997). Gibrat’s legacy. Journal of Economic Literature, 35, 40–59.Google Scholar
  103. Tschoegl, A. E. (1983). Size, growth, and transnationality among the world’s largest banks. Journal of business, 56(2), 187–201.CrossRefGoogle Scholar
  104. Vanek, J. (1970). The general theory of labor managed market economies. Ithaca: Cornell University Press.Google Scholar
  105. Vanek, J. (1977). The labor-managed economy. Ithaca: Cornell University Press.Google Scholar
  106. Vitaliano, P. (1983). Cooperative enterprise: An alternative conceptual basis for analyzing a complex institution. American Journal of Agricultural Economics, 65(5), 1078–1083.CrossRefGoogle Scholar
  107. Wagner, J. (1992). Firm size, firm growth, and persistence of chance: Testing Gibrat’s law with establishment data from Lower Saxony, 1978–1989. Small Business Economics: An Entrepreneurship Journal, 42(2), 125–131.CrossRefGoogle Scholar
  108. Weiss, C. R. (1998). Size, growth, and survival in the upper Austrian farm sector. Small Business Economics: An Entrepreneurship Journal, 10(4), 305–312.CrossRefGoogle Scholar
  109. Wijewardena, H., & Tibbits, G. E. (1999). Factors contributing to the growth of small manufacturing firms: Data from Australia. Journal of Small Business Management, 37(20), 38–45.Google Scholar
  110. Williamson, O. E. (1988). Corporate finance and corporate governance. Journal of Finance, 43(3), 576–591.CrossRefGoogle Scholar
  111. Zamagni, S. (2005). Per una teoria economico-civile dell’impresa cooperativa. In E. Mazzoli & S. Zamagni (Eds.), Verso una nuova teoria economica della cooperazione (pp. 15–56). Bologna: Il Mulino.Google Scholar
  112. Zevi, A. (2005). Il finanziamento delle cooperative. In E. Mazzoli & S. Zamagni (Eds.), Verso una nuova teoria economica della cooperazione (pp. 293–331). Bologna: Il Mulino.Google Scholar

Copyright information

© Springer Science+Business Media, LLC. 2007

Authors and Affiliations

  1. 1.The Business School, Department of Accounting, Finance & EconomicsUniversity of HertfordshireHatfieldUK

Personalised recommendations