The effects of capital constraints on the growth of agricultural cooperatives

Abstract

In this paper, we examine how capital constraints affect the growth of US agricultural cooperatives. Employing a panel data set obtained from CoBank on 669 US agricultural cooperatives over 5 years, we employ system--generalised method of moments to estimate models of cooperative growth that incorporate long-term debt, allocated reserves, and retained earnings as continuous measures of capital constraints. We find that long-term debt use and size have positive impacts on cooperative growth, in violation of Gibrat’s law, which posits that firm size and firm growth are independent. In particular, cash flow, unallocated equity and long-term debt financing are critical contributors to asset growth for small and medium-sized cooperatives.