Abstract:
As a reaction to competitive pressures, co-operative enterprises have relaxed their
residual claim restrictions resulting in the emergence of innovative organizational
forms. Cooperatives have adopted the hybrid model of demutualization to adapt to
these pressures. Demutualization alters member income rights, which stem from
member transactions, resulting in re-assignment of the residual claim on income
generated between stakeholders. This has an implication on firm performance and
organization structure. A question that arises is whether co-operative ownership
structure is a decisive determinant of financial performance. We therefore
investigate the influence of demutualization on the relationship between member
transactions and financial performance. Using the time-series, cross-section
design, we analyzed data from holding co-operatives in Kenya spanning 20 years
(1998-2017). Our findings indicate there is a negative and significant relationship
between member transactions and financial performance of co-operatives in Kenya
and that demutualization had a positive but not significant effect on this
relationship. We conclude that as far as these organizations continue to pursue a
double bottom line, soon there may be no relation between member reward and
member transactions as envisioned in the co-operative finance principle.
Recommendations include the establishment of a secondary market for co-operative
securities to enable inter-co-operative share trade that adheres to the international
co-operative identity principles.
