Income structure, diversification strategy and owners’ benefit in cooperative financial institutions
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 4 May 2020
Issue publication date: 18 June 2020
Abstract
Purpose
The purposes of this paper are twofold. First, it analyses the income structure in cooperative financial institutions and examines how traditional and non-traditional incomes are related. Second, it evaluates whether increasing diversification towards non-traditional incomes facilitates or hampers the benefits of financial cooperative owners.
Design/methodology/approach
Data are collected from over 3,100 US credit unions over the period of 1994–2016. A number of modern econometric techniques are employed throughout the analysis, including the use of panel fixed effect, generalised method of moments (GMM) and two-stage least square (2SLS) methodologies.
Findings
Using US credit unions as the empirical setting, the empirical results reveal that the expansion of traditional income leads to a corresponding increase in income from non-traditional activities. However, an increasing reliance on non-traditional income causes a significant drop in interest margins. The authors also find that the extent to which income diversification affects owner benefit varies across credit union types and period of time. While income diversification negatively affects owners' benefits in single common bond credit unions, it has no significant influence on multiple common bond and community credit union owners' benefits. Third, diversification can be beneficial during crisis time, but can be detrimental to owner benefit during normal time.
Originality/value
This paper provides some of the first empirical investigations on the diversification strategy of cooperative financial institutions. Therefore, the results offer significant policy implications for policymakers and market participants on whether financial cooperatives should diversify or specialise.
Keywords
Citation
Cuong, H.V., Ngoc Luu, H., Quynh Thi Nguyen, L. and Chu, V.T. (2020), "Income structure, diversification strategy and owners’ benefit in cooperative financial institutions", International Journal of Managerial Finance, Vol. 16 No. 4, pp. 481-500. https://doi.org/10.1108/IJMF-11-2018-0346
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited