Producer Cooperatives and Economic Efficiency: Evidence from the Nineteenth Century Cotton Textile Industry

The York Management School Working Paper No. 63

44 Pages Posted: 15 Oct 2011

See all articles by Steve Toms

Steve Toms

University of Leeds - Leeds University Business School (LUBS); University of Leeds - Division of Accounting and Finance

Date Written: October 13, 2011

Abstract

The relative efficiency of producer cooperatives is investigated through an examination of the financial performance of a group of cotton spinning firms that emerged from the spread of cooperative ideals after the mid nineteenth century. Reflecting such influences these firms adopted two particularly important aspects of democratic governance: use of low denomination partly paid shares to encourage wide share ownership amongst local working class operatives, and the use of a one shareholder one vote rule at company meetings. Prior literature, much of which predicts the failure of producer cooperatives due to incentive problems, has not specifically examined these aspects of democratic control. Moreover because the case study utilises samples of stock market quoted companies, there is an opportunity to quantify the financial performance effects of these governance mechanisms. The case study therefore offers a unique insight and important contribution to the wider literature. The results show that both aspects of democratic governance contributed to the economic success of the companies that adopted them, enabling them to satisfy the high demand for cash dividends that characterised investor requirements. However, the cyclical nature of the cotton industry and the stock market booms and slumps that resulted led to redistributions of wealth through time that in the long run undermined the cooperative project.

Keywords: Cooperative, Financial Performance, Lancashire Textile Industry

JEL Classification: J54, L67, N83

Suggested Citation

Toms, Steve, Producer Cooperatives and Economic Efficiency: Evidence from the Nineteenth Century Cotton Textile Industry (October 13, 2011). The York Management School Working Paper No. 63. Available at SSRN: https://ssrn.com/abstract=1943765 or http://dx.doi.org/10.2139/ssrn.1943765

Steve Toms (Contact Author)

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

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