The relationship between ownership structure, capital structure and corporate governance practices

Purpose – The purpose of this paper is to investigate the nature of corporate governance practised by co-operatives and mutual societies in New Zealand and whether there is any relationship between co-operatives’ ownership structure, capital structure and agency costs. The study also explores whether the capital structure and the ownership structure changed during the period 2005-2011. Design/methodology/approach – Panel data for the period 2005-2011 are analysed using ordinary least squares regression and the Tobit model regression. The authors have used operating expense to sales, asset utilisation and ROA as the dependent variables. Findings – The findings indicate that an increase in independent directors, board member experience and size (measured by total annual sales) reduces agency costs in co-operatives and mutuals in New Zealand. Also, borrowing from members rather than banks reduces agency cost and increases profitability in co-operatives and mutuals. Research limitations/implications – Caution should be exercised when generalising the findings of the study as it is restricted to New Zealand environment and the sample size used is relatively small. Practical implications – This study offers insights for policy makers internationally who are interested in adopting similar corporate governance practices in their own countries. Within New Zealand, the corporate governance debate associated with co-operatives and mutual societies will be better informed as a direct consequence of this research. Originality/value – This is the first study that extends the research undertaken by Ang et al. (2000) and Singh and Davidson (2003) to the cooperative and mutual business model in New Zealand.