What drives the performance of cooperative financial institutions? Evidence for US credit unions

Nested analysis of variance is used to identify the sources of variation in performance, measured by growth of membership and growth of assets, for a large sample of US credit unions. The analysis reveals that sector effects (geographic, common bond and charter type) account for only relatively small proportions of the variation in performance. This raises doubts as to whether credit unions are likely to benefit much from competitive repositioning at sector level (by changing their charter type or common bond designation). It may be that the perceived benefit derived from such manoeuvrings is greater than the actual benefit, or it may be that the large number of credit unions seeking a more permissive operating environment has ended up negating any potential gain in performance across the sector as a whole. In contrast to the limited role identified for sector effects, individual credit union effects explain a large proportion of the variation in performance. This suggests that decisions made by individual credit unions with respect to staffing, governance and product portfolio, as well as philosophy and ethos, play an important role in explaining the heterogeneity in credit union performance.