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Abstract
The organizational structure of cooperatives generates a complex link
between member equity and overall corporate capital structure. This link is
further complicated by macroeconomic and firm-based risks. This paper
presents a model of optimal debt ratio, subject to cooperative financial
characteristics and capital requirements. We test the proposition that
macroeconomic and idiosyncratic uncertainty tend to decrease the optimal
debt to total asset ratio. We find that macroeconomic and idiosyncratic risk
negatively affect optimal borrowing in cooperatives with sales of $25
million or less. Conversely, no clear relationship exists between these types
of risk and cooperatives with greater sales. These findings suggest an
important relationship between firm operations and member equity as small
cooperatives contemplate entry into world markets.