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Profit Versus Non Profit: A Third Way? The Case of the Italian Mutual Cooperative Banks

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  • Ivana Catturani
  • Sandro Trento

Abstract

The traditional distinction between profit and non profit firms does not necessarily apply to some types of cooperative firms, such as the Italian mutual cooperative banks (MCBs). These MCBs present a peculiar governance structure, a combination between a public company governance model and a non-profit one. Similarly to a "not for profit organization", the ownership of the MCBs is widely diffused among borrowerowners, but dividends are not typically redistributed. Like in "public company bank", MCBs have a spread ownership and a board of directors. MCBs work in order to maximise social utility rather than profits, as a social entrepreneurship. MCBs represent a kind of third way governance model in the financial sector. The board of directors of a MCB acts as a public-good administrator in deciding on how to invest, with a deep impact on the local community. However, the governance of these banks is affected by structural problems. The mutual and co-operative nature of these banks is challenged by the increase in the number of members-owners and in the heterogeneity of the member-owners group. This study aims at investigating the democratic voting mechanism of the board (one-head one-vote) and its appropriateness given enlargement of the member's community. The research would tackle the issue of governance structure and incentive to efficient behavior.

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Bibliographic Info

Paper provided by Department of Computer and Management Sciences, University of Trento, Italy in its series DISA Working Papers with number 1003.

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Length: 44 pages
Date of creation: Jul 2010
Date of revision: 23 Jul 2010
Handle: RePEc:trt:disawp:1003

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Related research

Keywords: cooperative firm; mutualism; cooperative banks; corporate governance; italian banking sector;

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  1. benvenuti, m. & casolaro, l. & del prete, s. & mistrulli, p. e., 2010. "Loan Officer Authority and Small Business Lending.Evidence from a survey," MPRA Paper 26475, University Library of Munich, Germany.
  2. Claudia Girardone & Philip Molyneux & Edward Gardener, 2004. "Analysing the determinants of bank efficiency: the case of Italian banks," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 215-227.
  3. Meade, James E, 1972. "The Theory of Labour-Managed Firms and of Profit Sharing," Economic Journal, Royal Economic Society, vol. 82(325), pages 402-28, Supplemen.
  4. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  6. James Meade., . "Agathotopia," Hume Papers 16, David Hume Institute.
  7. Altunbas, Yener & Evans, Lynne & Molyneux, Philip, 2001. "Bank Ownership and Efficiency," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 926-54, November.
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