IDEAS home Printed from https://ideas.repec.org/a/bla/annpce/v92y2021i2p283-305.html
   My bibliography  Save this article

Classification of co‐operative member shares as equity or liabilities: The case of consumer co‐operatives in South Korea

Author

Listed:
  • Jinseon Seo
  • Woosuk Choi

Abstract

Member shares of co‐operatives are hybrid securities in that they have characteristics of both equity and liabilities. Prior studies propose that in order to classify hybrid securities as equity or liabilities, the economic substance of those securities should be considered. This study aims to examine whether the economic substance of member shares can be considered as equity or liabilities. Systematic risk is used as a proxy of economic substance. This study tests whether the proportion of member shares to equity is positively or negatively related to equity betas. If the test shows a negative relation, member shares can be considered to have the economic substance of equity; a positive relation implies that member shares have the substance of liabilities. The results show that the proportion of member shares to equity is significantly negatively related to systematic risk of equity, which means that member shares have equity‐like characteristics. The robustness checks taking into account the tax effect of debt support the findings more strongly that redeemable member shares play an equity‐like role in consumer co‐operatives in South Korea. Although the legal and institutional systems in Korea do not provide member shares of consumer cooperatives with a clear status as equity, member shares still show equity‐like economic substance.

Suggested Citation

  • Jinseon Seo & Woosuk Choi, 2021. "Classification of co‐operative member shares as equity or liabilities: The case of consumer co‐operatives in South Korea," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 283-305, June.
    • Handle: RePEc:bla:annpce:v:92:y:2021:i:2:p:283-305
    DOI: 10.1111/apce.12297
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/apce.12297
    Download Restriction: no
    File URL: https://libkey.io/10.1111/apce.12297?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    3. Ben-Zion, Uri & Shalit, Sol S, 1975. "Size, Leverage, and Dividend Record as Determinants of Equity Risk," Journal of Finance, American Finance Association, vol. 30(4), pages 1015-1026, September.
    4. Eunju CHOI & Woosuk CHOI & Seungkwon JANG & Sangsun PARK, 2014. "Does The Effectiveness Of Board Of Directors Affect Firm Performance Of Consumer Co-Operatives? The Case Of Icoop Korea," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(3), pages 371-386, September.
    5. Hamada, Robert S, 1969. "Portfolio Analysis, Market Equilibrium and Corporation Finance," Journal of Finance, American Finance Association, vol. 24(1), pages 13-31, March.
    6. Callahan, Carolyn M & Mohr, Rosanne M, 1989. "The Determinants of Systematic Risk: A Synthesis," The Financial Review, Eastern Finance Association, vol. 24(2), pages 157-181, May.
    7. Bowman, Robert G, 1979. "The Theoretical Relationship between Systematic Risk and Financial (Accounting) Variables," Journal of Finance, American Finance Association, vol. 34(3), pages 617-630, June.
    8. Chan, Kam C & Seow, Gim S, 1997. "Debt and Equity Characteristics of Mandatorily Redeemable Preferred Stock," Review of Quantitative Finance and Accounting, Springer, vol. 8(1), pages 37-49, January.
    9. Atul Rai, 2005. "Changes in risk characteristics of firms issuing hybrid securities: case of convertible bonds," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(4), pages 635-651, December.
    10. Jinseon SEO & Woosuk CHOI, 2016. "WHAT DETERMINANTS AFFECT THE CAPITAL STRUCTURE OF CONSUMER CO-OPERATIVES? THE CASE OF iCOOP KOREA," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(1), pages 117-135, December.
    11. Mandelker, Gershon N. & Rhee, S. Ghon, 1984. "The Impact of the Degrees of Operating and Financial Leverage on Systematic Risk of Common Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(1), pages 45-57, March.
    12. Bowman, Robert G, 1981. "The Theoretical Relationship between Systematic Risk and Financial (Accounting) Variables: Reply," Journal of Finance, American Finance Association, vol. 36(3), pages 749-750, June.
    13. Lev, Baruch, 1974. "On the Association between Operating Leverage and Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 627-641, September.
    14. Woo Gon Kim & Bill Ryan & Silvio Ceschini, 2007. "Factors Affecting Systematic Risk in the US Restaurant Industry," Tourism Economics, , vol. 13(2), pages 197-208, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bodenstein Fouché, Karel & Polo-Garrido, Fernando, 2024. "Corporate reporting by cooperatives: Mapping the landscape and identifying determinants," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(3).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiu, She-Chih & Lin, Hsuan-Chu & Chien, Chin-Chen & Liang, Chia-Chen, 2022. "Does Form 20-F reconciliation elimination for IFRS filers affect the risk forecasting ability of accounting numbers?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    2. Drobetz, Wolfgang & Menzel, Christina & Schröder, Henning, 2016. "Systematic risk behavior in cyclical industries: The case of shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 88(C), pages 129-145.
    3. Liu, Hao & Zhang, Hao & Gao, Ya-Chun & Chen, Xu-Dong, 2022. "Firm age and beta: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 244-261.
    4. Qizhi Tao & Zohaib Zahid & Azhar Mughal & Farrukh Shahzad, 2022. "Does operating leverage increase firm's profitability and bankruptcy risk? Evidence from China's entry into WTO," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4705-4721, October.
    5. Madhusmita Bhadra & Doyeon Kim, 2023. "Income elasticity of demand and stock market beta," International Finance, Wiley Blackwell, vol. 26(2), pages 225-240, August.
    6. Alexander Peter Groh & Oliver Gottschalg, 2008. "The Opportunity Cost of Capital of US Buyouts," NBER Working Papers 14148, National Bureau of Economic Research, Inc.
    7. Sarmiento-Sabogal, Julio & Sadeghi, Mehdi, 2014. "Unlevered betas and the cost of equity capital: An empirical approach," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 90-105.
    8. T.G. Saji, 2018. "Predicting Market Betas," Paradigm, , vol. 22(2), pages 160-174, December.
    9. Hafiz Muhammad Zia ul haq & Muhammad Sohail Shafiq & Muhammad Kashif & Saba Ameer, 2020. "Determining Force behind Value Premium: The Case of Financial Leverage and Operating Leverage," JRFM, MDPI, vol. 13(9), pages 1-15, September.
    10. Chung, Chune Young & Hur, Seok-Kyun & Wang, Kainan, 2017. "Strategic merger decisions across business cycles: Evidence from bidders' time-varying appetite for operating leverage," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 143-158.
    11. Tung Dang-Thanh Nguyen & Anh The Vo & Duc Hong Vo, 2019. "The Determinants Of Systematic Risk In Vietnam," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(2), pages 15-36, June.
    12. Luis García‐Feijóo & Randy D. Jorgensen, 2010. "Can Operating Leverage Be the Cause of the Value Premium?," Financial Management, Financial Management Association International, vol. 39(3), pages 1127-1154, September.
    13. Ben Said Hatem, 2017. "How Can We Increase Shareholder' Wealth? An Empirical Validation from European Countries," Business and Economic Research, Macrothink Institute, vol. 7(1), pages 323-335, June.
    14. William S. Hopwood & Thomas F. Schaefer, 1988. "Incremental information content of earnings†and nonearnings†based financial ratios," Contemporary Accounting Research, John Wiley & Sons, vol. 5(1), pages 318-342, September.
    15. Pascal Nguyen & Sophie Nivoix, 2009. "The effect of group affiliation on the risk-taking of Japanese firms," Applied Financial Economics, Taylor & Francis Journals, vol. 19(2), pages 135-146.
    16. Dirk Höring & Helmut Gründl & Sebastian Schlütter, 2016. "Impediments to Communication in Financial Institutions: Implications for the Risk Management Organization," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 41(2), pages 193-224, September.
    17. Toms, J.S., 2010. "The labour theory of value, risk and the rate of profit," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(1), pages 96-103.
    18. Abdoh, Hussein & Varela, Oscar, 2017. "Product market competition, idiosyncratic and systematic volatility," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 500-513.
    19. Su, Dongwei, 2005. "Corporate finance and state enterprise reform in China," China Economic Review, Elsevier, vol. 16(2), pages 118-148.
    20. Lee, Cheng-Few & Chen, K. C. & Liaw, K. Thomas, 1995. "Systematic risk, wage rates, and factor substitution," Journal of Economics and Business, Elsevier, vol. 47(3), pages 267-279, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:annpce:v:92:y:2021:i:2:p:283-305. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1370-4788 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.