Credit Union Governance and Survival of the Cooperative Form

Abstract

Credit unions are cooperative financial institutions that typically operate on a one-member/one-vote governance rule. This paper demonstrates that such a governance rule may enhance the survival of such organizational forms in the face of adverse incentives created by accumulated financial surpluses and identifies factors that may prompt conversion to a joint-stock form. The analysis is based on noting that current members collectively have "inherited" accumulated surpluses of the cooperative from past members. Older members have an incentive to extract maximum personal private benefit from that inheritance by voting to convert from a cooperative to a joint stock company, even though such an..