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

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  • John Goddard
  • Donal McKillop
  • John Wilson
Abstract
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.

Suggested Citation

  • John Goddard & Donal McKillop & John Wilson, 2008. "What drives the performance of cooperative financial institutions? Evidence for US credit unions," Applied Financial Economics, Taylor & Francis Journals, vol. 18(11), pages 879-893.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:11:p:879-893
    DOI: 10.1080/09603100701262818
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    References listed on IDEAS

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    1. Timothy H. Hannan, 2003. "The impact of credit unions on the rates offered for retail deposits by banks and thrift institutions," Finance and Economics Discussion Series 2003-06, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Mathuva, David Mutua & Kiweu, Josephat Mboya, 2016. "Cooperative social and environmental disclosure and financial performance of savings and credit cooperatives in Kenya," Advances in accounting, Elsevier, vol. 35(C), pages 197-206.
    2. Marie Allen & Sophie Tessier & Claude Laurin, 2023. "Corporate Social Responsibility of Financial Cooperatives: A Multi-Level Analysis," Sustainability, MDPI, vol. 15(6), pages 1-27, March.
    3. Cuadros-Solas, Pedro J. & Cubillas, Elena & Salvador, Carlos, 2023. "Does alternative digital lending affect bank performance? Cross-country and bank-level evidence," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Fiordelisi, Franco & Mare, Davide Salvatore, 2014. "Competition and financial stability in European cooperative banks," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 1-16.
    5. Gregory McKee & Albert Kagan, 2016. "Determinants of recent structural change for small asset U.S. credit unions," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 775-795, October.
    6. Beccalli, Elena & Rossi, Ludovico & Viola, Andrea, 2023. "Network vs integrated organizational structure of cooperative banks: Evidence on the Italian reform," International Review of Financial Analysis, Elsevier, vol. 89(C).
    7. Forker, John & Ward, Anne Marie, 2012. "Prudence and financial self-regulation in credit unions in Northern Ireland," The British Accounting Review, Elsevier, vol. 44(4), pages 221-234.

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