Imposing cooperation: the impact of institutions on the efficiency of cooperatives in the Philippines
| Pages | 421-440 |
| DOI | https://doi.org/10.1108/JABS-05-2019-0135 |
| Published date | 02 January 2020 |
| Date | 02 January 2020 |
| Author | Roberto Martin N. Galang,Rouselle F. Lavado,George O. White III,Jamil Paolo S. Francisco |
| Subject Matter | Strategy,International business |
Imposing cooperation: the impact of
institutions on the efficiency of
cooperatives in the Philippines
Roberto Martin N. Galang, Rouselle F. Lavado, George O. White III and
Jamil Paolo S. Francisco
Abstract
Purpose –The purpose of this study is to answer the research question: How do cooperative
organizations perform when created by government fiat in an emerging market? Through the use of
institutional and agency theory, this paper presents a comparative analysis of the efficiency of the
cooperative form of organization and investor-owned firms-investigating how the social–political
structures in a communityaffect the efficiency of cooperatives vis-a
`-vis investor-ownedfirms. This paper
also attemptsto offer a better understanding of how government qualityand organizational size influence
performanceoutcomes between different organizationalforms specifically in the Philippines.
Design Methodology Approach –The empirical analysis of this studywas conducted among electric
distributionutilities in the Philippines. Firm-leveldata was generated for 133 distributors, consistingof 119
electric cooperatives and 14 investor-owned companies. Panel data regressions were ran to test all
hypotheses.
Findings –Cooperative organizations operate at a less efficient rate than investor-owned firms in the
Philippines, even when controlling for firm-specific factors such as size, customer density and
profitability. In addition,the efficiency of these cooperative organizationsis more strongly influenced by
the qualityof the local government than investor-owned firms.
Originality Value –Positive externalities generated by the propagation of cooperatives on local
communities may bebased primarily on our understanding of how cooperativeshave functioned largely
in western contexts.Within the context of Southeast Asia, where nationalsocio-political structures may be
more dysfunctional, this paper observes that there is an equivalent negative externality caused by the
tendencyof cooperatives to replicate the political mismanagementof the community around it.
Keywords Institutions, Energy sector, Emerging market, Utilities, Philippines, Performance,
Cooperatives
Paper type Research paper
Introduction
Part of the blame for the economic crisis that engulfed the world beginning in 2008 has
been placed squarely in the hands of the flawed ownership and incentive structures
prevalent in many private firms (Ritholtz and Fleckenstein, 2010). Intensifying market
competition encourages littleintrinsic responsibility among investor-owned firms to consider
the negative consequences of their actions on social equality or the natural environment
(Adler, 2012). Management scholars have since advocated the need to find more benign
alternatives to private firms –suchas the cooperative –as a means to minimize the negative
externalities caused by investor-owned corporations (Davis, 2010;Schneiberg, 2011).
Cooperatives and other mutual forms of organization develop from the ability of the local
community to band together to solve collective action problems in agricultural production,
insurance and savings mobilization, among others (Schneiberg et al., 2008b). The
Roberto Martin N. Galang is
based at Ateneo de Manila
University, Quezon City,
Philippines.
Rouselle F. Lavado is
based at Asian
Development Bank,
Mandaluyong City,
Philippines. George O.
White III is based at School
of Management, University
of Michigan-Flint, Flint,
Michigan, USA and Asian
Institute of Management,
Makati City, Philippines.
Jamil Paolo S. Francisco is
based at Asian Institute of
Management, Makati City,
Philippines.
Received 1 May 2019
Revised 4 September 2019
Accepted 28 October 2019
DOI 10.1108/JABS-05-2019-0135 VOL. 14 NO. 4 2020, pp. 421-440, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 421
associated skills related to collective action that are fostered by the rise of cooperatives
create positive spillovers to the surrounding socio-political environment by enabling even
greater civic capacity, creating a virtuous cycle of more cooperatives and more civic
engagement (Greve and Rao, 2012;Schneiberg, 2011). In contrast to investor-owned firms,
the presence of cooperatives and other forms of coordinated organizations have been
shown to lead to improved democratic state governance and more egalitarian distributions
of income (Davis and Cobb, 2010;Iversenand Soskice, 2009;Putnam et al.,1994).
This paper contributes to the management literature in two ways. First, through the use of
institutional and agency theory, our paper presents a comparative analysis of the efficiency
of the cooperative form of organization and investor-owned firms –investigating how the
social structures in a community affect the efficiency of cooperatives vis-a
`-vis investor-
owned firms. Unlike the governance of investor-owned firms, the governance of
cooperatives and mutual association is relatively under theorized (Cornforth, 2004). We
therefore analyze whether cooperatives that are created in a community with relative low
levels of trust and relatively high levels of political dysfunction are able to operate as
efficiently as other cooperatives or investor-owned firms. Whereas there has been
substantial empirical research explaining how the external political, social and market
environment affect the choice of firm governance form (Greve and Rao, 2012;Hansmann,
1985;Schneiberg, 2002), there have been very few management studies investigating how
cooperative organizations are affected by the external environment. Moore and Kraatz
(2011) is one of the few studies that has indicated that agency and cultural issues make
cooperatives less prone to react appropriately to the external environment, compared with
the more organizationallynimble investor-owned firms.
Second, our paper contributes to better understanding performance outcomes of different
organizational forms specifically in an emerging market, a topic of increasing importance in
the management literature (Drummond, 2012;Wright et al.,2005). As previously mentioned,
very little empirical research on cooperatives has been conducted in management
research. Much of the empirical research that has been conducted in the management
literature investigates cooperatives in the western context. This line of research includes
investigating phenomenon such as the relation between social movements and insurance
cooperatives (Schneiberg, 2002), and the diffusion of cooperatives in the bio-ethanol
industty (Boone and Ozcan, 2014), in the USA; the formation of retial cooperatives in
Norway (Greve and Rao, 2012;Rao and Greve, 2018) and how variance between
cooperative versus commercial bank reputation mediates the relationship of corporate
social responsibility on customer loyalty in Spain (Agirre Aramburu and Gomez Pescador,
2019). Alternatively, Ghorpade (1973) did investigate efficiency of private and cooperative
sugar factories in India but failed to find significant differences in efficiency levels between
the two organizational forms. Thus, these studies provide an incomplete picture of the
global evolution of the cooperativeform.
By investigating cooperatives in an emerging market, such as the Philippines, we are able
to obtain a broader understanding of how cooperative organizations operate in relation to
the institutional problems that are prevalent in these types of societal contexts (Khanna and
Palepu, 1997;Peng et al.,2008). The Philippines therefore provides an ideal lens from
which to study the emergent processes in the formation of the cooperative form of
organization, given how emerging market firms tend to in general be at an earlier stage of
evolution (Ramamurti, 2009). Moreover, this paper capitalizes on the unique history and
political structure of the electricity distribution sector in the Philippines, itself an
understudied emerging marketcontext in the management literature.
The rest of the paper will be structured as follows. The next section provides a theoretical
overview of the issues pertaining to the cooperative form of firm governance and its
susceptibility to the prevailing level of political and social characteristics in the local
community. The subsequent part provides an overview of the electricity distribution sector
PAGE 422 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 14 NO. 4 2020
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