founded in Cabo and Rebelo (2005). According to Cabo and Rebelo (2005), there are no
statistically significant differences between the active and the passive partners of a merger
operation regarding labour costs structure, and, by the other side, they verified some increase in
the mentioned costs after merger operations which the authors explain by the labour market
rigidity and ACCs policy of “no firings”. Administrative costs (X3), on contrary, are shown to
positively influence the probability of an ACC being merged or experiencing a central ACC
intervention by an agent, which is coherent to the fact that the small size of the ACCs limits the
rationalization9 of administrative costs (Cabo, 2003) and, according to Cabo and Rebelo (2005),
cuts-off in administrative costs is a determining factor leading to merger operations.
Concerning profitability, as expected, return on equity (X4) proved to influence negatively
the probability of an ACC experience an intervention by a central ACC nomination agent or
participating in a merger.
Finally, solvency (X5) influenced in a negative way the probability of an ACC being
intervened by a management board replacement. This proves the importance of the need to satisfy
the capital adequacy requirements of the Bank of Portugal. Considering that solvency upgrading
is expected to occur due to the increase of equity via better profits, profitability improvements are
decisive. Thus, management board replacement interventions are entirely justifiable when an
ACC experience solvency problems. Furthermore, considering the solidarity mechanism acting in
the ACCIS it is to understand this central ACC worry with the single ACCs solvency ratio.
Curiously, Jensen (1986) argues that increases in firm leverage help to reduce the inefficiencies
resulting from the separation of ownership and control. On the other hand, Davis (2001) adverts
that impose higher capital adequacy requirements on credit cooperatives induce heightened
interest in conversions and may lead to the abandon of the traditional cooperative form, even
9 Partly, as a consequence of the ongoing adoption of new information and communication technologies by the
ACCs, it has been difficult for the ACCs to keep operational costs under control.
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