Current Agriculture, Food & Resource Issues
G. Hailu, E. W. Goddard and S. R. Jeffrey
Firth, 1995; Matthews et al., 1994). Despite the considerable literature (e.g., Jensen and
Meckling, 1976; Lewis and Sappington, 1995), the impact that differences in attitudes
between managers and directors/members have upon the decision making process has
remained a relatively unexplained aspect of agency problems, especially in member-
owned firms. This article assesses the social-psychological and demographic variables
that affect co-operative decision makers’ attitudes toward long-term debt financing and
their intentions to increase long-term borrowing.
Implications and Conclusions
This study finds that managers and directors of co-operatives differ in their attitudes
toward long-term borrowing. These differences, if not resolved, may result in significant
costs associated with resolving conflicts (agency costs), or may hamper the success of the
co-operative business (Hailu et al., 2004; Jensen, 1986). Additionally, those respondents
who have favourable attitudes toward long-term borrowing, are subject to social influence
from their referents (e.g., friends, colleagues, spouse, etc.) and gamble frequently are
found to be more likely to increase long-term borrowing for business expansion.
Background
Within the finance literature, a decision maker’s (DM’s) financial risk attitude assessment
is considered to be an important factor in determining successful business outcomes (e.g.,
Firth, 1995; Weber and Hsee, 1998; Barton and Gordon, 1988; Matthews et al., 1994). As
well, the potential conflicts between managerial self-interest and the interests of owners
(Jensen, 1986; Jensen and Meckling, 1976) and the impact of these differences on the
choice of capital structure (Friend and Lang, 1988; Firth, 1995; Matthews et al., 1994)
have been acknowledged by many researchers. Despite the considerable literature (e.g.,
Jensen and Meckling, 1976; Lewis and Sappington, 1995), the impact that differences in
attitudes between managers and directors/members have upon the decision making
process has remained a relatively unexplained aspect of agency problems, especially in
member-owned firms. Any information concerning the risk attitudes of managers and
directors (BODs) for co-operative businesses is useful in identifying potential sources of
conflict in decisions regarding training, personnel selection, and placement. Moreover,
assessment of risk attitudes of managers and directors may have important implications
for the design and choice of alternative financial risk management strategies/policies and
the performance/success of co-operative businesses. Among other things, the process of
risk management2 is likely affected by the risk attitude of business DMs (Tufano, 1998).
A current issue in co-operative finance concerns the capital constraints facing user-
owned organizations, given the financial risks associated with various sources of capital.
Some Canadian co-operative agribusinesses are in financial distress as a result of taking
on too much debt (Goddard, 2002). While taking on a high level of debt can enhance the
level of profitability or firm value (Fama and French, 1998; Graham, 2000) and patronage
64