Equity‐Liabilities Distinction: The case for Co‐operatives^*

Abstract

Members' shares in co-operative entities are financial instruments with particular characteristics. In this paper we analyse the relation between firm leverage and systematic risk to provide empirical evidence on the economic substance of the member shares of members of cooperatives. We have studied the characteristics of members' shares in six European countries: France, Germany, Italy, Portugal, Spain and United Kingdom. We have also conducted tests on co-operatives of these countries over the period 1993-2005. The study reports that in global terms the economic substance of the redeemable part of equity in cooperatives is not the same across countries. Therefore if accounting standards setters want to develop a global standard for co-operatives, a recommendation derived from this study would be to follow a probabilistic model to classify the redeemable part of co-operative financial instruments, where the entity does not have the unconditional right to refuse the redemption, or to report this part as an intermediate item with characteristics of debt and equity.

Classification of co‐operative member shares as equity or liabilities: The case of consumer co‐operatives in South Korea

“…(2003) use an accounting beta and López‐Espinosa et al. (2009) use two proxies: the relationship between the change in operating of a co‐operative and the mean change in operating profit of all co‐operatives; the relationship between fixed costs and total costs. These studies could obtain enough data over a long period (at least 10 years) to estimate asset betas, but the iCOOPs have only operated for a relatively short period.…”

“…López‐Espinosa et al. (2009) attempt to examine the economic substance of Europe's co‐operative member shares with redeemability. The study shows that the results depend on countries and industries.…”

“…(2001) argue that an approach based on economic substance is necessary even though such approach is more difficult to implement than one based on legal form. A number of studies have been carried out in order to identify the economic substance of hybrid securities such as redeemable preferred stock, member shares, and so on (e.g., Barth et al., 2013; Cheng, Frischmann, & Warfield, 2003; Kimmel & Warfield, 1995; López‐Espinosa et al., 2009).…”

Trend of IASB Project on the Distinction between Equity and Liabilities: The Case for Cooperatives and Continental European Firms

“…Lopez Espinosa Maddocks -PoloGarrido (2009) [22]. 3 The number of respondents to the analogous document of the FASB amount to 66.…”

Efectos económicos de la primera aplicación de las normas contables adaptadas a la NIC32 en las cooperativas

“…Se ha publicado un número importante de trabajos que tratan de interpretar la normativa contenida en la NIC 32, para determinar cuál tiene que ser la clasificación del capital social en las cooperativas (Bandeira y Meira, 2009;Cabaleiro, Ruiz y Fernández-Feijóo, 2010;Cordobés, 2006;Detilleux y Naett, 2005;Gallizo y Moreno, 2009;García-Gutiérrez, 2006;López-Espinosa, Maddocks y Polo, 2009;Pastor, 2002). En estos trabajos se mantienen las 2 corrientes doctrinales que clasifican el capital social como patrimonio neto y pasivo, y se crea una nueva corriente que propone clasificar el capital social como un instrumento financiero compuesto (AECA, 2009;Polo, 2007).…”