The Power of Networks: Integration and Financial Cooperative Performance

Abstract

Abstract**: The purpose of this paper is to perform a cross‐country survey of the level of integration of systems of financial cooperatives (FC) and its effect on measures of performance. We develop a classification scheme based on a theoretical framework that builds on published work using transaction cost economics (TCE) to explain integration of large numbers of financial cooperatives into networks. We identify three critical levels of increasing integration we call respectively atomized systems, consensual networks and strategic networks. Further, we test some of the propositions that result from the theoretical framework on an international sample of financial cooperative systems. Based on this analysis we can conclude that: (i) Integration is less (more) important in developing (more developed) countries and for very small (large) financial cooperatives as a determinant of efficiency. However, integration tends to reduce volatility of efficiency and performance regardless of development. (ii) Integration appears to help control measure of managers’ expense preferences that tend to affect performance of FC. (iii) Despite high costs of running hub‐like organizations in highly integrated system, these systems economize in bounded rationality and operate at lower costs than less integrated systems.

Comparative Efficiency Between Cooperative, Savings and Commercial Banks in Europe Using the Frontier Approach

“…In some cases, the center performs certain public services, such as auditing of member banks or operating a deposit insurance scheme. 3 These apex organizations for these tightly structured networks also monitor the local banks (Desrochers andFischer 2005, Ory andLemzeri 2012). Since individual cooperative banks in the network secure many services from the same center, this can be expected to reduce the dispersion in efficiency among cooperative banks.…”

Measuring social influence for firm-level financial performance

“…There are also other cooperative relationships that have been investigated. Desrochers and Fischer [2005] studied the effect of financial cooperative relationships on measures of financial performance using transaction cost economics. They looked at the alliance partnerships among smaller companies, and found that a network strategy enabled a firm to be more stable while remaining flexible and responsive to a changing market [Larson 1991].…”

Indentifikasi High Performance Work System

“…Dari data yang dikumpulkan pada Kementerian Koperasi dan UMKM menunjukkan bahwa dalam lima tahun terakhir indonesia mengalami penurunan jumlah koperasi aktif sebesar 44 persen. Hal ini disebabkan oleh sumber daya manusia kompeten, minimnya teknologi, keterbatasan modal usaha, penerapan manajemen kurang profesional dan kelembagaan tidak kuat dan cenderung konvensional (Desrochers andFischer, 2005: Johnston et al, 2004).…”