Determinants of the patronage refund decision of Farm Credit System associations
Abstract
Purpose
The authors aim to investigate what influences a Farm Credit System association to make a patronage refund payment. In particular, they seek to investigate what causes the regional heterogeneity in the patronage refund payment decision. It is unclear whether patronage refunds have been used more as a capital management tool or as a member recruitment and retention tool. This study aims to bring some clarity to this issue.
Design/methodology/approach
The authors use an empirical logistic model to estimate the probability of a positive patronage refund payment by a Farm Credit System association, controlling for variables related to the associations' balance sheet as reported in the associations' quarterly call reports.
Findings
The authors find there is evidence that Farm Credit Service associations use patronage refunds as a capital management tool, at least in part. However, they also find that there are still significant regional differences in the patronage refund payment decision even after controlling for variables affecting the associations' balance sheet. The authors conclude that this likely represents member heterogeneity in preferences for patronage refunds versus a discounted interest rate.
Originality/value
The present study is one of the few empirical papers to examine a broad panel of financial cooperatives. Because of this, the authors' paper provides valuable insight into the aggregate behavior of Farm Credit Service associations, particularly into whether they use patronage refunds as a capital management tool, or as a marketing and retention tool.
Keywords
Citation
Zhang, T., Mallory, M. and Barry, P. (2013), "Determinants of the patronage refund decision of Farm Credit System associations", Agricultural Finance Review, Vol. 73 No. 1, pp. 102-118. https://doi.org/10.1108/00021461311321348
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited