Academic journal article Agricultural Economics Review

Manager Power, Member Behavior and Capital Structure: Portuguese Douro Wine Cooperatives

Academic journal article Agricultural Economics Review

Manager Power, Member Behavior and Capital Structure: Portuguese Douro Wine Cooperatives

Article excerpt


Leverage is one of the most important financial factors to the survival and viability of agricultural cooperatives (e.g., wine cooperatives) during a period of intense competition. Leverage is influenced both by the behavior of managers and cooperative members. An empirical study for the Douro Demarcated Region Wine Cooperatives (DDR-WC) supports the hypothesis that managers have a positive influence in the determination of the equity/total assets ratio and that individualistic behavior of cooperative members has a negative influence in the value of this ratio. This paper suggests that there may be value in reconsidering cooperatives in the context of a so-called Mediterranean model.

Keywords: Agricultural cooperatives, governance, behavior and leverage


Not unlike their counterparts in the United States, Northern Europe, Australia and New Zealand, Portuguese cooperatives are legally organized following a traditional cooperative structure with open membership, democratic control, restricted residual claims, and benefits to members proportional to patronage. But there are fundamental behavioral differences in Portuguese cooperatives that appear to be rooted in socioeconomic factors. This observation is particularly true in the oldest, most important wine production region of Portugal, the Douro Demarcated Region (DDR). There, the wine cooperatives (DDR-WC) appear to follow a so-called "Mediterranean model" that has either no full-time professional manager or a weak manager. Interestingly, this model is also the norm in Brazil (possibly most of South America), where the lack of managerial leadership is the Achilles heel of effective cooperative behavior (personal communication with Fabio Chaddad, June 2004).

Like many agricultural cooperatives, the DDR-WC increasingly face survival challenges related to financial issues. Factors such as member equity capital acquisition and redemption are well-known constraints on growth and sustainability that arise from illdefined property rights in the cooperative environment (Cook and Iliopoulos 2001). This ubiquitous problem, however, may be more complicated in countries like Portugal, where strong managerial leadership often is lacking. Superficially at least, manager power appears to be fundamental to optimal cooperative capitalization, though there has been limited empirical research on the role of property rights and managerial behavior on the economic performance of agricultural cooperatives (Cook, 1994). We suspect the limited empirical attention to this matter stems in part from the fact that the Mediterranean model is not widely appropriate.

This paper provides an empirical examination of property rights, specifically the behavior of members and managerial behavior, on the economic performance of DDRWC. We use a coalition-theoretic structure (Staatz, 1983). Following Russo et al. (2000) and Chaddad and Cook (2002), we analyze the effects of member behavior and the power, meaning influence or control, that managers have over the capital structure of DDR-WC. The results of this analysis lead us to posit that cooperative research might benefit from distinguishing the Mediterranean model from cooperative models that are more appropriate in much of the world.

The remainder of this paper consists of four sections. Section 2 provides the background of the DDR-WC. The conceptual framework is presented in Section 3. Here we develop the framework to examine the hypothesis that the financial structure of DDRWC is profoundly influenced by the characteristics of the property rights attached to the cooperatives and, consequently, cooperative governance (Williamson, 1996). Section 3 begins with a brief overview of salient literature before discussing the model and data. Results are presented in Section 4. Some general conclusions are drawn in the fifth and final section.

Wine Cooperatives in Douro Demarcated Region

The DDR is situated in northeastern Portugal, on the steep banks of the Douro River. …

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