Property rights allocation and stakeholder value appropriation under heterogeneous organizational forms

• Grant number: 21/13168-3
• Support Opportunities: Scholarships in Brazil - Doctorate
• Start date: August 01, 2022
• End date: August 31, 2024
• Field of knowledge: Applied Social Sciences - Administration - Business Administration
• Principal Investigator: Sandro Cabral
• Grantee: Octavio Augusto Darcie de Barros
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil

Abstract

The strategy literature has long examined the effects of ownership on a wide variety of firm outcomes (Foss et al., 2021; Klein et al., 2019; Boyd and Solarino, 2016; Hansmann, 2000; Jensen and Meckling, 1976). While early contributions focus on the impacts of ownership over efficiency-based outcomes such as firm profitability (Grossman and Hart, 1986; Hart and Moore, 1990; Ramaswamy, 2001; Hillman and Dalziel, 2003), and the agent problems arising from the separation of ownership and control (Jensen and Meckling, 1976; Fama and Jensen, 1983; Shleifer and Vishny, 1986; Schulze et al., 2003), more recent work addresses a broader perspective, and attempts to integrate the participation of a wider range of stakeholders into the analysis of the impacts of distinct governance structures (Foss and Klein, 2018; Barney, 2018; Klein et al., 2019; Klein et al., 2012). However, there is scant discussion on how stakeholders themselves might participate in the decision-making process of the firm while possessing critical decision rights. Despite the integrative efforts from stakeholder theory (Klein et al., 2012; Donaldson and Preston, 1995) alongside research on ownership structure (Foss et al., 2021; Hansmann, 2000; Demsetz and Lehn, 1985), literature still hasn't been able to properly assess the impacts of stakeholder ownership over the firms' strategy.In this study, we extend this literature by analyzing how different ownership forms alter firms' strategic choices in terms of attending stakeholders' needs. More specifically, we compare the cooperative form with public and private organizations to understand how the increased participation by stakeholders in the decision-making process affects the strategy of the firms. We argue that, while the three ownership forms share commonalities in terms of governance structure, they are substantially different in terms of residual income and residual control rights (Foss and Klein, 2018), in a way that affects both the costs of ownership and the strategic decisions of the firm (Hansmann, 2000). For instance, in cooperatives, the control and income rights are integrally in the hands of stakeholder-owners, who are highly homogeneous in terms of preferences and mainly focused on maximizing social value, but usually lack monitoring skills and ownership competence (Foss et al., 2021). The combination of increased control rights and the homogeneity of interests among stakeholders allow the cooperative to be more prolific in attending stakeholders' demands, but at the expense of operational efficiency, which might end up being smaller than in other ownership forms. We test our hypotheses in the context of digitalization of credit lenders in Brazil to compare how different ownership forms, namely private and public (state-owned) banks, and credit cooperatives, behave strategically and cope with stakeholders' expectations. We benefit from the introduction of a normative instruction by the Brazilian Central Bank (Bacen) that regulated the creation of customer electronic accounts by financial institutions (Resolução nº 4.480, de 25 de abril de 2016), and compare the effects of this exogenous shock over the strategic decisions towards digitalization made by the three types of organization mentioned above, expecting stakeholder-ownership to play an important part in determining the pace of the transition to the digital world. For our tests, we expect to deploy an entry and exit model that observes the behavior of the different types of organizational forms before and after the digitalization shock. Heterogeneity tests related to municipality size and inequality level will also be implemented so to fully portrait the effects of the reform. Data comes from ESTBAN, a public database provided by the Bacen containing detailed information on cooperatives' and banks' physical branches distributed across the whole country since 1988. Complementary data from IBGE will be included for additional tests. (AU)