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Small Business Economics

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01-01-2015

Spatial patterns in new firm formation: are cooperatives different?

Authors: Millán Díaz-Foncea, Carmen Marcuello

Published in: Small Business Economics | Issue 1/2015

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Abstract

Panel data on the entry of both worker cooperative and capitalist firms in Spain are used to test the spatial determinants at regional level. Cooperative firms in general are also included in the analysis. We focus on supply, demand and institutional factors, including specific factors of cooperatives as model of analysis. Data are for the period 1995–2009 for NUT-2 regions in Spain, one of the European countries with a more dynamic cooperative sector. Results show the main determinant of the creation of worker cooperatives is the unemployment level, followed by the wage level in the region, the population growth and the emergence of strong cooperative culture. We also find the party in the regional government affects to the creation rate. Compared with capitalist firms, we observe a contrary sense in the influence of unemployment level and a higher importance of the influence of the governing party.

previous article High-growth firms in changing competitive environments: the US pharmaceutical industry (1963 to 2002)

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We include all firms with at least one employee in the case of capitalist firms using the legal form of both Public and Private Limited Company, and those using the legal form of cooperative firms, regarding such Spanish as Regional Laws of Cooperative Societies.

Podivinsky and Stewart (2007) indicate that in the United Kingdom 1,321 new worker cooperatives were created from 1976 to 1985, i.e., 132 new cooperatives per year. In France, Perotin (2006) established a rate of 138 new worker cooperatives per year between 1971 and 2002. In Finland, between 1988 and 2005, the rate was 62 new cooperatives per year. Staber (1989, p. 391) found 703 new cooperatives during a 48 year period in the Atlantic provinces of Canada, 15 per year. Russell and Hanneman (1992, p. 703) identified 319 new worker cooperatives in Israel over a period of 38 years. The rate is Spain is higher; an average of more than 200 cooperatives were created per year between 1995 and 2010 (Clemente et al. 2009).

As seen later, population growth also affects the supply side. A greater number of people supposes an increase in the potential entrepreneur group (Keeble and Walker 1994).

In the literature, human capital is related to benefits associated with clustering, in other words, the accumulation of a large number of firms in the same territory (Armignton and Acs 2002). This effect is measured by the degree of localization and urbanization (Bosma et al. 2008).

See Arando et al. (2012) for an evidence of specific factors affecting to the geographical pattern of entry of cooperative firms.

Dow (2003) and Hansmann (2000) discuss this supposition and propose that cooperatives are also created by liberal professionals such as accountants, lawyers, and doctors with high levels of human capital.

Bowles and Gintis (1994), among others, recognize high finance costs from financial institutions as well as limitations on information and advice on forming these firms as possible barriers.

The use of the ecological approach would have been relevant for comparative reasons, but the quality of available data does not allow this analysis.

The use of labour-market approach also avoids, at least partially, the presence of heteroscedasticity with the variable “population density” included in the next estimation.

During the estimation process, some variables were deleted due to the lack of significance in the test (it is the case of those variables related to the personal characteristics of entrepreneurs: age, gender or origin) or due to there is not available data at regional level (like financial capacity). Other variables like the Cooperative Law established in a specific region or the subsidies to cooperatives in each region were also included in a first step of the estimation, but they were deleted afterward on basis to the significance test.

A broad explanation of spatial correlation and its detection can be found in Garret and Marsch (1992).

Specifically, the spatial correlation in three dependent variables for all years was analyzed using Moran I statistics. The existence of spatial correlation can be appreciated in the estimates for capitalist firms’ rates of creation in the most years. In the case of worker cooperative rates of creation can be observed in 1996 and 2000 to 2004 at 1 % of significance level and other years at 5 % and 10 % of significance level. Cooperatives in general show spatial correlation, but not in too many years. Results of the Moran I statistics can be found in the Electronic Supplementary Material. For an explanation of the methods used for its detection and solution, see Tosun and Skidmore (2004).

An alternative could be the use of Feasible Generalized Least Squares (FGLS). However, Beck (2001) proposes the use of Panel-Corrected Standard Error (PCSE) instead of Feasible Generalized Least Squares (FGLS) in order to get a better model of specification for panel data, due to the poor properties showing the second procedure in these cases.

Perotin (2006) name this measurement as “cooperative culture”. We agree with the referee the use of number of cooperatives is far from the sense of cooperative culture, and it is more precisely if it is used as "density" regarding to the organizational ecology literature. For this reason, from now on we use “cooperative density” as more specific expression.

We experimented with different delays and the results of the estimations did not differ significantly from those presented in the study, although the estimation is more successful without any lags (explains a greater variance of dependent variables).

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Title: Spatial patterns in new firm formation: are cooperatives different?
Authors: Millán Díaz-Foncea
Carmen Marcuello
Publication date: 01-01-2015
Publisher: Springer US
Published in: Small Business Economics / Issue 1/2015
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-014-9581-5

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