This thesis attempts to identify institutional arrangements that allow cooperative firms to overcome the underinvestment problem identified in the theoretical literature. The comparative institutional analysis focuses on internal and external financial arrangements that provide cooperative firms with equity and debt capital respectively, and is conducted in two different institutional environments, the UK and France. In each context, cooperative firms are separated into successful and struggling forms, depending on their performance, as captured in their turnover, size and dissolution rates. Using the concept of institutional complementarities, the empirical investigation examines the effects of internal and external financial arrangements on the creation and growth of the successful and struggling cooperative firms in the UK and France. Annual regional entry flows are used for the entry models for the periods 2005-2015 and 2006-2014 respectively for the UK and France. Firm-level panel data are used for the growth models for the periods 2008-2016 for the UK and 2007-2016 for France.
The findings regarding the effect of external financial arrangements on the growth of cooperative firms are consistent with previous studies on Italian cooperatives, which indicate that the growth of cooperative firms is greater in provinces with relatively higher local financial development. The finding regarding the effects of internal financial arrangements on the growth of cooperatives also align with propositions derived from the literature on the hybridization of cooperative firms, which shows that the integration of features of capitalist firms into traditional cooperative forms has helped these firms mitigate some of their chronic problems and increased their chances of survival. Cooperative firms that are able to reach high hybridization levels are successful because they overcome the underinvestment problem by the utilization of internal financial arrangements, while cooperative firms that present low hybridization levels are much more dependent on supportive external financial arrangements and tend to struggle. Furthermore, this research contributes to the literature by providing evidence for the importance of the development of the legislative framework around worker cooperative firms
