Cooperatives' Tax “Advantages”: Growth, Retained Earnings, and Equity Rotation

Cooperatives are subject to full tax integration for the bulk of their income, while corporations' net income is subject to what is known as a classical form of taxation. This paper derives the condition under which full tax integration gives the cooperative a lower cost of equity capital and develops a model to examine the effect of taxation, together with equity rotation, on the growth path of cooperatives. An examination of some financial data of the largest 100 cooperatives supports our conclusion that cooperatives, under current financial practices, are capable of extremely high short‐term growth rates, but they are not sustainable.