An Investigation of the Factors Influencing the Financial Performance of Agricultural Cooperatives in Thailand

This study investigates the factors influencing the financial performance of 1,766 agricultural cooperatives in Thailand by applying the DuPont analysis framework. Financial performance, measured using ROE (return on equity), was decomposed to three contributing factors, viz., profitability, asset efficiency, and financial leverage. Linear regression and quantile regression analyses were employed to respectively estimate the conditional mean and conditional quantiles. Profitability was found to be the strongest driver of ROE. Asset efficiency and financial leverage were also positive contributors to ROE. An alternative regression model was carried out, where the financial performance construct ROE was replaced with ROA (return on assets). The findings suggest that increasing leverage leads to decreasing performance, contradicting the earlier results. This implies that whether leverage hurts or benefits performance can depend on the variable choice. Employed as control variables, location and age were found to be associated with performance. In particular, the cooperatives in the central region, in general, appeared to have the lowest financial performance. The study empirically pointed out that negative equity led to violations of the ordinal and interpretable properties of ROE. Thus, ROE components should be carefully examined. Regarding cooperative management policy, cooperatives should concentrate on both operating and financial performances with the priority given to profitability, which involves the efficiencies of cost and sales management.