Research
Published Papers
International Encyclopedia of Civil Society (2024)
Credit unions are generally defined as member-owned not-for-profit financial cooperatives in which the directors are democratically elected from the organization’s membership. In many countries—like the United States—credit unions are legally organized as tax-exempt nonprofit organizations (e.g., 501(c)(3) tax status), whereas in other countries credit unions may not hold legal “nonprofit” status but nonetheless consider themselves “not-for-profit” organizations since they aim to maximize financial benefits to their members as opposed to maximizing profits or shareholder value. The World Council of Credit Unions maintains a relatively broad definition of credit unions as “a customer/member owned financial cooperative, democratically controlled by its members, and operated for the purpose of maximizing the economic benefit of its members by providing financial services at competitive and fair rates.” McKillop et al. (2020) distinguishes credit unions from “cooperative banks” which are also member-owned cooperatives but are structured as for-profit organizations that provide services to both members and non-members, and are often subsidiaries of large cooperative organizations that support regional development projects (MacPherson, 2009). Thus, credit unions can be distinguished by their not-for-profit mission or nonprofit status, cooperative structure and democratic ownership, and a primary focus on serving the organizations’ members (who are typically connected by a specific community, association, business, or geographic location).
International Review of Financial Analysis (2024)
Between 1996 and 2022, regulatory changes led to over a thousand federally chartered credit unions converting to community charters, significantly increasing credit union membership. This study attempts to determine whether these developments improve safety and soundness by enabling credit unions to diversify their loan portfolios, or whether risk increases as the social capital of a tight common bond becomes diluted. We use two-way fixed effects, doubly robust and generalized synthetic control methods with state chartered credit unions and commercial banks as controls to estimate both intent-to-treat (ITT) and average treatment-effect-on-the-treated (ATT) impacts on credit union risk and returns. We find that conversions to community charter unambiguously improve credit union returns but the effects on risk are mixed: liquidity and capital fall, but there is no change in indicators of asset quality. Overall, during the 25-year period from 1998 to 2022, only 1.47% of community-chartered credit unions failed. The results suggest that social capital is no longer an important factor in reducing credit risk in countries with developed financial sectors like the U.S.
with Kangli Li, The Review of Corporate Finance Studies (2022)
Firm structure affects incentives and performance. We document significant differences in subprime lending between banks and credit unions prior to and during the Great Recession. In 2006, 23.6% of mortgages from commercial banks were subprime versus only 3.6% of credit union mortgages. Moreover, banks were more likely to fail, and had higher delinquency and net charge-off ratios immediately following the crisis. Our empirical models control for important differences between credit unions and banks including firm characteristics, borrower characteristics and state-level economic conditions. We argue that the remaining difference captures the effects of credit unions' nonprofit and cooperative structure which encourages them to internalize the utility of their customer-owners. Our findings explain why credit unions often appear more risk averse relative to commercial banks, a result with important implications for financial institution research, regulation and policy.
with Shuwei Zeng and Brent Hueth. Annals of Public and Cooperative Economics (2022)
Credit unions compete directly with commercial banks in markets for consumer financial services yet receive an exemption from federal corporate income tax. Commercial banks claim that credit unions are no different than banks and that the credit union tax exemption represents an unfair competitive advantage. Credit unions counter that while they offer similar products and services, they differ from commercial banks in terms of structure and mission, given their not-for-profit, cooperative status. In this paper, we test for substantive differences in the objective functions of commercial banks and nonprofit credit unions by comparing CEO compensation structures. Drawing on the relevant principal–agent literature, we provide several arguments to support the hypotheses that credit union boards of directors establish lower-powered incentive contracts with their CEOs relative to similarly sized commercial banks, and offer lower total compensation. We find that credit union CEOs receive approximately 250% less performance-based compensation relative to CEOs of similarly sized community banks. Bank CEOs also earn approximately 15% to 20% more total compensation on average. The results are generally robust to controlling for CEO- and board-level characteristics, local economic conditions, and institution-level indicators of size, growth, complexity, liquidity and risk. The findings suggest important differences in incentive structures and objectives between banks and credit unions.
Journal of Co-operative Organization and Management (2022)
With over 5,000 credit unions and 127 million members, U.S. credit unions are the largest network of financial cooperatives in the world. To what extent do U.S. credit unions follow cooperative principles, reflect the cooperative identity, and distinguish themselves from other financial institutions? As credit unions grow and diversify their membership, many argue that credit unions will lose their cooperative identity and become more akin to their counterparts in the for-profit banking sector. This paper presents evidence that U.S. credit unions continue to differentiate themselves from other forms of banks. In their governance structure, credit unions rely on volunteer directors and CEOs are significantly less incentivized by performance-based compensation relative to commercial bank CEOs. Moreover, 51% of credit union CEOs are female versus only 3% of CEOs at similarly sized community banks. Credit unions also offer better interest rates, provide higher quality loans, avoid overly risky lending practices (e.g., subprime mortgages), and are more likely to open and retain branches in low-income and diverse areas.
with Shuwei Zeng and Paul Hellman. (2021). Journal of Consumer Affairs. 55(3), 995–1039
Prior studies of interest rate differentials between credit unions and commercial banks suffer from selection bias since they rely on data at the level of the financial institution or branch which cannot account for demand-side or loan-level characteristics. We improve on these studies by using household- and loan-level data from the Federal Reserve's Survey of Consumer Finances from 2001 to 2019. We find that, on average, households that receive auto loans from credit unions pay 0.70 percentage points less on interest rates for new vehicles—and 1.40 percentage points less on used vehicles—relative to observably similar households that receive auto loans from banks. The aggregated savings to credit union members is larger than the estimated value of the credit union corporate income tax exemption. Nonetheless, the benefit from lower auto loan rates is likely an underestimate of the true value to consumers of credit unions’ presence in the market.
with Esteban Quiñones and Bradford Barham. (2019) Journal of Behavioral and Experimental Economics. (82)101462.
This study uses a dictator game with a charitable organization as the donation recipient to test whether empathic concern explains persistent gender differences in charitable giving. We first explore whether we can evoke empathic concern by varying the content of a real-world charitable appeal video that highlights children's stories of struggle with access to clean water. Then we examine whether the evoked feelings help explain gender differences in donations. Despite no gender differences in donation behavior in a baseline control group, we find that females donate 63% more than males in treatments that include the personal stories from children. These treatment videos increase self-reported feelings of empathic concern towards children among both males and females relative to the control; however, the empathic concern that results from the treatment videos increases average donations among females but not males. Causal mediation methods show that empathic concern explains 17% of the observed gender differences in giving. While the treatments evoke other emotions in addition to empathic concern, none of them explain observed gender differences in donations. Our study sheds light on the role of children's personal stories and empathic concern for children in explaining gender-donation gaps.
with Reka Sundaram-Stukel and Bradford Barham. (2017) Journal of Behavioral and Experimental Economics. (68)25-40.
Non-profit organizations face the challenge of eliciting pro-social behavior (e.g., donations) amidst an increasingly competitive landscape. This study uses a dictator game experiment with undergraduate students to test how a positive charitable appeal video that highlights similarities between donors and recipients affects donor behavior relative to a traditional guilt appeal video that highlights differences. We find that both feelings of guilt and similarity are positively associated with donation behavior; however, only the guilt-appeal treatment has a statistically significant positive effect on donations relative to the control. Yet, we cannot reject the null hypothesis of equal donations between similarity- and guilt-based treatments. We also find major gender differences in pro-social behavior: average male donations in the control were 40% higher than female donations; whereas, this outcome is almost completely reversed in the guilt appeal treatment, where females donated over twice as much as males. In other words, guilt appeals appear to induce women's pro-social behavior but have the opposite effect on men. This difference may be partially explained by males’ aversion to feelings of manipulation, which seemed to discourage their donations but had no impact on female donations.
with Brad Barham, Irwin Goldman, Jeremy Foltz and Maria Isabella Agnes (2017). Agricultural & Environmental Letters. Vol. 2(1).
Non-profit organizations face the challenge of eliciting pro-social behavior (e.g., donations) amidst an increasingly competitive landscape. This study uses a dictator game experiment with undergraduate students to test how a positive charitable appeal video that highlights similarities between donors and recipients affects donor behavior relative to a traditional guilt appeal video that highlights differences. We find that both feelings of guilt and similarity are positively associated with donation behavior; however, only the guilt-appeal treatment has a statistically significant positive effect on donations relative to the control. Yet, we cannot reject the null hypothesis of equal donations between similarity- and guilt-based treatments. We also find major gender differences in pro-social behavior: average male donations in the control were 40% higher than female donations; whereas, this outcome is almost completely reversed in the guilt appeal treatment, where females donated over twice as much as males. In other words, guilt appeals appear to induce women's pro-social behavior but have the opposite effect on men. This difference may be partially explained by males’ aversion to feelings of manipulation, which seemed to discourage their donations but had no impact on female donations.
Working Papers
SSRN Working paper. (2019)
Previous studies of risk management and overconfidence at firms and financial institutions suggest that female CEOs engage in more conservative risk management practices relative to male CEOs, and less aggressive growth and acquisition behavior. However, these studies are limited by a lack of variation in CEO gender, as only 5% of commercial bank CEOs and 6% of Fortune 500 company CEOs are female. We examine gender differences in risk management and overconfidence in the distinct context of nonprofit financial cooperatives (“credit unions”), in which a majority (52%) of CEOs are female. Do observed gender differences in risk preferences and overconfidence hold under such circumstances? We utilize a unique dataset with 23 years of credit union quarterly data and CEO gender to employ two-way quarter and institution fixed effects and event study frameworks to focus on variation within credit unions that experience a CEO transition with a corresponding change in the gender of the CEO. The event study methodology allows us to thoroughly explore pre-CEO transition trends and parallel trends to account for potential selection bias. While gender differences in indicators of risk management are in the expected direction, few are statistically significant, and none are economically meaningful. The results suggest that practical differences in observable risk management are negligible among credit union CEOs. However, we do find statistically significant and large gender differences in credit union growth: male-led credit unions grow 2.9% larger in terms of memberships and 5.9% larger in terms of loans. They also expand their fields of membership to have 8.2% more potential members, execute 2.8% more merger-acquisitions, and increase their marketing expense by 7.5% relative to female-led credit unions. Nonetheless, there are no significant gender differences in credit union earnings. We argue that the results are consistent with gender differences in overconfidence but not risk aversion. The findings highlight the importance of context when evaluating gender differences in risk management and performance.