Investors’ Expectations of Equity for NGCs and LLCs and Implications on Financial Performance
Dr. Henri Akono, Dr. William Nganje

Abstract
New Generation Cooperatives (NGCs), specializing in value-added processing of agricultural output, underwent structural changes to signal both patron and non-patron investors their viability and attract additional equity to alleviate perceived financial constraints. Some of these changes included the acceptance of non-patron investor equity and demutualization into Limited Liability Companies (LLCs). However, the effect of these changes introduced added complexity on equity expectations and on providing incentives for patrons to continue doing business with the cooperative. Using data of stocks traded between cooperative members, the study analyzes the impacts of expectations of change in equity growth and social capital on the realized rate of returns for NGCs and for LLCs. Our findings delineate the usefulness of growth expectations and social capital benefits for attracting non-patron equity to ameliorate perceived financial constraints and their effectiveness at resolving the adverse selection problem for patron and non-patron investors.

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