Capital structure, firm size, and efficiency: the case of farm petroleum and animal feed co‐operatives in Canada

This paper examines the cost structure and cost efficiency for an unbalanced sample of 42 animal feed and 115 farm petroleum co‐operatives in Canada over the period 1984‐2001 using heterogeneous technology stochastic frontier models. The parameter estimates of the cost frontier and the resulting cost efficiency scores indicate there are statistically and economically significant cost inefficiencies. Further analysis revealed that financial structure and firm size have likely contributed to variations in cost efficiency. Obtaining sufficient equity capital is expected to improve co‐operative efficiency