Member Rights and the Effect of Bylaws on Credit Union Banking Spreads

Voting and redeeming shares are two of the legal rights that allow members to exercise control over credit unions. As such, this work will investigate whether member rights are effective disciplinary mechanisms for Brazilian credit union managers. Bylaw clauses which discourage the use of these member rights were tested to see their effects on banking spreads due to management choices. Restrictions in terms of candidacies which limit competition in elections are associated with greater spreads, suggesting that there is managerial entrenchment due to the protection they receive. Even improvements in corporate governance may not compensate for this election protection. Meanwhile, redeeming shares has proved to be inefficient as a mechanism of managerial discipline. The results suggest the importance of competition in elections and that regulatory bodies can use their influence to guarantee member rights.