A Study On The Alienation Mechanism Of CO-Finance Functions Of The Rurual Mutual Fund Organizations

Difficulty in rural financing has been existing for a long time in China, lots of studies have verified the existence of serious rural formal finance constraints, and the rural cooperative financial system with the nature of voluntary, mutual assistance and benefit, democracy and low profitability are always high hopes. Born in the1950s, Rural Credit Cooperatives business model increasingly deviated from the principles of co-finance after several reforms and gradually evolved into "quasi-banking" institutions. Promoted by the government, Rural Cooperative Foundations advocating cooperation and mutual assistance have been established all over the country in the late1980s. With the expansion, the Rural Cooperative Foundations gradually deviated from its policy orientation. At the end of the last century, the State Council had to demand the closure of all Cooperative Foundations. Studies show that the government intervention contributes the deviation of both above organizations from the principles of co-finance. Rural Mutual Fund Organizations with almost no government intervention, however, also emerge deviation in varying degrees. The mechanism of deviation should be researched into.Researches on the Cooperative Economic Organizations and Corporate Governance suggest that members’heterogeneity exerts impacts on the internal governance mechanisms, which then will affect business goals and results. By comparative analysis, this paper reveals the alienation mechanism of co-finance functions of Rural Mutual Fund Organization from the perspective of members’heterogeneity. Firstly, this paper attempts to define the important concepts of rural cooperative financial functions, core members and ordinary members and so on. Based on the existing literatures, the research goal is to explore the co-finance function alienation mechanism of Rural Mutual Fund Organization from the perspective of members’heterogeneity. According to the Contract Theory, Principal-Agent Theory and research goal, this paper propose the analysis frame and research hypotheses. This paper constructs corresponding indicators and makes descriptive statistics by using panel data obtained through investigations in Sheyang, Xiangshui and Binhai County, which suggests there are significant differences between core members and ordinary members on the money capital, human capital, political capital and prestige. And the two member groups have significantly different entrance motivations, the core members is for earning, while the majority of ordinary members is mainly for financing, or at least financing. Core members have more control power over the organization and the oversight of ordinary members on the core members is less effective. Besides, the co-finance function shows varying degrees of alienation. Based on the variable descriptive statistics, the empirical study is to explore the effects of the members’heterogeneity on the organization’s internal governance mechanisms and governance mechanisms on the financial functions of organizations. The empirical results show that the greater the difference in the money capital and prestige of the core members and ordinary members, the greater the control power of core members in the Council; the greater differences in the political capital, the greater the control power of the core members in representatives. Members’ heterogeneity has no significant effect on the effectiveness of internal oversight. The greater of the control power of core members in the Council and representatives, the greater degree of financial function alienation. Internal and external oversight play no significant effect on the degree of co-finance function alienation of the organization, this may because the both oversights is not concentrating on whether the organizations comply with the principles of co-finance.This paper reveals the mechanism of co-finance function alienation of Rural Mutual Fund Organization from the perspective of members’heterogeneity, and points out that the alienation is natural and inevitable. Related policies should recognize the existence of the status of organization members’heterogeneity, clearly orientate, create a favorable financial environment, reasonably guard against financial risks, and promote the legalization process of Rural Mutual Fund Organization in a timely manner.