Effect of Corporate Governance on the Financial Performance (Sustainability) of Microfinance Institutions in Ethiopia
DOI:
https://doi.org/10.48165/gmj.2023.conf9Keywords:
Microfinance, financial performance, Governance, internal and external factorsAbstract
This study investigated the relationship between the financialperformance and corporate governance of microfinance institutionsusing a sample of 25 MFIs from 2012 to 2021 with a balanced set ofpanel data. The study used secondary data and employed a descriptiveresearch design and a quantitative research approach. The empiricalresults showed that Female CEOs, Women directors, and internaauditors reporting directly to the board of directors and ProfitOrientation have a positive relationship and statistically significant effecton financial performance (ROA and OSS). The study recommendedas microfinance institutions should consider the gender diversity ofCEO and on the Board of directors and the board of directors also giveattention to internal auditors to report directly to them. Moreover, thestudy suggested for future researchers may be interested in validatingthe stability of the result and providing additional results for this studyby including other variables (Internal and external).
Downloads
References
Adams, R., & Mehran, H. (2003). Is bank-holding com-
pany governance different? Economic Policy Review
(1), 123–142.
Akben-Selcuk, E. (2016). Does Firm Age Affect
Profitability? Evidence from Turkey. International
Journal of Economic Sciences,5(3),1-9.
Akpan, E.O. (2015). Corporate board meetings and
companies performance: Empirical evidence from
Nigerian quoted companies. Global Journal of
Commerce & Management Perspective, 4(1), 75-42.
Aldamen, H., Duncan, K., Kelly, S., McNamara, R., &
Nagel, S. (2011). Audit committee characteristics and
firm performance during the global financial crisis.
Accounting and Finance, 52(4), 971–1000.
Al-Matari, Y. A., Al-Swidi, A. K., Fadzil, F. H. B., &
Al-Matari, E. M. (2012). Board of directors, audit
committee characteristics, and performance of Saudi
Arabia-listed companies. International Review of
Management and Marketing, 2(4), 241-251.
Amran, N.A. (2011). Corporate governance mechanisms
and company performance: Evidence from Malaysia
Company. International Review of Business Research
Papers, 7(6), 101-114.
Armendariz de, Aghion, B., & Morduch, J. (2005). The
economics of microfinance. Cambridge: MIT Press.
Ashari, S., & Krismiaji, K. (2019). Audit committee char-
acteristics and financial performance: Indonesian
evidence. Equity, 22(2), 139-152.
Bassem, B.S. (2008). The efficiency of microfinance insti-
tutions in the Mediterranean: An application of
DEA, Transition Studies Review 15(2), 343–354.
Bassem, B.S. (2009). Governance and performance of
microfinance institutions in Mediterranean coun-
tries: journal of business economics and Management,
(1), 31-43.
Bayeh, A. (2012). Financial Sustainability of Microfinance
Institutions (MFIs) in Ethiopia. European Journal of
Business and Management, 4(15), 1-11.
Bekana, D., & Mohammed, A. (2019). The Effect of
Corporate Governance Mechanism on the Financial
Performance of Microfinance Institutions: Evidence
from Ethiopian Microfinance Institutions. Research
Journal of Finance and Accounting, 10(21), 19-31.
Belete, Z. (2015). The impact of corporate Governance on
Microfinance Institutions Financial Performance in
Ethiopia. M.Sc Thesis. Addis Ababa University, Addis
Ababa.
Bhagat, S., & Bolton, B. (2008). Corporate governance
and firm performance. Journal of Corporate Finance,
(3), 257–273.
Bøhren, Ø., & Strøm, R. Ø. (2005). The value-creating
board: Theory and evidence. Research Report no.
/2005, BI, Norwegian School of Management, 1-62.
Brick, I. E., Palmon, O. & Wald, J. K. (2006). CEO com-
pensation, director compensation, and firm perfor-
mance: Evidence of cronyism? Journal of Corporate
Finance, 12(3), 403–423.
Cadbury, A. (2002). Corporate Governance and
Chairmanship: A Personal View, OUP Catalogue,
Oxford University Press, No. 9780199252008.
Chenuos, N. K., Mohamed, A. B., & Stephen, K. (2014).
Effects of Corporate Governance on Microfinance
Institutions Financial Sustainability in Kenya.
European Journal of Business and Management,
(30), 71-81.
Christen, R. P. (2000). Bulletin highlights. Micro banking
Bulletin 4, 41–46.
Gyan Management Journal Year 2024, Volume-18, Issue-2 (July-December)
Copestake, J.G. (2007). Mainstreaming microfinance:
social performance management or mission drift?
World Development, 35(10), 1721-1738.
Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2011).
Does Regulatory Supervision Curtail Microfinance
Profitability and Outreach? Policy Research Working
Paper 4748. World Development, 39(6), 949-965.
Dalton, D. R., Daily, C. M., Ellstrand, A. E., & Johnson, J. L.
(1998). Meta-analytic reviews of board composition,
leadership structure, and financial performance.
Strategic Management Journal, 19(3), 269-290.
Danoshana, S., & Ravivathani, T. (2013). The impact of
the corporate governance on firm performance: A
study on financial institutions in Sri Lanka. Merit
Research Journal of Accounting, Auditing, Economics,
and Finance, 1(6), 118-121.
David N. B., Elizabeth, W. & Michael, T. H. (1994). A Time
to Grow and a Time to Die: Growth and Mortality of
Credit Unions in New York City, 1914-1990. AJS 100
(2), 381-421.
Di Benedetta, P. Lieberman, I. W., & Ard,
L. (2015). Corporate Governance in Microfinance
Institutions. International Bank for Reconstruction
and Development: The World Bank, Washington, DC.
Dilven, M. (2017). The effect of competition, regulation,
and profit orientation on the social and financial
performance of microfinance institutions. Master
Thesis Economics, Radboud University Nijmegen.
Easley, D., & O’Hara, M. (1988). Optimal non-profit firms,
in Rose-Ackerman, S. (Ed.). Economics of Non-
Profit Institutions. New York: Oxford University Press.
Elbahar, E.R., El-Bannany, M., & El Baradie, M. (2021).
Characteristics of Audit Committees and Banking
Sector Performance In GCC. Journal of Governance
and Regulation, 10(4), 302–310.
Ferede, Y. (2012). The Impact of Corporate Governance
Mechanisms on Firm’s Financial Performance:
Evidence from Commercial Banks in Ethiopia.
Master’s Thesis, Addis Ababa University.
Fondas, N., & Sassalos, S. (2000). A different voice in the
boardroom: How the presence of women directors
affects board influence over management, Global
Focus 12, 13-22.
Gaur, S. S., Bathula, H., & Singh, D. (2015). Ownership
concentration, board characteristics and firm per-
formance: A contingency framework. Management
Decision, 53(5), 911-931.
Gupta, N., & Mirchandan, A. (2019). Corporate gover-
nance and performance of microfinance institutions:
recent global evidences. Journal of Management and
Governance, 24, 307–326.
Hameed, A., Ramzan, M., Zubair, H. M. K., Ali, G., &
Arslan, M. (2014). Impact of compensation on
employee performance (empirical evidence from the
banking sector of Pakistan). International Journal of
Business and Social Science, 5(2), 302-309.
Hartarska, V. (2004). Governance and Performance of
Microfinance Institutions in Central and Eastern
Europe and the Newly Independent States. William
Davidson Institute Working Paper Number 677, April
Hartarska, V. (2005). Governance and performance of
microfinance organizations in Central and Eastern
Europe and the newly independent states, World
Development (33), 1627–1643.
Hartarska, V., & Nadolnyak, D. (2007). Do regulated
microfinance institutions achieve better sustainabil-
ity and outreach? Cross-country evidence, Applied
Economics, 39(10/12), 1207–1222.
Healy, P., & Palepu, K. (2001). Information asymme-
try, corporate disclosure, and the capital markets: a
review of the empirical disclosure literature, Journal
of Accounting and Economics 31, 405–440
Helms, B. (2006). Access for All: Building Inclusive
Financial Systems. Washington: CGAP.
Hermalin, B. E., & Weisbach, M. S. (2003). Boards
of Directors as an Endogenously Determined
Institution: A Survey of the Economic Literature.
Economic Policy Review, 9(1), 7-26.
Horsthuis, L. (2019). Internal Corporate Governance
Mechanisms and Corporate Performance: Evidence
from Dutch Listed Firms. The University of Twente,
Master’s Thesis.
Houston, J., & James, C. (1995). CEO compensation and
bank risk: is compensation in banking structured to
promote risk-taking? Journal of Monetary Economics
, 405- 431.
Jensen, M. (1993). The modern industrial revolution, exit,
and the failure of internal control system. Journal of
Finance, 48(3), 831–880.
John, K., Mehran, H., & Qian, Y. (2004). Regulation,
Subordinated Debt and Incentive Features of CEO
Compensation in the Banking Industry. Staff
Reports no. 308, Federal Reserve Bank of New York.
Gyan Management Journal Year 2024, Volume-18, Issue-2 (July-December)
John, K., & Qian, Y. (2003). Incentive features in CEO
compensation in the banking industry. Economic
Policy Review, 9(1), 109–121.
Kipkoech, R., & Rono, L. (2016). Audit Committee Size,
Experience, and Firm Financial Performance:
Evidence Nairobi Securities Exchange. Research
Journal of Finance and Accounting, 7(15), 87-95.
Kyereboah-Coleman, A. (2006). Corporate board diver-
sity and performance of microfinance institutions:
the effect of gender, Studies in Economics and
Econometrics 30(3), 19- 33.
Kyereboah-Coleman, A., & Biekpe, N. (2005). Corporate
governance and the performance of microfinance insti-
tutions (MFIs) in Ghana. Working paper, UGBS, Legon.
Kyereboah‐Coleman, A., & Osei, K. A. (2008). Outreach
and profitability of microfinance institutions: The
role of governance. Journal of Economic Studies, 35(3),
–248
Letenah, E. (2015). Board Diversity, External Governance,
Ownership Structure and Performance in Ethiopian
Microfinance Institutions, University of South Africa,
(3), 96-106.
Lipton, M., & Lorsch, J. W. (1992). A modest proposal for
improved corporate governance, Business Lawyer
, 59–77.
Mangena, M., & Tauringana, V. (2008). Corporate boards,
ownership structure, and Firm performance in an envi-
ronment of severe political and economic uncertainty.
British accounting association conference. Blackpool.
Mersland, R., & Strom, R.O. (2007). Performance and
corporate governance in Microfinance institutions,
MPRA paper 3887, university of Munich.
Mersland, R., & Strøm, R.O. (2008). Performance And
Trade-Offs In Microfinance Organisations—
Does Ownership Matter? Journal of International
Development, 20(4), 598–612.
Mersland, R., & Strom, R.O. (2009). Performance and
Governance in Microfinance Institutions. Journal of
Banking and Finance, 33(4), 662–669.
Muwamba, D. (2012). Sustainability of MFIs through
corporate governance mechanism: A crosscoun-
try analysis of regulation on outreach and oper-
ational self-sufficiency. PhD Thesis, University of
Massachusetts, Boston, USA
Ntim, G., & Osei, A. (2011). The Impact of Corporate
Board Meetings on Corporate Performance in South
Africa. African Review of Economics and Finance,
(2), 83-103.
Okoye, L. U., Erin, O. A., Ado, A., & Areghan, I. (2020).
Corporate Governance and Financial Sustainability
of Microfinance Institutions in Nigeria: Conference:
Sustainable Economic Growth, Education Excellence,
and Innovation Management through Vision 4035-
Rehman, A., Ali, T., Hussain, S., & Waheed, A. (2021):
Executive remuneration, corporate governance,
and corporate performance: Evidence from China.
Economic Research- Ekonomska Istraživanja, 1-27.
Roberts, P.W. (2013). The Profit Orientation of
Microfinance Institutions and Effective Interest
Rates. World Development, 41, 120-131.
Robinson, M. (2001). The Microfinance Revolution:
Sustainable Finance for the Poor, the world bank.
Safugha, G. F. (2017). The Effect of Corporate Governance
Practice on Microfinance Institutions Performance:
A Case from Nigeria. The Business School University
of Roehampton London.
Sanda, A. U., Mukaila, A. S., & Garba, T. (2003). Corporate
governance mechanisms and firm financial per-
formance in Nigeria. Final Report Presented to the
Biannual Research Workshop of the AERC, Nairobi,
Kenya, 24-29.
Sarkar, J., & Sarkar, S. (2018). Bank Ownership, Board
Characteristics, and Performance: Evidence from
Commercial Banks in India. International Journal of
Finance, 6(17),1-29.
Sharma, B. (2017). Microfinance intervention and peo-
ples’ perception: A study on NGOs MF programme.
Adv. Res. J. Soc. Sci., 8(2), 337-34.
Sharma, V., Naiker, V., & Lee, B. (2009). Determinants
of Audit Committee Meeting Frequency: Evidence
from a Voluntary Governance System. Accounting
Horizons, 23(3), 245–263.
Shrader, C. B., Blackburn, V. B., & Iles, P. (1997). Women
in management and firm financial performance: An
exploratory study. Journal of Managerial Issues 9 (3),
-372.
Siele, J. (2009). Effects of corporate governance structure
on performance of MFIs in Ghana. Journal of Policy
and Development Studies, 1(2), 24-33.
Simon, M. W., Roselyn, G., & Ken, W. (2003). The Effects
of Leadership Characteristics on Microfinance
Institutions’ Social Performance in Kenya. European
Journal of Business and Innovation Research,1(1),
-43.
Gyan Management Journal Year 2024, Volume-18, Issue-2 (July-December)
Sinclair, H. (2012). Confessions of a Microfinance Heretic:
How Microlending Lost its Way and Betrayed the
Poor, San Francisco, Berrett-Koehler.
Singh, D. A., & Gaur, A. S. (2009). Business group affil-
iation, firm governance, and firm performance:
Evidence from China and India. Corporate
Governance: An International Review, 17(4), 411-
Steinwand, D. (2000). A risk management framework for
microfinance institutions. GTZ, Financial Systems
Development, Eschborn, Germany.
Tchakoute-Tchuigoua, H.T. (2010). Is There a Difference
in Performance by the Legal Status of Microfinance
Institutions? The Quarterly Review of Economics and
Finance, 50(4), 436-442.
Tchakoute-Tchuigoua, H.T. (2014). Institutional framework
and capital structure of microfinance institutions.
Journal of Business Research, 67(10), 2185–2197.
Thrikawala, S.S., Locke, S., & Reddy, K. (2013). Corporate
Governance – Performance Relationship in
Microfinance Institutions (MFIs). Asian Journal of
Finance & Accounting, 5(1), 160-182.
Thrikawala, S.S., & Locke, S. (2018). Board Diversity and
Performance of Microfinance Institutions (MFIS):
Evidence from an Emerging Economy. Centre for
Business and Enterprise, Wintec, New Zealand.
Conference paper
Vafeas, N. (1999). Board meeting frequency and firm per-
formance. Journal of financial economics,53(1), 113-
Downloads
Published
Issue
Section
License
Copyright (c) 2023 Gyan Management Journal
This work is licensed under a Creative Commons Attribution 4.0 International License.
How to Cite
