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Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity

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  • Nawaz, Ahmad
  • Iqbal, Sana

Abstract

Microfinance institutions of Asia work exclusively with the mission of social welfare hence play an important role in the economic and financial development of a region.Endogeneity poses a serious threat to the authenticity of corporate governance and performance studies because of the endogenous nature of many governance and performance variables. This paper addresses this issue in the context of microfinance sector in Asia by answering the question whether social performance determines the corporate governance mechanism of MFIs. Using a panel of 173 MFIs in 18 Asian countries for the period of five years, a comprehensive corporate governance index (CGI)based on of seven internal governance mechanism variables in constructed as an indicator of the overall corporate governance mechanism of MFIs. By employing GLS model, our results indicate insignificant impact of corporate governance on many social performance variables which are attributed to the endogenous nature of this relationship as the significance of results improved by studying relationship in reverse direction by employing ordered logit model. Our results indicate that social performance is an important determinant of corporate governance mechanism of MFIs even after controlling for MFI related characteristics.

Suggested Citation

  • Nawaz, Ahmad & Iqbal, Sana, 2015. "Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity," MPRA Paper 65312, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65312
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    Cited by:

    1. Md. Ali Rasel & Sandar Win, 2020. "Microfinance governance: a systematic review and future research directions," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(7), pages 1811-1847, April.

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    More about this item

    Keywords

    Microfinance; Corporate Governance; Social performance; Endogeneity; Asia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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