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Governance and Performance of Microfinance Institutions in Central And Eastern Europe and the Newly Independent States

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  • Valentina Hartarska

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    Abstract

    This paper presents the first evidence on the impact of external governance mechanisms, board diversity and independence, and management compensation on outreach and sustainability of microfinance institutions in Central and Eastern Europe and the Newly Independent States. Results indicate that among external governance mechanisms only auditing affects outreach, whereas regulation and rating do not affect performance. Board diversity improves both outreach and sustainability while larger and less independent boards lower sustainability. Performance-based compensation is not effective in aligning the interest of managers and stakeholders, and underpaying managers reduces outreach.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp677.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-677.

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    Length: 34 pages
    Date of creation: 01 Apr 2004
    Date of revision:
    Handle: RePEc:wdi:papers:2004-677

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    Keywords: Central and Eastern Europe and the Newly Independent States; governance; microfinance; board of directors; managerial compensation; regulation; and rating;

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    1. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
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    12. Paul B. McGuire, 1999. "Policy and regulation for sustainable microfinance: country experiences in Asia," Journal of International Development, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(5), pages 717-729.
    13. Kose John & Yiming Qian, 2003. "Incentive features in CEO compensation in the banking industry," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Apr, pages 109-121.
    14. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(4), pages 1569-1614, December.
    15. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
    16. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, Elsevier, vol. 40(2), pages 185-211, February.
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    Cited by:
    1. Thapa, Ganesh, 1. "Sustainability and Governance of Microfinance Institutions: Recent Experiences and Some Lessons for Southeast Asia," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 3(1).

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