IDEAS home Printed from https://ideas.repec.org/a/bla/jomstd/v49y2012i4p718-742.html
   My bibliography  Save this article

Do Powerful CEOs Determine Microfinance Performance?

Author

Listed:
  • Rients Galema
  • Robert Lensink
  • Roy Mersland

Abstract

Recently, microfinance has been coming under public and media attacks. The microcredit crisis following from microfinance-induced suicides in 2010 in the Indian state of Andhra Pradesh indicates that weak corporate governance and imprudent risk taking have far-reaching consequences. Yet, analyses of corporate governance mechanisms among microfinance institutions (MFIs) remain underdeveloped. As a response, this study examines the impact of CEO power on MFI risk taking by deriving explicit predictions of this effect from a characterization of the microfinance industry. Based on a sample of 280 microfinance institutions, our results suggest that powerful CEOs of microfinance non-governmental organizations (NGOs) have more decision-making freedom than powerful CEOs of other types of MFIs. This induces them to make more extreme decisions that increase risk. Furthermore, the decision-making freedom powerful CEOs have in NGOs appears to lead to worse decisions, because the presence of powerful CEOs in microfinance NGOs is associated with lower performance.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Rients Galema & Robert Lensink & Roy Mersland, 2012. "Do Powerful CEOs Determine Microfinance Performance?," Journal of Management Studies, Wiley Blackwell, vol. 49(4), pages 718-742, June.
    • Handle: RePEc:bla:jomstd:v:49:y:2012:i:4:p:718-742
    DOI: j.1467-6486.2012.01046.x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-6486.2012.01046.x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/j.1467-6486.2012.01046.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jianyun Tang & Mary Crossan & W. Glenn Rowe, 2011. "Dominant CEO, Deviant Strategy, and Extreme Performance: The Moderating Role of a Powerful Board," Journal of Management Studies, Wiley Blackwell, vol. 48(7), pages 1479-1503, November.
    2. Mark Schreiner, 2002. "Aspects of outreach: a framework for discussion of the social benefits of microfinance," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(5), pages 591-603.
    3. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
    4. Steven W. Bradley & Dean A. Shepherd & Johan Wiklund, 2011. "The Importance of Slack for New Organizations Facing ‘Tough’ Environments," Journal of Management Studies, Wiley Blackwell, vol. 48, pages 1071-1097, July.
    5. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, December.
    6. Hartarska, Valentina M., 2005. "Governance and Performance of Microfinance Institutions in Central and Eastern Europe and the Newly Independent States," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24568, European Association of Agricultural Economists.
    7. Mersland, Roy, 2009. "The Cost of Ownership in Microfinance Organizations," World Development, Elsevier, vol. 37(2), pages 469-478, February.
    8. Mersland, Roy & Strøm, Reidar Øystein, 2009. "Performance and governance in microfinance institutions," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 33(4), pages 662-669.
    9. Fisman, Raymond & Glenn Hubbard, R., 2005. "Precautionary savings and the governance of nonprofit organizations," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2231-2243, December.
    10. Raymond Fisman & R. Glenn Hubbard, 2003. "The Role of Nonprofit Endowments," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 217-234, National Bureau of Economic Research, Inc.
    11. Hartarska, Valentina, 2005. "Governance and performance of microfinance institutions in Central and Eastern Europe and the Newly Independent States," World Development, Elsevier, vol. 33(10), pages 1627-1643, October.
    12. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-727, September.
    13. Pathan, Shams, 2009. "Strong boards, CEO power and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1340-1350, July.
    14. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    15. Said Elbanna & John Child, 2007. "The Influence of Decision, Environmental and Firm Characteristics on the Rationality of Strategic Decision‐Making," Journal of Management Studies, Wiley Blackwell, vol. 44(4), pages 561-591, June.
    16. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
    17. Raaj K. Sah & Joseph E. Stiglitz, 1991. "The Quality of Managers in Centralized Versus Decentralized Organizations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 289-295.
    18. Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2011. "Outreach and Efficiency of Microfinance Institutions," World Development, Elsevier, vol. 39(6), pages 938-948, June.
    19. World Bank & International Monetary Fund, 2005. "Financial Sector Assessment : A Handbook," World Bank Publications - Books, The World Bank Group, number 7259.
    20. J. Robert Baum & Barbara J. Bird, 2010. "The Successful Intelligence of High-Growth Entrepreneurs: Links to New Venture Growth," Organization Science, INFORMS, vol. 21(2), pages 397-412, April.
    21. repec:idb:brikps:78868 is not listed on IDEAS
    22. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
    23. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    24. Edward L. Glaeser, 2003. "Introduction to "The Governance of Not-for-Profit Organizations"," NBER Chapters, in: The Governance of Not-for-Profit Organizations, pages 1-44, National Bureau of Economic Research, Inc.
    25. Petra Brhlikova & Andeas Ortmann, 2006. "The Impact of the Non-distribution Constraint and Its Enforcement on Entrepreneurial Choice, Price, and Quality," CERGE-EI Working Papers wp299, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rients Galema & Robert Lensink & Roy Mersland, 2012. "Governance and Microfinance Institutions," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 29, Edward Elgar Publishing.
    2. Kwame Ohene Djan & Samuel Anokye Nyarko & Roy Mersland & Leif Atle Beisland & Linda Nakato, 2023. "Influence of international ownership on the performance of local social enterprises: Evidence from the global microfinance industry," Post-Print hal-05221043, HAL.
    3. Tchakoute-Tchuigoua, Hubert & Soumaré, Issouf, 2019. "The effect of loan approval decentralization on microfinance institutions' outreach and loan portfolio quality," Journal of Business Research, Elsevier, vol. 94(C), pages 1-17.
    4. Kwame Ohene Djan & Roy Mersland, 2022. "Are NGOs and cooperatives similar or different? A global survey using microfinance data," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(2), pages 641-683, June.
    5. Simon Zaby, 2019. "Science Mapping of the Global Knowledge Base on Microfinance: Influential Authors and Documents, 1989–2019," Sustainability, MDPI, vol. 11(14), pages 1-21, July.
    6. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    7. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).
    8. Valentina Hartarska & Roy Mersland, 2012. "Which Governance Mechanisms Promote Efficiency in Reaching Poor Clients? Evidence from Rated Microfinance Institutions," European Financial Management, European Financial Management Association, vol. 18(2), pages 218-239, March.
    9. Barry, Thierno Amadou & Tacneng, Ruth, 2014. "The Impact of Governance and Institutional Quality on MFI Outreach and Financial Performance in Sub-Saharan Africa," World Development, Elsevier, vol. 58(C), pages 1-20.
    10. Beisland, Leif Atle & Mersland, Roy & Randøy, Trond, 2014. "The Association between microfinance rating scores and corporate governance: a global survey," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 35, pages 268-280.
    11. Neema Mori & Roy Mersland, 2014. "Boards in microfinance institutions: how do stakeholders matter?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(1), pages 285-313, February.
    12. Moez Bennouri & Anastasia Cozarenco & Samuel Anokye Nyarko, 2024. "Women on Boards and Performance Trade-offs in Social Enterprises: Insights from Microfinance," Journal of Business Ethics, Springer, vol. 190(1), pages 165-198, February.
    13. Ahmad, Syedah & Lensink, Robert & Mueller, Annika, 2020. "The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance," World Development, Elsevier, vol. 136(C).
    14. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    15. Marc Labie & Roy Mersland, 2011. "Corporate Governance Challenges in Microfinance," World Scientific Book Chapters, in: Beatriz Armendáriz & Marc Labie (ed.), The Handbook Of Microfinance, chapter 13, pages 283-298, World Scientific Publishing Co. Pte. Ltd..
    16. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    17. Dato, Muluneh Hideto & Mersland, Roy & Mori, Neema, 2018. "Board committees and performance in microfinance institutions: Evidence from Ethiopia," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 13(2), pages 350-370.
    18. Mersland, Roy & Beisland, Leif Atle & Pascal, Daudi, 2019. "The Origin of Chief Executive Officers and Performance in Hybrid Businesses: The Case of Microfinance," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 57(4), pages 1578-1594.
    19. Golesorkhi, Sougand & Mersland, Roy & Piekkari, Rebecca & Pishchulov, Grigory & Randøy, Trond, 2019. "The effect of language use on the financial performance of microfinance banks: Evidence from cross-border activities in 74 countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 54(3), pages 213-229.
    20. Chrysovalantis Gaganis, 2016. "Assessing the overall performance of microfinance institutions," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 7(1), pages 52-83.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jomstd:v:49:y:2012:i:4:p:718-742. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2380 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.