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The Association between microfinance rating scores and corporate governance: a global survey

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  • Beisland, Leif Atle
  • Mersland, Roy
  • Randøy, Trond

Abstract

The global microfinance industry has experienced high growth rates over the past decades, and the World Bank foresees a future market with billions of customers. However, the industry's continued growth is contingent on its ability to create a governance structure that supports microfinance institutions' long-term performance. Because microfinance institutions' performance is multidimensional and difficult to measure, prior research has not been successful in establishing consistent associations between governance structures and microfinance institutions' performance. We apply microfinance rating scores – a unique innovation of the microfinance industry – as a summary performance metric and find that several governance metrics are related to microfinance performance. Specifically, we find that CEO/Chair duality has a negative relation to rating scores, whereas the number of international board directors, the presence of internal auditors and the level of competition intensity are positively associated with rating scores. These findings should prove useful in an industry in which there is no established ‘best set-up’ for governance mechanisms.

Suggested Citation

  • Beisland, Leif Atle & Mersland, Roy & Randøy, Trond, 2014. "The Association between microfinance rating scores and corporate governance: a global survey," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 268-280.
  • Handle: RePEc:eee:finana:v:35:y:2014:i:c:p:268-280
    DOI: 10.1016/j.irfa.2014.10.012
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    2. Ahmed A. Elamer & Collins G. Ntim & Hussein A. Abdou & Andrews Owusu & Mohamed Elmagrhi & Awad Elsayed Awad Ibrahim, 2021. "Are bank risk disclosures informative? Evidence from debt markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1270-1298, January.
    3. Sujani Thrikawala & Stuart Locke & Krishna Reddy, 2017. "Dynamic endogeneity and corporate governance-performance relationship: Lessons from the microfinance sector," Journal of Economic Studies, Emerald Group Publishing, vol. 44(5), pages 727-744, October.
    4. Berta SILVA & Ronelle BURGER, 2015. "Financial vulnerability: an empirical study of Ugandan NGOs," CIRIEC Working Papers 1515, CIRIEC - Université de Liège.
    5. Drori, Israel & Manos, Ronny & Santacreu-Vasut, Estefania & Shoham, Amir, 2020. "How does the global microfinance industry determine its targeting strategy across cultures with differing gender values?," Journal of World Business, Elsevier, vol. 55(5).
    6. Roy Mersland & Daudi Pascal & Leif Atle Beisland, 2016. "The influence of CEO power on agency costs in non-profit organisations: evidence from the global microfinance industry," Working Papers CEB 16-045, ULB -- Universite Libre de Bruxelles.

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