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Capital structure and earnings quality in microfinance institutions

Author

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  • Naima Lassoued

Abstract

Purpose - The purpose of this paper is to examine whether capital structure matters for earnings management of microfinance institutions. Design/methodology/approach - The empirical study is conducted using a sample of 575 MFIs over 2007 to 2015, we determined in the first step the discretionary part of provision for loan impairment. In the second step, we examine the effect of debt and donated equity on discretionary provision for loan impairment. Findings - We found robust evidence that MFIs manage their earnings for external finance purposes. Debt exhibits a negative effect on earnings management for both profit and nonprofit MFIs. However, donated equity incites managers of MFIs to engage this practice in nonprofit MFIs. Practical implications - Findings could be valuable to fund providers and investors who should consider accounting information quality in order to reach a better investment decision. Originality/value - This paper is among the few to explore earnings management motivation of MFIs and to determine the role of external financing on earnings management practice.

Suggested Citation

  • Naima Lassoued, 2021. "Capital structure and earnings quality in microfinance institutions," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 18(2), pages 240-260, March.
    • Handle: RePEc:eme:ijmfpp:ijmf-08-2020-0454
    DOI: 10.1108/IJMF-08-2020-0454
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    Cited by:

    1. Aljughaiman, Abdullah A. & Nguyen, Tam Huy & Trinh, Vu Quang & Du, Anqi, 2023. "The Covid-19 outbreak, corporate financial distress and earnings management," International Review of Financial Analysis, Elsevier, vol. 88(C).

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