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Earnings Quality in the Microfinance Industry

In: Microfinance in Developing Countries: Issues, Policies and Performance Evaluation

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  • Beisland, Leif Atle
  • Mersland, Roy

Abstract

This study investigates the popular claim that reported earnings are invalid as a performance measure of microfinance institutions. Using earnings quality metrics from the accounting literature, we are unable to document lower earnings quality for microfinance institutions than for listed corporations. Moreover, we find that the proposed alternative in the microfinance industry to reported earnings, adjusted earnings, do generally not score higher on earnings quality metrics than do reported earnings. This first study of earnings quality in the microfinance industry suggests that reported earnings are a relevant measure of the current and future financial performance of microfinance institutions.

Suggested Citation

  • Beisland, Leif Atle & Mersland, Roy, 2013. "Earnings Quality in the Microfinance Industry," EconStor Open Access Book Chapters, in: Microfinance in Developing Countries: Issues, Policies and Performance Evaluation, pages 83-106, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:eschap:323848
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    1. 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.
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    5. Lang, Mark & Smith Raedy, Jana & Wilson, Wendy, 2006. "Earnings management and cross listing: Are reconciled earnings comparable to US earnings?," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 255-283, October.
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    9. Dichev, Ilia D. & Tang, Vicki Wei, 2009. "Earnings volatility and earnings predictability," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 160-181, March.
    10. Patricia M. Dechow & Weili Ge, 2006. "The persistence of earnings and cash flows and the role of special items: Implications for the accrual anomaly," Review of Accounting Studies, Springer, vol. 11(2), pages 253-296, September.
    11. Stuart Michelson & James Jordan-Wagner & Charles Wootton, 2000. "The relationship between the smoothing of reported income and risk-adjusted returns," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 24(2), pages 141-159, June.
    12. Yaron, J., 1992. "Assessing Development Finance Institutions; A Public Interest Analysis," World Bank - Discussion Papers 174, World Bank.
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    Cited by:

    1. Daudi Pascal & Leif Atle Beisland & Roy Mersland, 2016. "The origin of CEOs and its influence on microfinance performance and risk-taking," Working Papers CEB 16-046, ULB -- Universite Libre de Bruxelles.
    2. Mersland, Roy & Strøm, R. Øystein, 2014. "Measuring Microfinance Performance," EconStor Open Access Book Chapters, in: Microfinance Institutions: Financial and Social Performance, pages 12-30, ZBW - Leibniz Information Centre for Economics.
    3. Beisland, Leif Atle & Mersland, Roy & Randøy, Trond, 2014. "Transparency and Disclosure in the Global Microfinance Industry: Implications for practice and policy makers," EconStor Open Access Book Chapters, in: The Oxford Handbook of Political, Institutional and Corporate Transparency, pages 434-455, ZBW - Leibniz Information Centre for Economics.
    4. Beisland, Leif Atle & Mersland, Roy & Randøy, Trond, 2014. "Microbank Regulation and Earnings Quality: A Global Survey," EconStor Open Access Book Chapters, in: Microfinance Institutions: Financial and Social Performance, pages 271-293, ZBW - Leibniz Information Centre for Economics.
    5. Beisland, Leif Atle & Mersland, Roy, 2014. "Earnings Quality in Nonprofit Versus For-Profit Organizations: Evidence From the Microfinance Industry," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43(4), pages 652-671.

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