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Financial Performance And Corporate Governance In Microfinance: Who Drives Who? An Evidence From Asia

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  • Nawaz, Ahmad
  • Iqbal, Sana

Abstract

This paper models the two-way relationship between corporate governance and financial performance of microfinance institutions of Asia. Unlike previous studies, the phenomena of better corporate governance mechanisms present in more financially oriented microfinance institutions is worth investigating. Using a panel of 173 microfinance institutions in 18 Asian countries between 2007 and 2011, a comprehensive corporate governance index (CGI) based on seven corporate governance variables is being constructed as a proxy for the overall corporate governance mechanism of MFIs. Our results suggest that corporate governance has no significant impact on financial stability of MFIs of Asia. However, financial performance to some extent does drives corporate governance mechanisms in MFIs after controlling for MFI related characteristics. We find greater operating expenses and higher portfolio yield to be associated with improved governance practices in microfinance institutions. Study opens new avenues of research in corporate governance and financial performance literature for the academia. Given the revealing results of financial performance as a determinant of better corporate governance practices, policy makers and regulators in Asia should devise corporate governance policies and guidelines in a way not undermining the financial objectives of microfinance.

Suggested Citation

  • Nawaz, Ahmad & Iqbal, Sana, 2015. "Financial Performance And Corporate Governance In Microfinance: Who Drives Who? An Evidence From Asia," MPRA Paper 65327, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65327
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    4. Wei Xu & Hongyong Fu & Huanpeng Liu, 2019. "Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study," Sustainability, MDPI, vol. 11(21), pages 1-22, October.
    5. Faozi A. Almaqtari & Hamood Mohd. Al-Hattami & Khalid M. E. Al-Nuzaili & Mohammed A. Al-Bukhrani & Collins G. Ntim, 2020. "Corporate governance in India: A systematic review and synthesis for future research," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1803579-180, January.
    6. Md. Ali Rasel & Sandar Win, 2020. "Microfinance governance: a systematic review and future research directions," Journal of Economic Studies, Emerald Group Publishing, vol. 47(7), pages 1811-1847, April.
    7. Hailu Abebe Wondirad, 2020. "Competition and microfinance institutions’ performance: evidence from India," International Journal of Corporate Social Responsibility, Springer, vol. 5(1), pages 1-19, December.
    8. Hui-Ching Hsieh & Viona Claresta & Thi Minh Ngoc Bui, 2020. "Green Building, Cost of Equity Capital and Corporate Governance: Evidence from US Real Estate Investment Trusts," Sustainability, MDPI, vol. 12(9), pages 1-21, May.
    9. Gregor Dorfleitner & Davide Forcella & Quynh Anh Nguyen, 2021. "Why microfinance institutions go digital: An empirical analysis," Working Papers CEB 21-003, ULB -- Universite Libre de Bruxelles.

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    More about this item

    Keywords

    Microfinance; Corporate Governance; Financial Performance; Endogeneity; Asia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance

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