Microfinance Institutions in the Pursuit of Donated Equity, Outreach and Financial Performance: Does the Board of Directors Make the Difference?

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Microfinance Institutions in the Pursuit of Donated

Equity, Outreach and Financial Performance:

Does the Board of Directors Make the Difference?

Masters Thesis

Dual Masters Award in Advanced International Business

Management

Newcastle University Business School

and

University of Groningen Faculty of Economics and Business

Eva Schmitt (110433031/22531668)

30 Heaton Road

NE6 1SD Newcastle upon Tyne

Supervisors:

Dr Matthew Gorton (Newcastle University)

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Abstract

This thesis carries forward the link between structural attributes of boards of directors in microfinance institutions and their social and financial performance, using a self-constructed sample from publicly available rating reports. It conceptualises and empirically tests a model that justifies and investigates the impacts of distinct board attributes separately for both performance objectives. Putting a special focus on social performance and recognising the importance of subsidies for the microfinance sector, it furthermore explores whether the relationship between the board of directors and social performance is mediated by donated equity. The main findings of the studies are that the proportion of outside directors on the board positively impacts on the ratio of donated equity and that financial performance is positively influenced by CEO/chairman duality. Even though the expected mediation effect was not found, the study confirms the distinctiveness of the drivers of social and financial performance in the microfinance sector.

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List of figures

Figure 3.1: Basic model ... 23

Figure 3.2: Total model ... 29

List of tables

Table 4.1: Summary statistics ... 31

Table 5.1: The influence of board size on donated equity ... 37

Table 5.2: The influence of the proportion on outside directors on donated equity ... 38

Table 5.3: The influence of CEO/chairman duality on donated equity... 38

Table 5.4: The influence of board tenure on donated equity... 39

Table 5.5: The influence of the frequency of board meetings on donated equity ... 39

Table 5.6: The influence of donated equity on the number of active borrowers ... 40

Table 5.7: The influence of donated equity on the average loan size ... 41

Table 5.8: The influence of donated equity on the share of female borrowers ... 41

Table 5.9: The influence of the proportion of outside directors on the number of active borrowers. 42 Table 5.10: The influence of the proportion of outside directors on the average loan size ... 42

Table 5.11: The influence of the proportion of outside directors on the share of female borrowers . 42 Table 5.12: Overall model number of active borrowers ... 43

Table 5.13: Overall model average loan size ... 43

Table 5.14: Overall model share of female borrowers ... 44

Table 5.15: The influence of board size on ROA ... 44

Table 5.16: The influence of the proportion of outside directors on ROA ... 45

Table 5.17: The influence of CEO/chairman duality on ROA ... 45

Table 5.18: The influence of board tenure on ROA ... 46

Table 5.19: The influence of the frequency of boards meetings on ROA ... 46

Table 5.20: Overall model ROA ... 46

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List of abbreviations

CGAP Consultative group to assist the poor MFI Microfinance institution

ROA Return on assets

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Acknowledgements

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Chapter 1: Introduction

Dating back to the early works of Berle and Means (1932), the considerations which laid the foundations for the concept of corporate governance, celebrate their 80th anniversary in this year. From today’s point of view, those early ideas, which play an important role in reducing agency problems within firms and hence foster valuation and performance, represented an important milestone for financial research and corporate practice alike, with the concept having ascended to an instrument that should be prevalent in any well run firm (Labie, 2001). As part of this development, the concept was also applied without the realm of the private sector, for which it had originally been designed, with an increasing number of studies investigating corporate governance issues within non-profit firms (Green and Griesinger, 1996; Olson, 2000 inter alia). Most recently, a small number of studies also transferred the concept to the microfinance sector (Hartarska, 2005; Kyereboah-Coleman and Osei, 2008; Mersland and Strøm, 2009; Bassem, 2009; Hartarska and Mersland, 2012), thereby not only exceeding the original sector, but also entering the field of developing countries. Even though the importance of corporate governance mechanisms for the sector has been recognised, the field of research is still in its infancy and results have so far been limited, which creates a challenging field for further studies.

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(MFI) aims at increasing its outreach and hence at contributing to poverty alleviation, it is highly dependent on external resources, such as donations, to fund this costly practice. This coincides with the fact that most MFIs still rely on donor funds and other sources of subsidies (Hudon and Traca, 2011), a practice whose importance has also been stressed by Muhammad Yunus (2011), founder of Grameen Bank and Nobel Prize laureate. Departing from that, this thesis particularly focuses on the driver of social performance and suggests that the inconclusiveness of former results may be contributed to the fact that former studies only investigated the direct influences of corporate governance mechanisms, thereby ignoring potential indirect effects. Given the prominent role that subsidies play in fostering social performance, it is suggested that corporate governance mechanisms, creating confidence among donors, may help the MFI to gain access to donated funds, which in turn may enhance social performance. While this idea has been used before to justify why corporate governance may have an impact on MFI performance (e.g. Hartarska, 2005), to our knowledge no study conceptualised donated equity as a mediating variable. By doing so, the present study does not only shed further light on the relationship between corporate governance mechanisms and social performance, but also responds to former calls for more studies relating donations in microfinance to the outreach of programs (Armendáriz et al., 2011).

Recapitulating the aforementioned thoughts, the aim of the thesis is to investigate the distinct impact of corporate governance mechanisms on the social and financial performance of MFIs. Setting a particular focus on social performance it especially attempts to explore the influence of such mechanisms on the ability to raise donated equity, which in turn may foster outreach. The study thereby concentrates on the board of directors as corporate governance mechanism, which is expected to be of particular importance in the context of the study, as it can be considered as the linking organ between the organisation and its environment (Pistelli, Geake and Gonzalez, 2012). Hence, the overall question the thesis attempts to answer is whether the corporate board makes a difference in improving financial performance as well as in accessing donated funds and subsequently enhancing outreach. More specifically, the following research questions are addressed:

1) What is the relationship between distinct quality attributes of the board of directors in MFIs and social and financial performance?

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In order to answer those questions a deductive approach is chosen, which develops a conceptual model and the related hypotheses based on the review of former literature. In order to test the hypotheses, a quantitative approach is taken, as this can be expected to best assess the relationship between the variables, especially with respect to the mediation effect.

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Chapter 2: Literature review

This chapter gives an overview of relevant literature serving as basis for the conceptual model created within this thesis. The first section provides information on the concept of microfinance, its importance as well as its performance objectives and related debates. The second section continues by presenting the principle ideas of corporate governance as well as the impact of selected board attributes on firm performance in a more general sense. Additionally, the importance of corporate governance in the microfinance sector along with empirical evidence provided by former studies is addressed. Finally, the third section deals with the importance of subsidies for the sector.

2.1 Microfinance

2.1.1 The purpose and importance of microfinance

According to a World Bank study 2.5 billion adult people worldwide, representing half of the adult population, do not have access to the formal financial sector (CGAP, 2012), in most developing countries the share of people without access to formal financial services is even estimated to amount up to 80% (Cull, Demirgüç-Kunt and Morduch, 2009). The lack of access to loans1 is a major factor preventing poor households from generating income through entrepreneurial activity, which does not only affect their personal situation, but given the importance of small enterprises for the economy, the lack of an inclusive financial sector also impacts on the general development of a country (Beck, Demirgüç-Kunt and Martinez Peria, 2007).

Despite the usual concerns of the poor not being able to provide sufficient collateral (Beck, Demirgüç-Kunt and Martinez Peria, 2007), the Grameen Bank, as the pioneer in the field of microfinance, proved that with the support of donor funds a high proportion of poor people are bankable (Cull, Demirgüç-Kunt and Morduch, 2009). Ever since, microfinance has gained strong momentum in the course of poverty alleviation, with microfinance institutions spreading in many developing countries aiming to provide access to financial services to the poor, who so far have been excluded from banking services (Brouwer and Dijkema, 2002). In order to promote the importance of inclusive financial sectors, the UN General Assembly declared the year 2005 as the international year of microcredit (Year of Microcredit, 2012). The increasing prominence of the concept was not least shown in 2006 when Muhammad Yunus, founder of the Grameen Bank, was awarded the

1_{Note that microfinance is a broad instrument, which not only includes microcredit, but also other services}

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Nobel Prize (Armendáriz and Morduch, 2010). The growing awareness of the importance of inclusive financial sectors notwithstanding, microfinance still only reaches a small proportion of the poorest parts of the population, indicating the need of further action (Mersland and Strøm, 2009).

2.1.2 Performance of microfinance institutions: dual mission and trade-offs

When investigating determinants of performance of MFIs, the necessary first step is to define what constitutes performance in the special case of MFIs. Unlike conventional companies, which usually aim at increasing profit or shareholder value, the objectives of MFIs incorporate the so-called double-bottom line, implying a simultaneous pursuit of serving as many poor people as possible (commonly labelled as the maximisation of outreach) and hence contributing to poverty alleviation while ensuring financial self-sustainability (Hartarska and Mersland, 2012). Hence, based on the mission to render communal service, performance measurement of MFIs does not depend on financial indicators alone, but also includes social objectives (Green and Griesinger, 1996).

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Consequently, the conflict between distinct aims of microfinance becomes apparent: the pursuit of efficiency and financial self-sustainability, resulting in larger loan sizes and a tendency towards individual lending methods to lower transaction cost, leads to a lower outreach and hence contravenes the original social mission of microfinance (Hermes, Lensink and Meesters, 2011). While some scholars promoted the compatibility of cost efficiency and outreach (Morduch, 2005), a trade-off between the two objectives has been shown empirically (Cull, Demirgüç-Kunt, and Morduch, 2007; Hermes, Lensink and Meesters, 2011).

The existence of this trade-off does not only indicate the importance of subsidies for an increase in outreach but also suggests that the investigation of MFI performance should be approached from a perspective that focuses on the aims separately in order to create a better understanding of what drives the two types of performance. Moreover, recent developments in the sector as well as the fact that a major part of the population in developing countries remains without access to the financial sector indicates the need to particularly investigate the drivers of social performance. Given this, the thesis, while acknowledging that both performance aims are important, sets a special focus on the social performance of MFIs as measured by outreach.

2.2 Corporate governance

2.2.1 Corporate governance and firm performance

Having the aim to shed light on the drivers of performance of MFIs this thesis investigates the impact of corporate governance. Before turning to the specific case of MFIs, it is important to clarify the concept of corporate governance and its impact on performance in a more general manner.

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aforementioned theories this importance becomes especially apparent, as all three theories support the importance of boards2, which will be specified in the following.3

Agency theory

Agency theory deals with the relationship in which one actor (the agent) acts on behalf of another (the principal) (Jensen and Meckling, 1976). Given potential divergence in individual goals and attitudes towards risk, combined with imperfect information and the risk of opportunistic behaviour, problems in this relationship may arise (Jensen and Meckling, 1976; Eisenhardt, 1989). In this context, corporate governance mechanisms can be employed in order to monitor management’s activity and hence to reduce the agency problems arising out of the separation of ownership and control. As a result, investors’ agency cost decrease and their confidence in the firm increases, which was found to have a positive impact on firm performance (Ashbaugh, Collins and LaFond, 2004). Moreover, it is expected that being monitored impedes the occurrence of ineffective management styles, which managers might have chosen without the presence of corporate governance mechanisms. Being an important mechanism to monitor managements’ activity, the board of directors may have an impact on firm performance in the light of agency theory (Wang and Dewhirst, 1992; Olson, 2000).

Resource dependence theory

Besides the monitoring function, the board of directors represents the firm in public and hence may act as boundary spanner between the organisation and the community in order to gain access to valuable resources (Pfeffer, 1973; Pfeffer and Salancik, 1978; Wang and Dewhirst, 1992). Given the importance of resources for a firm’s competitive advantage (see for instance Barney, 1991) the board might have a major influence on performance. This may be of particular relevance when it comes to fundraising (Pfeffer, 1973), which makes the theory eminently applicable to the purpose of this thesis, as further specified later on.

Stakeholder theory

Another important board function is the protection of stakeholders’ interests (Wang and Dewhirst, 1992). While corporate governance was originally designed as mechanism to protect shareholders’ interest, there has been increasing emphasis on the stakeholder perspective (Speckbacher, 2008).

2_{Note that the term “board” is employed as a short form of the “board of directors” within this thesis.} 3

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This development stems from the recognition of a firm as a social system, interacting with its environment, which is not only crucial in terms of accessing resources, but also in terms of gaining legitimacy (Pfeffer, 1973). It has been suggested (Speckbacher, 2008) that those interactions are characterised by the existence of incomplete contracts, i.e. different groups of stakeholders contributing a specific investment to an organisation (this could for instance be tangible resources, but also time, donations or trust) and requiring a (not necessarily monetary) return on their investment which, other than shareholders’ return, is not guaranteed contractually. Given that such investment depends on the subjectively perceived appropriate usage of the resources, agency problems may also arise in this relationship. In this context, the inclusion of stakeholder considerations into the concept of corporate governance has been promoted (ib.).

2.2.2 Selected board attributes and their impact on firm performance

The previous section outlined the important role of corporate boards. In order to empirically assess the influence of the board of directors on firm performance, going beyond the impact analysis of mere board existence, it is necessary to find sub-constructs which explain the influence on corporate performance. In this context, the quality of a board in monitoring management can be assessed by a number of structural attributes. This thesis focuses on board size, the proportion of outside directors, CEO/chairman duality, tenure as well as the frequency of board meetings, each of which is further described in the following. The selection of those particular attributes is grounded in their informational value as to how effective a board is fulfilling its monitoring task. Moreover, the selected attributes may also deliver valuable information on the credibility and trustworthiness of a firm as well as its access to external resources, which makes them particularly important for MFIs, as further specified in Chapter 3.

Board size

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financial indicators in the case of conventional companies. It should furthermore be highlighted that, as a result of his study, Yermack (1996) suggests an optimal board size of ten directors or less, which does not seem to constitute a strict inverse relationship. Additionally, the fact that large boards exist despite this evidence seems to be striking (Hermalin and Weisbach, 2003). In this context, a substantial body of literature (Olson, 2000; Bennedsen, Kongsted and Nielson, 2008; Cheng, 2008) argues for a positive relationship between board size and firm performance. It is argued that larger boards represent a greater stock of knowledge as well as a wider access to information and other resources. This combined with increased board strength is assumed to contribute to a better ability to monitor and control management’s activities (Olson, 2000). The advantages of large boards have been shown by Olson (2000); Bennedsen, Kongsted and Nielsen (2008) as well as by Cheng (2008) who showed that, based on the assumption of less extreme decision making with increasing board size, the volatility of performance is significantly reduced. Moreover, it has been argued (Pfeffer, 1972; Bennedsen, Kongsted and Nielsen, 2008) that board size may be determined by a firm’s interaction with its environment and that hence optimal board size may differ across organisations, based on trade-offs between a better access to resources and increasing agency problems among directors, which may hint at a non-linear relationship. In this context, Pfeffer (1972) shows that firms with a large need of external capital tend to have larger boards.

Proportion of outside directors

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reputation being at stake and hence serving as collateral in the investor-director relationship (Fama and Jensen, 1983). This is not only true for the relationship to investors but given the high stakeholder orientation of outside directors (Wang and Dewhirst, 1992) the arguments can be applied to various groups of stakeholders. In this context, the importance of outside directors becomes especially apparent when looking at social performance management: while executive directors may be tempted to use available resources to increase their own utility at the expense of the stock of resources necessary for fostering social performance, outside directors are assumed to be capable of controlling and reducing excesses (Coffey and Wang, 1998).

Besides creating credibility among investors and other stakeholders, outside directors may play a distinct role when it comes to the access to crucial resources. As suggested by resource dependence theory and as empirically shown by Pfeffer (1973) corporate boards enhance access to resources, based on their boundary spanning activities and networks. Assuming that with a higher proportion of outside directors on the board the organisation gains a greater diversity of such contacts, an improved access to resources can be expected.

Split CEO and chairman roles

Another structural board attribute that may represent the quality of a board is whether the CEO of the organisation also functions as the chairman of the board, a situation usually referred to as CEO/chairman duality, or whether the two roles are taken by separate persons. Given that a board is considered as effective if it is able to monitor and limit managers’ decisions (Fama and Jensen, 1983), it can be argued that the board’s ability to reduce agency problems is enhanced if the roles of the CEO and the chairman of the board are split. More specifically, it can be assumed that the separation of the two roles prevents a concentration of power and hence represents a better way to monitor the CEO’s activities and decisions. Additionally, two opinions are involved in the decision making process, which may enhance decision quality (Rock, Otero and Saltzman, 1998). Consequently, it can be assumed that splitting the roles of CEO and chairman may enhance firm performance.

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conflicting attitudes. In addition, non-duality may stimulate rivalry between the CEO and the chairman, which would have a negative impact on performance (Baliga, Moyer and Rao, 1996). Those considerations indicate the ambiguity of the concept, even though most of the literature endorses split CEO and chairman roles.

Board tenure

The impact of board tenure, i.e. the period for which board members are elected, has so far not been investigated in the context of MFI performance. However, including it as an indicator of board quality may complement the mere compositional attributes to a more holistic assessment (see Vafeas, 2003). The major underlying reason for the positive impact of board tenure on firm performance is seen in the directors’ increasing expertise (ib.) and commitment (Buchanan, 1974) over time. This does not only allow them to better fulfil their task, but forwards them to a position in which they are less likely to be controlled by management (Olson, 2000). Despite the empirical evidence supporting the benefits of an increased tenure (see Buchanan, 1974; Olson, 2000; O’Regan and Oster, 2005), Vafeas (2003) contends that an increased tenure may impede the inflow of new knowledge and bear the risk of decreasing monitoring activity, for instance based on an increased personal involvement with the management over time.

Frequency of board meetings

The frequency of board meetings is another important, yet underrepresented, criterion to assess board quality, as it serves as an indicator of the board’s activeness as well as its strategic and operational involvement (Pistelli, Geake and Gonzalez, 2012). The main line of reasoning is that the board’s primary task to monitor management cannot be fulfilled effectively if the board is inactive (Vafeas, 1999). In that context, rating agencies evaluate a lack of regular and complete board meetings as an important deficit among MFIs (The ratingfund II, n.d. a). The positive impact of board involvement in the non-profit sector has been shown empirically in several studies: Bradshaw, Murray and Wolpin (1992) identify board involvement in strategic planning as a strong predictor of board performance; Green and Griesinger (1996) find that participation in multiple areas is positively related to organisational effectiveness; Siciliano (1990) shows a positive association of board involvement and social performance.

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board meetings and firm valuation. However, he also shows that operational performance improves subsequent to a period of more extensive board meetings.

2.2.3 Corporate governance and the performance of microfinance

institutions

In the last decades the application of corporate governance mechanisms has exceeded the field it was originally designed for. Having recognised that it may not only increase shareholder value, an application outside publicly owned firms has been promoted, with an increasing tendency to transfer the concept to the non-profit sector. In this context, it has been argued that corporate governance mechanisms may also impact on performance of MFIs (Campion, 1998; Rock, Otero and Saltzman, 1998; Hartarska, 2005; Kyereboah-Coleman and Osei, 2008 inter alia).4 Thereby, a large body of non-profit and microfinance literature (Wang and Dewhirst, 1992; Handy, 1995; Olson, 2000 inter alia) emphasises the particular need of governance due to the distinct structure of the respective sector. Most importantly, it has been argued (Handy, 1995; Olson, 2000) that in the absence of a market evaluation and the risk of arm’s-length acquisitions, which usually serve as a safeguard in publicly traded firms, managers of non-profit organisations may have an increased incentive to exploit resources and hence should be controlled more closely. Further, the specific need of resources that non-profit organisations and hence most MFIs face, highlights the role of the board of directors (Wang and Dewhirst, 1992; O’Regan and Oster, 2005). In addition to that, microfinance literature (Hartarska, 2005; Labie and Mersland, 2011; Galema, Lensink and Mersland, 2012) emphasises the important role of the board within an organisation in which different types of stakeholder put trust (Labie and Mersland, 2011) and where managers control substantial resources (Hartarska, 2005) with a high degree of autonomy (Galema, Lensink and Mersland, 2012). Departing from the definition of corporate governance provided by Shleifer and Vishny (1997), Hartarska (2005) defines governance in microfinance as “mechanisms through which donors, equity investors, and other providers of funds ensure themselves that their funds will be used according to the intended purpose” (p.1628). In a similar vein, Rock, Otero and Saltzman (1998) describe corporate governance in MFIs as the process of a board of directors guiding the institution in fulfilling its mission and protecting its assets. Hence, the main purpose of corporate governance in MFIs is to protect resources against exploitation by managers, who may pursue personal interest that counteract the

4

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institution’s mission. Consequently, corporate governance mechanisms in MFIs aim at generating and maintaining trust and confidence among a broad range of stakeholders, including investors, donors, clients as well as the general public, and thereby enhancing the institution’s credibility and legitimacy (van Greuning, Gallardo and Randhawa, 1998; Barr, Fafchamps and Owens, 2005; Kyereboah-Coleman and Osei, 2008). In the light of the aforementioned considerations, the role of the board seems especially important in the improvement of social performance. This is supported by social performance management research (Coffey and Wang, 1998) showing that the willingness to trade off financial returns for the pursuit of a social impact is enhanced by the existence of a board.

Looking at empirical evidence on the impact of corporate governance on MFI performance, relevant studies acknowledge the double-bottom line incorporated by MFIs and define performance as a twofold construct, including both, social and financial performance. The first empirical evidence of the impact of corporate governance on MFI performance was presented by Hartarska (2005), who finds that independent boards are more effective. Kyereboah-Coleman and Osei (2008), who conduct research in Ghanaian MFIs, show that the proportion of outside directors on the board and the separation of CEO and chairman are positively correlated with both social and financial performance and that board size has a negative influence on social performance while it positively impacts on financial objectives. Mersland and Strøm (2009) find that most governance mechanisms have only little impact on both performance measures and mainly CEO/chairman duality was found to increase outreach. In a study among Euro-Mediterranean MFIs, Bassem (2009) discovers that both board size and the proportion of outside directors positively impact on both performance objectives. Most recently, Hartarska and Mersland (2012) evaluate the effectiveness of governance mechanisms in MFIs by creating a model to measure financial and social performance simultaneously. Their main findings include a curvilinear relationship between board size and performance as well as a negative impact of CEO/chairman duality and board dependence.

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Notably, former contributions are also characterised by the lack of an investigation of the effects of corporate governance on the distinct objectives of microfinance. While most studies acknowledge both aims in terms of measurement, their conceptual models widely ignore that the respective governance mechanisms may have a different impact on outreach than on financial performance. Departing from that, this thesis aims at justifying and testing the impacts of different board attributes, as an important corporate governance mechanism, on both social and financial performance. More particularly however, given the distinct role of the board for the pursuit of social aims, this thesis focuses on the outreach impact of corporate governance. Based on the assumption that social aims may not be reached effectively without the support of donations, the main purpose of this thesis is to investigate whether donated equity mediates the relationship between board quality as reflected in structural attributes and social performance in MFIs. Before turning to the conceptualisation of the model underlying this thesis, the next section briefly presents former contributions outlining the importance of subsidies in microfinance.

2.3 The importance of subsidies in increasing outreach

The microfinance sector has always been dependent on subsidies5 (Morduch, 2005). While subsidies beyond the inception stage have been blamed for impeding the incentive to become financially self-sufficient (Bhatt and Tang, 2001; CGAP, 2004, Morduch, 2005), empirical evidence shows that only 5% of MFIs are self-sustainable (Hudon and Traca, 2011). In that context, it is argued (Armendáriz et al., 2011) that subsidies may be necessary if microfinance is to function according to its original purpose, which is to build inclusive financial sectors and to contribute to poverty alleviation. The reason for that is that in the absence of subsidies loans would have to be priced in a way to cover the occurred cost, which would set microfinancial services beyond reach of the original target group (Morduch, 1999; Armendáriz et al., 2011). This was suggested to not only be true for the high costs faced in the inception stage, but also for all the costs that occur when gaining new clients (Morduch, 2005). Hence, the increase in outreach that may be reached, may justify on-going subsidies in microfinance (Zeller and Meyer, 2002). The importance of subsidies for social performance has been empirically shown by Armendáriz et al. (2011), who found that subsidy uncertainty, forcing MFIs to increase interest rates, negatively impacts on outreach.

5_{Note that besides donations, subsidies may include a range of other forms of support. However, given that}

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Despite the importance of subsidies, many MFIs face major difficulties in gaining access to international donor funds (Barr, Fafchamps and Owens, 2005). Such problems may be caused by imperfect information resulting from the physical distance often inherent between donors and MFIs. Major concerns centre on agency problems, i.e. the exploitation of donor funds by managers as well as moral hazard problems and soft-budget constraints (Hudon and Traca, 2011). Consequently, it has been suggested that subsidies should be rule-bound and that donor-MFI relations should be as transparent as possible, with donors being able to assess the social impact of the supported program (Morduch, 2005).

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Chapter 3: Conceptual model

After having outlined relevant previous contributions in Chapter 2, the thesis continues by conceptualising the model it aims to test. For a better overview, a simplified model is presented in Figure 3.1. Departing from the criticism of former studies, the model conceptualises the effect of selected board attributes separately for both performance aims. Given the philanthropic notion of microfinance, a special focus is set on social performance. In particular, based on the incompatibility of financial self-sustainability and outreach and the resulting importance of subsidies for microfinance programs, it is suggested that donated capital mediates the relationship between the characteristics of the board of directors and social performance.

3.1 Board attributes, donated equity and social performance

As outlined in the literature review, donations take a central role in fostering social performance of MFIs. Nevertheless, many MFIs face difficulties in gaining access to donated funds. Those problems may be rooted in agency problems, stemming from imperfect information as well as the existence of incomplete contracts in the donor-MFI relationship. Even though donations do not imply a financial claim or any other form of reciprocity, the majority of donors, being interested in the greater philanthropic good, would most certainly expect to yield a return in the form of social impact (Olson, 2000) which cannot be guaranteed a priori. Hence, it can be assumed that donors would only be willing to contribute their funds to a certain project if they are sure that the organisation will do its best to use the funds according to the intended purpose, which makes them comparable to investors of public companies. In this context, a corporate board which monitors management activities may help to weaken any concerns donors may have and hence create the trust which is necessary to motivate a donation. Moreover, in the light of stakeholder theory, the board of directors may not only represent donors’ interests, but also respect the welfare of other groups, especially the clients, which in turn may be in the interest of philanthropic donors as well. Finally, with respect to resource dependence theory (Pfeffer and Salancik, 1978) the presence of a board of directors may enhance access to potential donors through the directors’ personal networks (Pfeffer, 1973; Wang and Dewhirst, 1992).

Quality of the corporate board

Social performance

Financial performance Donated equity

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Extending the ideas depicted in the literature review, it is suggested that the board of directors does not directly impact on social performance, but in an indirect way through access to donated capital. Based on the aforementioned arguments, Section 3.1.1 therefore continues with developing hypotheses regarding the association between selected board attributes and donated equity. This is followed by Section 3.1.2, which predicts the mediating effect of donated equity in the relationship between board attributes and social performance.

3.1.1 Board attributes and donated equity

Board size

As to the influences of board size on performance in publicly traded companies, the major body of literature (Jensen, 1993; Yermack, 1996; Eisenberg, Sundgren and Wells, 1998 inter alia) suggests that smaller boards are more beneficial for performance. Nevertheless, it is also argued (Pfeffer, 1972) that the optimal board size is dependent on the nature of the respective company, which indicates that what is true for public firms does not necessarily apply to MFIs. In microfinance research, evidence for the performance impact of board size has been inconclusive. Looking at access to donated capital, however, there is good reason to assume that larger boards are more beneficial. This becomes especially apparent in the light of resource dependence theory (Pfeffer and Salancik, 1978), as it can be assumed that more directors have a broader access to potential resources via their personal network. Additionally, a larger board is likely to comprise a broader range of opinions, experience and ideas, which should have an impact on donors’ confidence.

Hence, it is hypothesised:

H1a: The size of MFI boards positively impacts on access to donated capital.

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H1b: The proportion of outside directors on the board of MFIs positively impacts on access to donated capital.

CEO/chairman duality

As outlined in the literature review, the benefits and drawbacks of CEO/chairman duality are disputed in terms of firm performance, however most studies argue for a negative relationship (Mersland and Strøm, 2009), and support the separation of the two roles. Considering the importance of credibility and trust among potential donors in order to access their funds, it becomes apparent that the split of the two roles may be more beneficial for gaining access to donated equity, as it constitutes a better separation of management and control and hence a better possibility to monitor management activity.

H1c: CEO/chairman duality on MFI boards negatively impacts on access to donated capital.

Board tenure

The literature review outlined a growing commitment to the organisation as the major benefit of long board tenure (Buchanan, 1974), a line of reasoning which can also be transferred to the access to donated capital: given that socially oriented donors of microfinance institutions judge the organisation’s trustworthiness and legitimacy according to the fulfilment of a mission, a committed board may give a strong signal that motivates donations. Moreover, directors gain more experience over time and hence become more independent from, and less likely to be controlled by, management (Olson, 2000), which should increase the effectiveness of their monitoring activity and thus enhance donors’ confidence.

Hence it is hypothesised:

H1d: The tenure of board members in MFIs positively impacts on access to donated capital.

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H1e: The frequency of board meetings in MFIs positively impacts on access to donated capital.

3.1.2 Donated equity as mediator between board attributes and social

performance

In previous sections this thesis emphasised the central role of donations in the microfinance sector. Even though subsidies in the field have been criticised (Bhatt and Tang, 2001; CGAP, 2004, Morduch, 2005), the existing trade-off between financial self-sustainability and outreach may underline the necessity of donated funds in order to pursue the social aim of contributing to poverty alleviation and human development. Given that this trade-off implies that any attempt to become financially self-sustainable would be at the expense of the poorest of the poor, it is argued that the donations received by a MFI receives help to ensure high outreach.

H2: The stock of a MFI’s donated equity positively impacts on its outreach.

Based on the central role of donations in increasing outreach and in order to shed further light on the relationship between corporate governance mechanisms and outreach, one of the main suggestions of this thesis is that distinct board attributes may have an indirect influence on outreach through access to donated funds. The underlying assumption of the argument being made is that through the employment of the corporate governance mechanisms described above, MFIs may be in a better position to raise donated equity, either through improved access to potential donors, or through increased credibility and legitimacy, which may enhance donors’ willingness to provide their funds to the organisation. Based on the creation of a sustainable source of donor funds, the affordable provision of loans to the very poor, which is usually associated with high cost, can be ensured.

Based on the preceding discussion, the following hypotheses are formulated:

H3a: Donated capital positively mediates the relationship between a MFI’s board size and its outreach.

H3b: Donated capital positively mediates the relationship between the proportion of outside directors on MFI boards and outreach.

H3c: Donated capital negatively mediates the relationship between CEO/chairman duality and outreach.

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H3e: Donated capital positively mediates the relationship between the frequency of board meetings of MFI boards and outreach.

3.2 Board attributes and financial performance

Even though the focus of this thesis is clearly set on the influence of distinct board attributes on the outreach of microfinance programs, financial performance is also included in order to ensure a more holistic investigation of the problem. Against the background that former research rather transferred conclusions drawn for the conventional sector to microfinance and thereby did not make a distinction between the impact of the mechanisms on the two objectives, the present thesis aims at filling this gap by conceptualising the distinct effects separately. The underlying reason for the assumption that some board attributes may have a different impact on financial performance than on social performance is that in terms of financial performance the resource dependence theory as well as the stakeholder approach could play a less distinct role. Instead, the main focus should be set on agency considerations, which may contribute to an increase in efficiency.6

Board size

In the case of donated equity and social performance larger boards are suggested to be preferable based on resource considerations. When looking at financial performance, however, it seems more important that the board is able to take efficient decisions and hence effectively monitor the management. This is more likely to be the case for smaller boards. Further, with smaller boards, additional agency problems between the directors can be avoided.

H4a: The size of MFI boards negatively impacts on financial performance.

Also in terms of financial performance, a high proportion of outside directors may be beneficial. This is in particular assumed to be the case since a broader base of knowledge as well as a higher independence of the board may ensure better decision making as well as enhanced monitoring activities. It is assumed that the agency costs reduced by a higher proportion of outside directors outweigh the benefits employee representatives may have in terms of financial performance.

6

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H4b: The proportion of outside directors on MFI boards positively impacts on financial performance.

CEO/chairman duality

As outlined in the literature review, the impact of CEO/chairman duality on firm performance is ambiguous. In the previous section it has been argued that when looking at access to donated capital and social performance the benefits of split roles are more pronounced. In terms of financial performance, however, where the creation of trust does not play a distinct role in the microfinance sector, it should be considered that the split in roles may create new agency problems and additional costs (Brickley, Coles and Jarrell, 1997). Moreover, decision efficiency is likely to decrease (Alexander, Fennell and Halpern, 1993), which may have a negative impact on financial performance. Hence, it is hypothesised:

H4c: CEO/chairman duality on MFI boards positively impacts on financial performance.

Board tenure

Board tenure was found to have a positive influence on firm performance (e.g. Buchanan, 1974). Being the first study to transfer this board attribute to the microfinance sector, this thesis maintains previous arguments in suggesting that the tenure of MFI boards positively impacts on financial performance. The reason for this assumption is that MFI directors become more experienced and hence more efficient in their monitoring activities when serving longer on the board, which is likely to impact on overall efficiency.

H4d: The tenure of the board of directors in MFIs positively impacts on financial performance.

Given that an inactive board is unable to fulfil its tasks effectively, as reflected in ineffective monitoring activity as well as decreased decision making quality, and hence cannot contribute to a significant decrease in agency cost, irregular board meetings are assumed to be negatively associated with financial performance.

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In summary, the following conceptual model can be presented:

H4 a-e

Mediating effects

Quality of the board of directors

Size Proportion of outside directors CEO/ chairman duality Board tenure Frequency of board meetings Social performance H2 H3 a-e H1 a-e Donated equity Financial performance Direct effects

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Chapter 4: Methodology

After having presented the conceptual model, the methodology that is chosen to test the formulated hypotheses is presented herein. A quantitative approach is taken, as this can be assumed to best capture the association between the variables, especially with regard to the mediating effect and the inclusion of control variables.

4.1 Sample and data collection

The MFIs included in the sample were identified via rating reports published by four different rating agencies7, publicly available at ratingfund2.org8. From more than 500 available reports, first of all those were excluded that were published in a language different from English and French. While this may imply a limitation in terms of generalizability, since most of the Latin-American countries had to be omitted, it represents a necessary trade-off that had to be made in order to avoid interpretation mistakes due to a lack of language skills. Further, all reports were excluded that missed any relevant data. When possible, missing data were complemented by figures available from mixmarket.org9. Finally, after having excluded one outlier case10, 124 observations from a sample of 118 MFIs originating from 45 countries were obtained. As the information revealed differs across rating reports, different numbers of observations were made for each board attribute. In particular, 124 observations were obtained for board size and 94, 109, 54 and 100 for proportion of outside directors, CEO/chairman duality, tenure and meetings respectively. The observations were made between 1999 and 2008, with most data being available between 2003 and 2007. A single rating report contains financial and outreach data for up to five years, with an average of complete data for 2.5 years per report. Financial data was converted into US-dollars, if necessary, using the official exchange rate for the respective year11. To avoid a distortion of the results by outlier years the data

7

Those are Microfinanza, Planetrating, M-Cril and Crisil. All four rating agencies have been approved by the Consultative Group to Assist the Poor (CGAP). As former studies (Mersland and Strøm, 2009; Mersland and Hartarska, 2012) contend, there is no major difference in rating methodology that would be relevant to corporate governance studies.

8

The Microfinance Rating and Assessment Fund is an initiative launched by the Inter-American Development Bank and CGAP in 2001 in order to provide reliable information on the risk and performance of MFIs (The ratingfund II, n.d. b).

9

Publicly available data base, provided by a non-profit organisation, containing performance information for a large number of MFIs (Mixmarket, 2012)

10_{Even though it was rather difficult to identify outliers given the high variance in observations, one institution}

with an average loan size of more than USD 14,000 was excluded from the sample, as this clearly exceeded the value of the remaining MFIs.

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was averaged over the reported period. The governance data however was only reported once and thus according with Mersland and Strøm (2009) had to be assumed to remain constant.

Table 4.1 displays the summary statistics for each variable included in the model, which gives an overview of the MFIs included in the sample. The mean MFI is 8 years old, has 84 employees and serves 11,458 active borrowers, with an average amount disbursed of USD 1,217 per loan. On average 62% of the loans are granted to women and 57% are disbursed as individual loans. Further, 76% of the MFIs operate as not-for-profit organisations. In terms of corporate governance, the average board consists of 6.5 directors, thereof 77% not being employed by the institution. Moreover, 85% of all MFIs employ split CEO and chairman roles, board mandates last on average 3.1 years and board meetings are held every 3.5 months. More than half of the equity of the average MFI is represented by donations, which shows the high dependence on donated funds of the sector. Even though outliers have been excluded, standard deviations are high, indicating a high dispersion of the observations (Thomas, 2004), which should be kept in mind when interpreting the results.

Variable name Definition Observations Mean Std. deviation

BoD_Size Total number of directors ₁₂₄ _6.5242 _3.0053

Outside Non-executive directors / board size ₉₄ _0.7715 _0.2892

Duality Dummy variable, taking value 0 in the

case of dual roles 109 0.8532 0.3555

Tenure Length of mandate in years ₅₄ _3.1111 _1.6673

Meetings Official board meetings taking place

every X months 100 3.5430 2.2715

Borrower Total number of active borrowers ₁₂₄ _11,458 _17,122.51

Loan_size Average amount disbursed per

borrower (in USD) 124 1,216.97 1,399.38

Female Female borrowers / total active

borrowers 124 61.5330 24.7057

Donations Donated equity / total equity ₁₂₄ _0.5873 _0.5005

ROA Net operating income before donations

/ average assets 124 2.5162 8.7737

Age Years between observation and

inception 124 8.0161 4.9419

Assets Total number of assets (USD) ₁₂₄ _4,969,385 _5,650,655

Staff Total number of employees ₁₂₄ _84.5256 _95.0753

Orientation Dummy variable, taking value 1 if MFI

is non-profit organisation 124 0.7581 0.4300

Individual Share of individual loans granted ₁₂₄ _57.2123 _41.05699

GDP GDP per capita ₁₂₄ _1,695.47 _41.0570

GDP_growth Annual growth in GDP ₁₂₄ _7.0718 _4.8093

Table 4.1: Summary statistics

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however collected via mixmarket, a database containing self-reported data of MFIs, which may challenge the validity of certain elements within the dataset. Nevertheless, taking into account that the database has been used in a substantial amount of former studies (Cull, Demirgüç-Kunt and Morduch, 2009; Hermes, Lensink and Meesters, 2011), its quality can be assumed as acceptable. Another limitation of the dataset is reflected in its non-random nature: all MFIs included in the sample have decided to be rated, which indicates a certain orientation towards a more market-driven approach to microfinance. Moreover, very large institutions which may be rated by larger agencies as well as very small institutions which are not rated at all are ignored (Mersland and Strøm, 2009). Despite this criticism, the data set contains a high percentage of MFIs that still operate as not-for-profit organisation, even though a reorientation may be pursued in the middle or long-term. Further, survivor bias, as another form of selection bias, may be an issue, given that the sampling method only accounts for MFIs that have proven successful enough to sustain operations (Brown et al., 1992). An additional constraint is grounded in the use of cross-sectional data, which had to be employed given the boundaries of data availability in the context of this thesis. Consequently, the interpretation of results should take into account that this may distort findings in terms of causality (Bryman, 2012). Finally, it should be mentioned that the small sample size may limit the obtained results. In order to enhance the accuracy and hence the robustness of the results obtained from this restricted sample, a simple stochastic re-sampling procedure was applied based on bootstrapping techniques with 1,000 replications (see Efron and Tibshirani, 1993).

4.2 Method

In order to empirically test the hypotheses formulated in Chapter 3, linear regression models were estimated using the statistical software package Stata 11. This procedure seems adequate since it allows for an assessment of how a marginal change of one variable causes the variance of another one (Thomas, 2004). In particular, multiple regression models are usually employed to test for a mediating effect (Baron and Kenny, 1986). Before the empirical models are presented in Section 4.2.2, the next section specifies the distinct variables.

4.2.1 Variables

Independent variables

The independent variables included in the model are the selected board attributes, which were described earlier. Board size is measured by the total number of directors serving on the board. The

proportion of outside directors on the board is not as straight forward as the size measure, as the

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or family- and business relationships (Pistelli, Geake, and Gonzalez, 2012), to non-affiliated in any sense, which would include all types of stakeholders (Hartarska, 2005; Bassem, 2009). Given that the data in most cases does not provide in-depth information on the relationship between MFI and directors, this study measures the proportion of outside directors by the ratio of directors not currently employed by the MFI to the total board size. In accordance with the literature, a dummy variable is created to measure CEO/chairman duality (Kyereboah-Coleman and Osei, 2008 inter alia), taking the value 0 if the two roles are taken by the same persons and the value 1 in the opposite case. Board tenure is measured by the number of years a board member is elected for. It should be acknowledged however that this may not fully capture the effects of tenure. For a holistic assessment of the effects of tenure, other factors such as whether and how often mandates are renewable and how long the distinct directors actually remain in service are important as well. Those factors are however not revealed in the majority of reports. The frequency of board meetings is captured by how often official board meetings take place12. Hereby, it should be noted that those figures only represent the officially reported meetings. In reality, meetings might take place more frequently, may be inefficient or may not be attended by all directors, all of which is not captured by the variable.

Dependent variables

The dependent variables are the two performance measures. Social performance or the outreach of MFIs indicates how many people, especially the poor, can be reached. Most corporate governance studies in the microfinance sector incorporate both the breadth and the depth of outreach (Hartarska, 2005; Mersland and Strøm, 2009). The breadth of outreach is thereby usually measured by the number of active borrowers, since this figure indicates how many people are served. For the depth of outreach a common measure applied is the average loan size, assuming that lower loan sizes indicate that poorer clients are addressed. In accordance with former studies, the active number of borrowers and the average disbursed loan amount are employed as outreach measures. Other studies have also suggested including the share of female borrowers to measure the depth of outreach, since lending out to women is usually associated with reaching poorer clients (Hermes, Lensink and Meesters, 2011). This measure however has so far been underrepresented in governance studies. Therefore, aiming at a more holistic investigation in that realm, the present study uses this third outreach measure to complement the former two.

In accordance with former studies, financial performance is measured by the return on assets (ROA) which indicates how well the MFI leverages available assets to generate revenues (Hartarska, 2005;

12

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Cull, Demirgüç-Kunt, and Morduch, 2007).13 The advantage of data used in this study is that the figures are adjusted for donations, providing the opportunity to investigate the financial performance independently from received donations, which could not be assured in former studies (see e.g. Hartarska, 2005).

Mediating Variable

Following Hudon and Traca (2011), the amount of donated equity is measured by donated equity as a share of total equity. Besides the risk of not capturing all subsidies an institution receives, as discussed before, it should also be mentioned that donations, especially when received from owning companies, may be balanced as other forms of equity, such as quasi capital, and hence not being captured by this study.

Control variables

To eliminate errors caused by the impact of potential alternative explanations, six control variables were included into the regression. In corporate governance studies the control for such alternative impacts is especially important since a particular board structure may not be equally beneficial for all MFIs (Hermalin and Weisbach, 2003). The MFI age, as measured by the difference in years between observation and inception, should be controlled for, since the institutions face higher costs in the early life stages, when considerable fixed costs occur (Morduch, 2005). Moreover, age may have a reputational effect, which in turn should be associated with the donated capital received (Kyereboah-Coleman and Osei, 2008). Further, MFI size as measured by the number of total assets and employees should be included as this may have an impact on the overall performance. Given that the orientation may have a substantial influence as well, a dummy variable taking value 1 in the case of a non-profit orientation is added to the model (Hartarska and Mersland, 2012). Another variable being predictive of performance is the lending type as empirically shown by Mersland and Strøm (2009) since group loans are associated with poorer customers, who cannot provide collateral and individual loans are often related to more commercial approaches to microfinance. Finally, in order to control for the general macroeconomic situation within the respective countries GDP per

capita as well as the growth in GDP are included.

13_{Note that financial performance has often been measured as three-fold concept in former studies, including}

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4.2.2 Empirical model

After having defined the variables, the regression models are presented. Before specifying the equations, it was assured that the independent as well as the control variables are not exposed to multicollinearity (Myers, 1986; Stevens, 1996; Menard, 2002), which could have an influence on the significance of the results as well as on the overall explanatory power of the model (for results see Appendix A).

The conceptual model consists of four sets of hypotheses, three of which predict a bivariate association between two variables and one set predicting a mediating path. For the mediation test the three step approach suggested by Baron and Kenny (1986) is applied14. In order to be able to control for alternative influence factors, the bivariate associations are also tested in a multiple regression approach. The equations necessary to test the conceptual model are presented below. Given the different number of observations for each independent variable, each board attribute has to be tested in a separate model15.

Equations 1 to 5 describe the associations related to social performance. The first equation represents the relationship between donated equity and social performance.

( ) ∑( ( ) )

Equations 2 to 4 are the equations, suggested by Baron and Kerry (1986), which are applied to test for the mediating effect. Equation 2 serves simultaneously as basis to test the association between the board attributes and donated equity.

( ) ∑( ( ) ) ( ) ∑( ( ) ) ( ) ∑( ( ) ) 14

The approach suggests the following procedure to prove a mediation effect: First, the mediator is regressed on the independent variable, with the independent variable having a significant impact on the mediator. Second, the dependent variable is regressed on the independent one, with the independent variable significantly being predictive of the dependent one. Finally, the dependent variable is regressed on both the independent variable and the mediator, with the mediator having an impact on the dependent variable and the impact of the independent variable being weaker than in the precedent step (Baron and Kenny, 1986).

15

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Finally, in order to assess the overall explanatory power of the model for the variance in social performance, a model including all board attributes is created with a reduced data set.

( ) ∑( ( ) )

The final equations serve as a basis to test the direct impact of the board attributes on financial performance, for each attribute separately (Equation 6) and in the multiple model presented in Equation 7. ( ) ∑( ( ) ) ( ) ∑( ( ) ) Whereby:

Y1= Social performance (borrowers, loan size, share of female borrowers)

Y2= Financial performance

α = Constant β = Coefficient M= Donated capital

X = Respective board attributes (separate equations for X1size, X2 outside directors, X3 CEO/chairman duality, X4 tenure and X5meetings)

Cn= Control variables (n=1 age; n=2 assets; n=3 staff; n=4 orientation; n=5 lending type; n=5 GDP per capita; n=6 GDP growth)

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Chapter 5: Results and analyses

This chapter presents the results of the regression analyses for hypotheses testing. Thereby in particular the observed coefficients (β) as well as the level of statistical significance (p-value)16 serve as the basis for decision making.

5.1 Social performance

5.1.1 Board attributes and donated capital

The first set of hypotheses presented in Chapter 3 predicts that selected board attributes have an impact on the donated capital a MFI is able to raise. Tables 5.1 to 5.5 show the results for Equation 2, which at the same time represents the first step of the mediation test.

Hypothesis 1a predicts a positive relationship between board size and donated equity. As presented within Table 5.1, the overall regression shows only a weak and statistically non-significant relationship (β=0.0086; p=0.641). Thus, no support can be found for Hypothesis 1a.

Table 5.1: The influence of board size on donated equity

In Hypothesis 1b it is predicted that the proportion of outside directors on MFI boards positively impacts on donated capital. The results outlined in Table 5.2 show that a positive and statistically significant relationship is found between the two variables (β=0.3461; p=0.023; see upper part of the table), which even remains significant at the 10% level after having introduced the control variables (β=0.2648; p=0.099). Hence, Hypothesis 1b is supported.

16_{Note that given the exploratory nature of the research approach as well as the small sample size, a}

significance level of 10% is considered appropriate within this thesis.

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Table 5.2: The influence of the proportion on outside directors on donated equity

Hypothesis 1c suggests that CEO/chairman duality negatively impacts on access to donated equity. The results displayed in Table 5.3 however show that no significant relationship (p=0.666) exists for the sample included in this study, which leads to a rejection of Hypothesis 1c.

Table 5.3: The influence of CEO/chairman duality on donated equity

Hypothesis 1d states that board tenure positively influences donated equity. The respective results which are reported in Table 5.4 show only a statistically non-significant association (p=0.748). Based on that, Hypothesis 1d is rejected. The non-significance of the results for board tenure may result from the limited number of observations obtained for that particular attribute.

_cons .2969434 .1309992 2.27 0.023 .0401896 .5536972 outside .3461283 .1527931 2.27 0.023 .0466593 .6455973 donations Coef. Std. Err. z P>|z| [95% Conf. Interval] Observed Bootstrap Normal-based Root MSE = 0.4383 Adj R-squared = 0.0398 R-squared = 0.0501 Prob > chi2 = 0.0235 Wald chi2(1) = 5.13 Replications = 1000 Linear regression Number of obs = 94

_cons .2360625 .1920752 1.23 0.219 -.140398 .6125231 GDP_growth .0037657 .0105541 0.36 0.721 -.01692 .0244514 GDP -.0000232 .0000325 -0.72 0.474 -.0000869 .0000404 individual -.0007022 .0013383 -0.52 0.600 -.0033251 .0019208 orientation .3858897 .1151042 3.35 0.001 .1602897 .6114897 staff .000536 .0006443 0.83 0.405 -.0007268 .0017989 assets -8.73e-09 8.38e-09 -1.04 0.297 -2.52e-08 7.69e-09 age -.0115797 .0102253 -1.13 0.257 -.031621 .0084615 outside .26481 .1603088 1.65 0.099 -.0493894 .5790094 donations Coef. Std. Err. z P>|z| [95% Conf. Interval] Observed Bootstrap Normal-based Root MSE = 0.4017 Adj R-squared = 0.1935 R-squared = 0.2629 Prob > chi2 = 0.0000 Wald chi2(8) = 44.44 Replications = 1000 Linear regression Number of obs = 94

Microfinance Institutions in the Pursuit of Donated Equity, Outreach and Financial Performance: Does the Board of Directors Make the Difference?