Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity

Ahmad Nawaz and Sana Iqbal

MPRA Paper from University Library of Munich, Germany

Abstract: Microfinance institutions of Asia work exclusively with the mission of social welfare hence play an important role in the economic and financial development of a region.Endogeneity poses a serious threat to the authenticity of corporate governance and performance studies because of the endogenous nature of many governance and performance variables. This paper addresses this issue in the context of microfinance sector in Asia by answering the question whether social performance determines the corporate governance mechanism of MFIs. Using a panel of 173 MFIs in 18 Asian countries for the period of five years, a comprehensive corporate governance index (CGI)based on of seven internal governance mechanism variables in constructed as an indicator of the overall corporate governance mechanism of MFIs. By employing GLS model, our results indicate insignificant impact of corporate governance on many social performance variables which are attributed to the endogenous nature of this relationship as the significance of results improved by studying relationship in reverse direction by employing ordered logit model. Our results indicate that social performance is an important determinant of corporate governance mechanism of MFIs even after controlling for MFI related characteristics.

Keywords: Microfinance; Corporate Governance; Social performance; Endogeneity; Asia (search for similar items in EconPapers)
JEL-codes: G21 G30 M14 (search for similar items in EconPapers)
Date: 2015-02-08
New Economics Papers: this item is included in nep-cfn, nep-dcm, nep-mfd and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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