Do Powerful CEOs Determine Microfinance Performance?

25 Pages Posted: 9 May 2012

See all articles by Rients Galema

Rients Galema

Utrecht University - School of Economics

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Roy Mersland

University of Agder

Date Written: June 2012

Abstract

Recently, microfinance has been coming under public and media attacks. The microcredit crisis following from microfinance‐induced suicides in 2010 in the Indian state of Andhra Pradesh indicates that weak corporate governance and imprudent risk taking have far‐reaching consequences. Yet, analyses of corporate governance mechanisms among microfinance institutions (MFIs) remain underdeveloped. As a response, this study examines the impact of CEO power on MFI risk taking by deriving explicit predictions of this effect from a characterization of the microfinance industry. Based on a sample of 280 microfinance institutions, our results suggest that powerful CEOs of microfinance non‐governmental organizations (NGOs) have more decision‐making freedom than powerful CEOs of other types of MFIs. This induces them to make more extreme decisions that increase risk. Furthermore, the decision‐making freedom powerful CEOs have in NGOs appears to lead to worse decisions, because the presence of powerful CEOs in microfinance NGOs is associated with lower performance.

Keywords: CEO power, governance, managerial discretion, microfinance, risk

Suggested Citation

Galema, Rients and Lensink, Robert and Mersland, Roy, Do Powerful CEOs Determine Microfinance Performance? (June 2012). Journal of Management Studies, Vol. 49, Issue 4, pp. 718-742, 2012, Available at SSRN: https://ssrn.com/abstract=2055066 or http://dx.doi.org/10.1111/j.1467-6486.2012.01046.x

Rients Galema (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Roy Mersland

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

HOME PAGE: http://www.uia.no/microfinance

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