Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization and Microfinance Institutions

42 Pages Posted: 21 Oct 2014

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business

Christopher Marquis

Cornell University; Harvard University - Harvard Kennedy School (HKS)

Sunny Li Sun

University of Massachusetts Lowell

Date Written: October 20, 2014

Abstract

We examine the heterogeneous effects of globalization on the interest rate setting by microfinance institutions (MFIs) around the world. We consider MFIs as a mechanism to overcome the institutional void of credit for small entrepreneurs in developing and emerging economies. Using a large global panel of MFIs from 119 countries, we find that social globalization that embraces egalitarian institutions on average reduces MFIs’ interest rates. In contrast, economic globalization that embraces neoliberal institutions on average increases MFIs’ interest rates. Moreover, the proportions of female borrowers and of poorer borrowers negatively moderate the relationship between social globalization and MFI interest rate, and positively moderate the relationship between economic globalization and MFI interest rate. This paper contributes to understanding how globalization processes can both ameliorate and exacerbate challenges of institutional voids in emerging and developing economies.

Keywords: Institutional voids, microfinance institutions, economic globalization, social globalization

Suggested Citation

Liang, Hao and Marquis, Christopher and Sun, Sunny Li, Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization and Microfinance Institutions (October 20, 2014). Harvard Business School Organizational Behavior Unit Working Paper No. 15-029. Available at SSRN: https://ssrn.com/abstract=2512211 or http://dx.doi.org/10.2139/ssrn.2512211

Hao Liang

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

Christopher Marquis (Contact Author)

Cornell University ( email )

363 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.chrismarquis.com

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Sunny Li Sun

University of Massachusetts Lowell ( email )

72 University Ave.
Lowell, MA 01854
United States

HOME PAGE: http://https://scholar.google.com/citations?user=c-Covi4AAAAJ&hl

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