The Impact of Corporate Governance on Microfinance Institutions Financial Performance in Ethiopia
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Date
2015-06
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Addis Ababa University
Abstract
The study focused on the impact of corporate governance on Microfinance Institutions financial Performance in Ethiopia over a period of seven years from 2007/08-2013/14. The study was necessitated by the lack of documented literature on the impact of corporate governance on the financial performance of Microfinance institutions in Ethiopia. The main objective of the study was to investigate the impact of corporate governance on Ethiopian Microfinance institutions sustainability. The relevant literature was reviewed for the purposes of this study. Explanatory research design was used in trying to establish the causal effect relationship between corporate governance variable (which were; board size, board gender composition, board competency, board experience in the finance sector, meeting frequency of , size of audit committee, CEO duality, and CEO gender) and the control variable (size of MFI) was added. The financial performance measure was Return on Asset. 10 MFIs was selected as a sample from 35 licensed MFI from NBE. Primary data was captured using structured questionnaires completed by the CEOs as they were in a better position to comment on corporate governance affairs. Secondary data was collected from the NBE. The study utilized panel data analysis methodology in drawing conclusions about the study. It was foundthat the average board size was 6 members, the average board member who had college degree or higher was 7 member, average female director was 1, average annual meeting was 7 and average size of audit committee was 1 with 20 % of the institutions having the CEO double up as the board, 20% of the institutions surveyed had a female CEO. Empirical findings confirmed that board size, board competency, board experience in the financial sector and meeting frequency of board has a significant impact on the financial performance of Microfinance Institutions. However, size of audit committee has a significant negative relationship with the financial performance of Microfinance Institutions. Board gender composition, CEO duality and CEO gender does not have significant impact on the financial performance of Microfinance Institutions.
Key terms:-Corporate governance, Financial Performance, ROA, MFIs, Ethiopia.
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Keywords
Corporate governance, Financial Performance, ROA, MFIs, Ethiopia.