Citation

Galema R, Lensink R, Mersland R. J. Manag. Stud. 2012; 49(4): 718-742.

Copyright

(Copyright © 2012, John Wiley and Sons)

DOI

10.1111/j.1467-6486.2012.01046.x

PMID

unavailable

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. © 2012 The Authors. Journal of Management Studies © 2012 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.

Language: en

Keywords

Risk; Microfinance; CEO power; Governance; Managerial discretion