Capital structure and earnings quality in microfinance institutions
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 26 March 2021
Issue publication date: 8 March 2022
Abstract
Purpose
The purpose of this paper is to examine whether capital structure matters for earnings management of microfinance institutions.
Design/methodology/approach
The empirical study is conducted using a sample of 575 MFIs over 2007 to 2015, we determined in the first step the discretionary part of provision for loan impairment. In the second step, we examine the effect of debt and donated equity on discretionary provision for loan impairment.
Findings
We found robust evidence that MFIs manage their earnings for external finance purposes. Debt exhibits a negative effect on earnings management for both profit and nonprofit MFIs. However, donated equity incites managers of MFIs to engage this practice in nonprofit MFIs.
Practical implications
Findings could be valuable to fund providers and investors who should consider accounting information quality in order to reach a better investment decision.
Originality/value
This paper is among the few to explore earnings management motivation of MFIs and to determine the role of external financing on earnings management practice.
Keywords
Acknowledgements
The author would like to thank the anonymous reviewers and editor for their time and valuable suggestions.
Citation
Lassoued, N. (2022), "Capital structure and earnings quality in microfinance institutions", International Journal of Managerial Finance, Vol. 18 No. 2, pp. 240-260. https://doi.org/10.1108/IJMF-08-2020-0454
Publisher
:Emerald Publishing Limited
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