Financial disclosure and performance of microfinance institutions
Journal of Accounting & Organizational Change
ISSN: 1832-5912
Article publication date: 26 August 2014
Abstract
Purpose
The purpose of this paper is to analyze the relationship between financial disclosure and the financial performance of microfinance institutions (MFIs).
Design/methodology/approach
The paper utilizes ordinary least squares method to analyze the impact of disclosure on financial performance, an ordered probit model to investigate the possible effect of financial performance on disclosure and utilizes a three-stage least squares method to delineate the endogenous relationship between disclosure and financial performance of MFIs.
Findings
The paper finds that better disclosure has a statistically significant positive impact on operational performance of MFIs; second, it also shows that improved financial performance results in better financial disclosure. Keeping the endogenous nature of the relationship between disclosure and performance, the paper uses a three-stage least squares method to show that disclosure and financial performance positively affect each other simultaneously.
Research limitations/implications
The paper attempts to delineate a positive association between better disclosure on financial performance of MFIs, which can be used for developing a better disclosure policy by management, formulating more effective guidelines for disclosure by the stakeholders and mandating more appropriate laws and uniform disclosure practice by regulators.
Originality/value
This is the first study that uses a large number of MFIs from 75 countries; second, it uses a uniform scale of designating a disclosure rating (assigned by MIX Market) to show the relationship between disclosure and performance. Finally, it uses three-stage least squares method to address the possible endogeneity between disclosure and performance.
Keywords
Citation
Quayes, S. and Hasan, T. (2014), "Financial disclosure and performance of microfinance institutions", Journal of Accounting & Organizational Change, Vol. 10 No. 3, pp. 314-337. https://doi.org/10.1108/JAOC-12-2011-0067
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited