Search results

This paper aims to present research on how and why microfinance institutions (MFIs) disclose financial and social information on the internet. Legitimacy theory provides the theoretical framework.

The empirical study analysed factors influencing MFIs to publish financial and social information on the internet. The model was tested using regression analysis. The sample consisted of publicly available data from the web sites of 273 MFIs.

The study found that MFIs' internet presence overall is scarce and that greater levels of disclosure are needed. It was found that large MFIs with a high degree of public exposure on the internet disclose greater amounts of information on their web sites than smaller MFIs with a low degree of public exposure. It was also found that for‐profit MFIs disclose more financial information on their web sites, while non‐profit non‐governmental organisations (NGOs) reveal more social information.

MFIs should be proud to tell the world what they are doing. MFI managers need to remember that transparency increases funds from donors. Donors are mostly based in developed countries, so the internet plays a key role in disclosure and attracting potential donors. Thus, managers of MFIs are encouraged to increase disclosure levels – especially on the internet.

Academic research into the factors that influence MFIs' internet disclosure is still scarce. This is an important area of study because full disclosure offers enormous benefits. Since MFIs have a social mission, they are legitimated in the eyes of their donors by disclosing social information. Since they are also financial institutions, they have to show that they use the funds they receive efficiently.

A structural equation model is proposed to explain internet reporting by banks. The model relates three constructs of financial institutions (size, financial performance, and internet visibility) to their final influence on internet information disclosure (e‐transparency).

This paper's proposed model analyses a sample of Spanish financial institutions using publicly available data. The model is tested using partial least squares.

A positive and statistically significant relationship has been found between size, financial performance, internet visibility, and e‐transparency, with direct and indirect effects. The study shows that size accounts for most of the variance. Size has a positive effect on e‐transparency, financial performance, and internet visibility. However, the direct effect of financial performance and internet visibility on e‐transparency is small.

The researchers have analysed only one year of data from one country and one sector. The direction of cause and effect assumed in the model is a logical one, but statistical methods cannot prove causality, only association. Even though any bank can disclose its financial information online for a very low cost, building a robust, interactive web site requires major resources. This gives larger banks a value added advantage.

The paper examines the relationship between size, financial performance, internet visibility and e‐transparency using a structural model. Although structural models are commonly used in many scientific disciplines, they have not yet been applied in disclosure research.