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The Origin of Chief Executive Officers and Performance in Hybrid Businesses: The Case of Microfinance: JOURNAL OF SMALL BUSINESS MANAGEMENT
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This study examines the relationship between the origin of chief executive officers (CEOs) and performance in hybrid businesses using a sample of 353 microfinance institutions (MFIs) from 76 countries during 1996–2011. The statistical results suggest that MFIs whose CEOs have been recruited internally perform better compared to institutions with externally hired CEOs. The findings are consistent with the view that insider CEOs have firm-specific skills, experience, and network resources that result in enhanced performance in hybrid businesses. Therefore, boards of MFIs searching for a new CEO should look for suitable internal candidates.
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... Young and Kim (2015) recognize leadership as a vital factor in aligning social and financial objectives (see also the study by Randøy et al., 2015). Mersland, Beisland, and Ndaki (2019) find that MFIs with internally recruited CEOs have higher financial performance and lower risk than MFIs with externally recruited CEOs. The findings are attributed to longer experience in the organization being associated with better firm-specific skills, such as improved knowledge with respect to product lines, rivals, clients, and own workforce's abilities, as well as better access to network resources (see also the study by Haugh et al., 2022). ...
... Our results suggest that learning effects may become more significant as MFIs advance through their life cycle (Ashta, 2020). Learning effects can be individual and exist on both an employee and a manager level (Agier, 2012;Mersland, Beisland, & Ndaki, 2019). However, as Ashta (2020) notes, there are also formal organizational changes that may be relevant. ...
... To achieve this, we employed three-way interaction models, interacting our variables of interest with several governance mechanisms. Consistent with prior research in microfinance, we focused on key aspects such as female leadership (female CEO and female board chair) (Hartarska et al., 2014;Périlleux & Szafarz, 2022;Strøm et al., 2014), the presence of an internal CEO (Mersland, Beisland, & Ndaki, 2019), the presence of an internal audit function (Mersland & Strøm, 2009), audit by a big-4 firm (Beisland et al., 2015), and the presence of a founder CEO (Randøy et al., 2015). ...
Social enterprises address societal problems with conventional business models. While scholars have extensively theorized the trade-offs between social and financial goals, little is known about the factors that affect the co-existence of these dual objectives. We theorize social enterprises’ ability to balance their social and financial performance as a function of their size and experience. We argue that the acuteness of social-financial trade-offs varies across organizations and that social enterprises get better at balancing their dual objectives as they grow larger and older. We study microfinance institutions (MFIs), which are social enterprises that provide financial services to the poor. Using data on 611 MFIs, the empirical analysis confirmed our predictions. We attribute our findings to learning effects and efficiency gains. Overall, in contrast to studies that gloss over heterogeneities among social enterprises, our study shows that the ability of these organizations to balance their dual goals depends on firm-level characteristics.
... Work experience: there is growing evidence linking ceO experience with microfinance performance (galema et al., 2012;gohar & Batool, 2015;hartarska, 2005;hasan et al., 2019;Mersland et al., 2019;Randøy et al., 2015). We introduce the variable EXP into our analyses. ...
This article extends the Fang and Wang multitier framework to examine how Chief Executive Officers’ (CEOs) characteristics determine Microfinance Institutions’ (MFIs) performance in Africa. Focusing on CEOs gender, education, age, experience and founder status, we collect information on 294 unique CEOs and 177 board chairs. Our performance data from Microfinance Information Exchange (MIX) database covers 879 unique MFIs in 38 African countries for the period 2000 to 2018. The framework presented is decomposed into three tiers of performance components: financial performance, outreach and sustainability. Our key hypothesis is that varying CEOs’ characteristics take distinct channels in influencing MFIs’ financial performance, outreach and sustainability. We find that all variables employed are significant as shown by small observed p-values below the selected threshold of 5% and significantly higher t-values greater than 2.96. This implies that MFIs performance, Operational Self Sufficiency (OSS) and outreach can be strongly attributed to CEOs’ characteristics. The higher R-squared value of 0.85 implied that about 85 per cent of the model variation is indeed explained within the model (by CEOs’ characteristics). In this article we provide new empirical evidence on whether certain CEOs are powerful to impact MFIs performance in Africa.
... In general, internal CEOs have firm-specific skills, experience and network resources that result in enhanced performance. Mersland et al. (2019) found that CEOs who have been recruited internally perform better compared to institutions with externally hired CEOs. This result can be justified for a number of reasons. ...
Purpose
This paper aims to examine the effect of contractual factors and noncontractual factors on tax avoidance (TA).
Design/methodology/approach
The sample comprises 400 firm-year observations of 67 companies listed on the HDAX during the period 2008–2017. The generalized least square panel regression is applied.
Findings
The study results confirm a significant effect of long-term chief executive officer (CEO) compensation incentives and CEO attributes on TA. Findings exhibit a significant impact of foreign CEO on TA, whereas an insider CEO mitigates TA. The results hold for several robustness tests, with lag effective tax rate as dependent variable and with splitting foreign CEO into European and non-European origin.
Research limitations/implications
First, the sample is limited to 400 firm-year observations and to the German context. For shareholders, the study provides first evidence on relationships between the geographical and internal versus external labor market for CEOs and TA. For researchers, the findings underline the importance of integrating behavioral approaches like place attachment theory and the rooting theory in the theory of TA.
Originality/value
To the best of the authors’ knowledge, this is the first study to examine the impact of both contractual determinants and behavioral determinants on TA in the German context as an emerged economy with a dualistic corporate governance. This study contributes to the existing literature regarding the scientific debates about the impact of CEOs and CEO attributes on TA. It also analyses the balance between the place attachment theory and the rooting theory in the face of the compensation outcomes of agency theory.
... The world has acknowledged the reservations of business individuals who are taking various measures and feasibilities to earn more return on their invested capital. In this context: Mersland, Beisland, and Pascal (2019) examined the origin and performance of chief executive officers that are more important and an asset to the hybrid businesses. For the achievement of desired objectives, the role of business owners could not be neglected, and the role of directors is also promotive. ...
Banking financial performance is necessary for economic growth globally because the banking sector is the backbone of the economy. Recent economic uncertainty requires examining the banking sector's financial performance and improving accordingly. The present research, thereby, aims to scrutinize the influence of chief executive officers (CEO) incentives, corporate social responsibilities (CSR) such as social and environmental responsibilities, liquidity, and capital structure on the banking financial performance in ASEAN countries. Data from the hundred commercial banks (ten from each country) were taken in the time period of 2016-2020. Moreover, fixed effect model (FEM) was applied to test the association between the constructs. The findings revealed that the CEO incentives, social and environmental responsibilities, liquidity and capital structure are positively and significantly associated with banking financial performance in ASEAN countries. The regulators get help from the current study in formulating the regulation related to the banking sector performance by focusing on the CEO incentives and CSR responsibilities.
This paper explores how life cycle theory can be applied to extend the relevance and longevity of academic research topics, using microfinance as an illustrative case. Drawing on publication data from Scopus and Google Scholar (1995–present), we track the evolution of microfinance research and demonstrate that the field has entered a maturity phase. Rather than viewing this stage as a decline, we propose strategies for revitalization and sustained scholarly engagement. The paper offers a framework for researchers in any discipline to assess the life cycle stage of their field and adopt extension strategies to assure continued academic interest.
Microfinance institutions (MFIs) have evolved in different and complex ways to solve various market frictions, with some of them providing a wide range of financial products and using different lending technologies to reach poor and underserved populations. As a result, some MFIs are more efficient than others, but are efficiency gains aligned with risk management practices? The specific characteristics of the microfinance industry make the answer to this question less obvious than that of commercial banks. This paper tries to shed light on these issues by analysing the efficiency and risk management of MFIs and describing the potential implications of these relationships for the microfinance industry. After considering several measures of financial risk management ratios commonly used in the microfinance literature, our results show that cost efficiency improves asset quality and solvency of MFIs, but also reduces the need for holding idle cash or liquid assets. The results of this paper can help academics, policymakers, and regulators to better understand the impact of cost efficiency on financial risks management practices in the microfinance industry.
Researchers have extensively studied the hybrid condition of organizations that simultaneously pursue social and economic goals. Yet, hybridity manifests itself in multiple ways. This paper aims to identify the different facets of the hybrid condition, conducting an empirical study in a specific setting of hybrid organizations: the B corporations (i.e., for‐profit organizations awarded with a prosocial certification). We propose and test a multifactor scale measuring how hybridity (i) occurs, (ii) influences firms' organizational processes, and (iii) shapes firms' social impact thesis. We test the scale on a sample of 101 Italian B Corp firms, identifying four factors that determine the hybrid nature of B Corps and characterizing two ideal types of B Corps. We contribute to the literature on social entrepreneurship and hybrid organizations by capturing the nuances of B Corps' hybridity.
Purpose
The paper aims to provide robust evidence about the relationships between key individual characteristics of owners and managers (OMs) and small and medium enterprises (SMEs)' growth and the moderating influence of the country context on these relationships.
Design/methodology/approach
The authors meta-analyzed 62 studies presenting a cumulative sample of 175 effect-sizes and 174,590 SMEs.
Findings
The authors found that SMEs led by more experienced men with higher levels of education are more likely to grow. While the relationship between OMs' experience and SMEs' growth is significant for differing country contexts, national characteristics affect the magnitude of the influence that OMs' education and gender specifically exert on SME expansion. The authors also found that the positive impact of OMs' human capital on SMEs' growth increases when these firms are focused on technology.
Research limitations/implications
The study yielded small-effect sizes for the impact of OMs' human capital and gender on SMEs' growth. Researchers can assess the influence of these characteristics on SMEs' growth along with other individual dimensions.
Originality/value
The current study is the first meta-analytical investigation about the influence of OMs' gender on SMEs' growth. The study focuses solely on SME OMs, as SMEs are not simply larger businesses on a smaller scale. The authors employ a wide set of country-level moderators in the research going beyond most empirical examinations of the topic that have given only marginal attention to moderators.
Evidence about the influence of different business models (BMs) on the performance of small and medium enterprises (SMEs) is scarce and contradictory. In this paper, a meta-analytical study of the quantitative literature regarding BMs and SMEs is developed which overcomes biases commonly found in other, more limited works. We found that both innovation-based BMs (I-BMs) and efficiency-based BMs (E-BMs) positively affect the performance of SMEs, but also that, in countries with higher levels of entrepreneurial capabilities, the positive impact of I-BMs increases. We also identified that, while the existence of stronger capabilities in firms affects I-BMs positively, the size of SMEs impacts E-BMs favorably. Finally, key contributions of these findings for practitioners and scholars interested in the usefulness of BMs and their impact on SMEs are discussed.
Despite mounting research on hybrid businesses that deliver value beyond financial goals, little is known about their nature. We assess what characterizes hybrid businesses and drives their founders by means of an abductive analysis of 18 ventures. Findings are discussed for the outcome of business models, organization of business model, and underlying aims of hybrid entrepreneurs building an empirical framework of constituents and characteristics. Results show participatory patterns of organization and emphasis on knowledge sharing about sustainability. The general profit and growth orientation is often a means to the end of achieving sustainability goals. Entrepreneurs are driven by nonmaterial motives.
We develop a model that shows that an overconfident manager, who sometimes makes value-destroying investments, has a higher likelihood than a rational manager of being deliberately promoted to CEO under value-maximizing corporate governance. Moreover, a risk-averse CEO's overconfidence enhances firm value up to a point, but the effect is nonmonotonic and differs from that of lower risk aversion. Overconfident CEOs also underinvest in information production. The board fires both excessively diffident and excessively overconfident CEOs. Finally, Sarbanes-Oxley is predicted to improve the precision of information provided to investors, but to reduce project investment.
How do women leaders such as board members and top managers influence the social performance of organizations? This paper addresses the question by exploiting a unique database from a Senegalese network of 36 financial cooperatives. We scrutinize the loan-granting decisions, made jointly by the locally elected board and the top manager assigned by the central union of the network. Our findings are threefold. First, female-dominated boards favor social orientation. Second, female managers tend to align their strategy with local boards’ preferences. Third, the central union tends to assign male managers to female-dominated boards, probably to curb the boards’ social orientation.
Microfinance institutions (MFIs) supply financial services to micro-enterprises and low-income families. MFIs pursue the double bottom lines of social development and financial returns, and their funding is supplied by a range of sources from donations to commercial investments. Microfinance is thus an arena in which donors meet professional investors, and it has quickly developed into a large industry. Currently, more than 3000 MFIs report their numbers to www. microfinancesumm it. org and serve altogether more than 150 million people with microcredit. More than 100 international funds invest in MFIs, and microfinance is about to become an important asset class for investors, particularly those pursuing both financial and social returns (www. mixmarket. org).
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371–1395); Arellano and Bond (1991, Review of Economic Studies 58: 277–297); Arellano and Bover (1995, Journal of Econometrics 68: 29–51); and Blundell and Bond (1998, Journal of Econometrics 87: 115–143), are increasingly popular. Both are general estimators designed for situations with “small T, large N″ panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano–Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use.
In the analysis of data it is often assumed that observations y1, y2, …, yn are independently normally distributed with constant variance and with expectations specified by a model linear in a set of parameters θ. In this paper we make the less restrictive assumption that such a normal, homoscedastic, linear model is appropriate after some suitable transformation has been applied to the y's. Inferences about the transformation and about the parameters of the linear model are made by computing the likelihood function and the relevant posterior distribution. The contributions of normality, homoscedasticity and additivity to the transformation are separated. The relation of the present methods to earlier procedures for finding transformations is discussed. The methods are illustrated with examples.
Uncertainty makes objectives harder to reach. This article examines whether uncertainty in subsidies leads to mission drift in microfinance institutions (MFIs). Using a worldwide sample of 1,151 MFIs active in 104 countries, we find that interest rates increase with aid volatility while average loan size (ALS) is inversely related to aid volatility. These results suggest that MFIs consider ALS as a signaling device for commitment to their social mission, but use interest rates as an adjustment variable to cope with uncertainty. The policy prescription to donor agencies wishing to curtail the rise in interest rates is to deliver subsidies predictably and transparently.
This analysis considers the impact of the top managers in an organization on the organization's outcomes, specifically strategic choices and performance levels. The focus is not on the chief executive alone, but rather on the entire top management team. Using a macro view, these organizational outcomes are perceived to be related to the values and cognitive bases of those high-power individuals in the organization. In developing the model, emphasis is on the background characteristics of the top managers as opposed to the psychological dimensions. A series of propositions that should be tested to support the upper echelons theory are presented. The topics of these propositions include age, functional track, other career experiences, education, socioeconomic roots, financial position, and group characteristics. The creation of this model is just the beginning of the work that is necessary to evaluate and understand the upper echelons theory. Further input is needed from areas such as the executive recruiting industry. Additionally, clinical and statistical studies are both necessary to fully develop this theory. (SRD)
