Top

Small Business Economics

Published in:

28-01-2017

The influence of the CEO’s business education on the performance of hybrid organizations: the case of the global microfinance industry

Authors: D. Pascal, R. Mersland, N. Mori

Published in: Small Business Economics | Issue 2/2017

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Microfinance institutions (MFIs) are typical examples of hybrid organisations, meaning organisations pursuing both a financial and social logic. This study examines the question of whether financial and social performance improves when an MFI’s chief executive officer (CEO) has a business education. We apply the random effects instrumental variable regression method to examine the influence of the CEO’s business education on the MFI’s financial and social performance. Our panel dataset that includes 353 MFIs from across the globe indicates that ‘only’ 55% of the MFIs have a CEO with a business education. The empirical results indicate that MFIs with CEOs who have a business education perform significantly better, financially and socially, than MFIs managed by CEOs with other types of educational backgrounds. The findings suggest that CEOs with a business education seem better at managing the much-debated tradeoff between providing small loans and producing healthy financial results.

previous article Cost of capital and public loan guarantees to small firms

next article Entrepreneurial spawning and knowledge-based perspective: a meta-analysis

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Barney (1991) argues that the business education of a manager can be acquired in the market, and so it cannot represent a competitive advantage. However, the argument may not apply to this study since, obviously, some MFI boards opt to hire CEOs without a business education, and we therefore compare MFIs in which the CEO has a business education and those MFIs with CEOs without a business education.

Some may find it strange that the performance of the MFI is not influenced by the age of the MFI. However, in microfinance research, MFI experience is often included in empirical studies and researchers have not found a coherent significant relationship between the two (e.g. Hartarska, 2005; Mersland and Strøm, 2009). A reason for this might be because MFIs are often subsidized during their first years by donors (Hudon and Traca, 2011). As a robustness check, we have run the model with number of branch offices as an alternative instrument variable and the results remain the same as those reported using MFI age as an instrument.

The result on portfolio yield should be interpreted with care since default levels may perturbate the accounted yield making it less fit to proxy the interest rate charged by the MFI.

The results from the robustness checks are available from the authors upon request.

Ahlin, C., Lin, J., & Maio, M. (2011). Where does microfinance flourish? Microfinance institution performance in macroeconomic context. Journal of Development Economics, 95(2), 105–120.CrossRef

Armendáriz, B., & Szafarz, A. (2011). On mission drift in microfinance institutions. In B. Armendariz & M. Labie (Eds.), The handbook of microfinance (pp. 341–366). Singapore: World scientific publishing Co. Pte. Ltd..CrossRef

Banerjee, A., Karlan, D., & Zinman, J. (2015). Six randomized evaluations of microcredit: introduction and further steps. American Economic Journal: Applied Economics, 7(1), 1–21.

Baptista, R., Karaöz, M., & Mendonça, J. (2014). The impact of human capital on the early success of necessity versus opportunity-based entrepreneurs. Small Business Economics, 42(4), 831–847.CrossRef

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99.CrossRef

Battilana, J., & Dorado, S. (2010). Building sustainable hybrid organizations: the case of commercial microfinance organizations. Academy of Management Journal, 53(6), 1419–1440.CrossRef

Bertrand, M., & Schoar, A. (2003). Managing with style: the effect of managers on firm policies. The Quarterly Journal of Economics, 118(4), 1169–1208.CrossRef

Besley, T., & Ghatak, M. (2005). Competition and incentives with motivated agents. American Economic Review, 95(3), 616–636.CrossRef

Boone, C., & van Witteloostuijn, A. (1996). Industry competition and firm human capital. Small Business Economics, 8(5), 347–364.CrossRef

Box, G. E. P., & Cox, D. R. (1964). An analysis of transformations. Journal of the Royal Statistical Society. Series B (Methodological), 211–252.

Cole, R. A., & Mehran, H. (2016). What do we know about executive compensation at small privately held firms? Small Business Economics, 46(2), 215–237.CrossRef

CSFI. (2011). Microfinance Banana Skins 2011: losing its fair dust (pp. 1–56).

CSFI. (2014). Microfinance Banana Skins 2014: facing reality. The CSFI Survey of Microfinance Risk (pp. 1–57).

Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2007). Financial performance and outreach: a global analysis of leading microbanks. The Economic Journal, 117(517), 107–133.CrossRef

Cull, R., Demirgüç-Kunt, A., & Morduch, J. (2014). Banks and microbanks. Journal of Financial Services Research, 46(1), 1–53.CrossRef

D’espallier, B., Guerin, I., & Mersland, R. (2013). Focus on women in microfinance institutions. The Journal of Development Studies, 49(5), 589–608.CrossRef

D’Espallier, B., Hudon, M., & Szafarz, A. (2016). Aid Volatility and Social Performance in Microfinance. Nonprofit and Voluntary Sector Quarterly.

Dimaggio, P. J., & Powell, W. W. (1983). The iron cage revisited—institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.CrossRef

Emerson, J. D., & Stoto, M. A. (1983). Transforming data. In D. C. Hoaglin, F. Mosteller & J. W. Tukey (Eds.), Understanding robust and exploratory data analysis (pp. 97–128). New York.

Finkelstein, S. (1992). Power in top management teams: dimensions, measurement, and validation. Academy of Management Journal, 35(3), 505–538.CrossRef

Francois, P. (2000). ‘Public service motivation’ as an argument for government provision. Journal of Public Economics, 78(3), 275–299.CrossRef

Galema, R., Lensink, R., & Mersland, R. (2012). Do powerful CEOs determine microfinance performance? Journal of Management Studies, 49(4), 718–742.CrossRef

Ghosh, S. V. T. E. (2011). Microfinance and competition for external funding. Economics Letters, 112(2), 168–170.CrossRef

Ghoshal, S. (2005). Bad management theories are destroying good management practices. Academy of Management Learning & Education, 4(1), 75–91.CrossRef

Göhlmann, S., & Vaubel, R. (2007). The educational and occupational background of central bankers and its effect on inflation: an empirical analysis. European Economic Review, 51(4), 925–941.CrossRef

Golec, J. H. (1996). The effects of mutual fund managers’ characteristics on their portfolio performance, risk and fees. Financial Services Review, 5(2), 133–147.CrossRef

Gottesman, A. A., & Morey, M. R. (2006). Manager education and mutual fund performance. Journal of Empirical Finance, 13(2), 145–182.CrossRef

Gottesman, A. A., & Morey, M. R. (2010). CEO educational background and firm financial performance. Journal of Applied Finance, 2, 70–82.

Gutiérrez-Nieto, B., Serrano-Cinca, C., & Molinero, C. M. (2009). Social efficiency in microfinance institutions. Journal of the Operational Research Society, 60(1), 104–119.CrossRef

Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate data analysis: a global perspective (7th ed.). Upper Saddle River, N.J: Pearson.

Hansen, M. T., Ibarra, H., Peyer, U., von Bernuth, N., & Escallon, C. (2010). The best-performing CEOs in the world. Harvard Business Review, 88(1/2), 104–113.

Hartarska, V. (2005). Governance and performance of microfinance institutions in central and eastern Europe and the newly independent states. World Development, 33(10), 1627–1643.CrossRef

Hartarska, V., Shen, X., & Mersland, R. (2013). Scale economies and input price elasticities in microfinance institutions. Journal of Banking & Finance, 37(1), 118–131.CrossRef

Heckman, J. J. (1978). Dummy endogenous variables in a simultaneous equation system. Econometrica, 46(4), 931–959.CrossRef

Henle, C. A. (2006). Bad apples or bad barrels? A former CEO discusses the interplay of person and situation with implications for business education. Academy of Management Learning & Education, 5(3), 346–355.CrossRef

Hermes, N., & Lensink, R. (2007). The empirics of microfinance: what do we know? Economic Journal, 117(517), F1–F10.CrossRef

Hermes, N., Lensink, R., & Meesters, A. (2011). Outreach and efficiency of microfinance institutions. World Development, 39(6), 938–948.CrossRef

Hoffman, J. J., Schniederjans, M. J., & Sebora, T. C. (2004). A multi-objective approach to CEO selection. Infor, 42(4), 237–255.

Hudon, M., & Traca, D. (2011). On the efficiency effects of subsidies in microfinance: an empirical inquiry. World Development, 39(6), 966–973.CrossRef

Hulme, D., & Mosley, P. (1996). Finance against poverty (vol. 2). Psychology Press.

Kaplan, S. N., Klebanov, M. M., & Sorensen, M. (2012). Which CEO characteristics and abilities matter? The Journal of Finance, 67(3), 973–1007.CrossRef

Kuhn, P., & Weinberger, C. J. (2002). Leadership skills and wages.

Lepoutre, J., Justo, R., Terjesen, S., & Bosma, N. (2013). Designing a global standardized methodology for measuring social entrepreneurship activity: the global entrepreneurship monitor social entrepreneurship study. Small Business Economics, 40(3), 693–714.CrossRef

Lewis, B. W., Walls, J. L., & Dowell, G. W. S. (2014). Difference in degrees: CEO characteristics and firm environmental disclosure. Strategic Management Journal, 35(5), 712–722.CrossRef

Lindorff, M., & Jonson, E. P. (2013). CEO business education and firm financial performance: a case for humility rather than hubris. Education and Training, 55(4), 461–477.CrossRef

MacKinnon, J. G., & Magee, L. (1990). Transforming the dependent variable in regression models. International Economic Review, 315–339.

Mersland, R., D’espallier, B., & Supphellen, M. (2013). The effects of religion on development efforts: evidence from the microfinance industry and a research agenda. World Development, 41, 145–156.CrossRef

Mersland, R., & Strøm, R. Ø. (2009). Performance and governance in microfinance institutions. Journal of Banking & Finance, 33(4), 662–669.CrossRef

Mersland, R., & Strøm, R. Ø. (2010). Microfinance mission drift? World Development, 38(1), 28–36.CrossRef

Mersland, R., & Strøm, R. Ø. (2012). The past and future of innovations in microfinance. In D. Cumming (Ed.), The Oxford handbook of entrepreneurial finance. USA: Oxford University Press.

Mersland, R., & Urgeghe, L. (2013). Performance and international investments in microfinance institutions. Strategic Change: Briefings in Entrepreneurial Finance, 22(1–2), 17–29.CrossRef

Miller, T. L., Grimes, M. G., McMullen, J. S., & Vogus, T. J. (2012). Venturing for others with heart and head: how compassion encourages social entrepreneurship. Academy of Management Review, 37(4), 616–640.CrossRef

Neubaum, D. O., Pagell, M., Drexler, J. J. A., McKee-Ryan, F. M., & Larson, E. (2009). Business education and its relationship to student personal moral philosophies and attitudes toward profits: an empirical response to critics. Academy of Management Learning & Education, 8(1), 9–24.CrossRef

Périlleux, A., & Szafarz, A. (2015). Women leaders and social performance: evidence from financial cooperatives in Senegal. World Development, 74, 437–452.CrossRef

Pfeffer, J. (1992). Understanding power in organizations. California Management Review, 34(2), 29–50.CrossRef

Randøy, T., Strøm, R. Ø., & Mersland, R. (2015). The impact of entrepreneur-CEOs in microfinance institutions: a global survey. Entrepreneurship Theory and Practice, 39(4), 927–953.CrossRef

Slater, D. J., & Dixon-Fowler, H. R. (2010). The future of the planet in the hands of MBAs: an examination of CEO MBA education and corporate environmental performance. Academy of Management Learning & Education, 9(3), 429–441.CrossRef

Soriano, D. R., & Castrogiovanni, G. J. (2012). The impact of education, experience and inner circle advisors on SME performance: insights from a study of public development centers. Small Business Economics, 38(3), 333–349.CrossRef

Strøm, R. Ø., D’Espallier, B., & Mersland, R. (2014). Female leadership, performance, and governance in microfinance institutions. Journal of Banking & Finance, 42, 60–75.CrossRef

Stuart, G. (2011). Micorfinance—a strategic management framework. In B. L. Armendariz, Marc (Ed.), The Handbook of Microfinance (pp. 251–266). Singapore: World Scientific Publishing Co. Pte. Ltd.

Terjesen, S., & Willis, A. (2016). Experimental economics and business education: an interview with Nobel laureate Vernon Lomax Smith. Small Business Economics, 47(1), 261–275.CrossRef

Watson, W., Stewart, W. H., & BarNir, A. (2003). The effects of human capital, organizational demography, and interpersonal processes on venture partner perceptions of firm profit and growth. Journal of Business Venturing, 18(2), 145–164.CrossRef

Wittmer, D. (1991). Serving the people or serving for pay: reward preferences among government, hybrid sector, and business managers. Public Productivity & Management Review, 14(4), 369–383.CrossRef

Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2 ed.). Cambridge, MA: MIT Press.

Zarembka, P. (1990). Transformation of variables in econometrics. Springer.

Title: The influence of the CEO’s business education on the performance of hybrid organizations: the case of the global microfinance industry
Authors: D. Pascal
R. Mersland
N. Mori
Publication date: 28-01-2017
Publisher: Springer US
Published in: Small Business Economics / Issue 2/2017
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-016-9824-8

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 2/2017

Responsibility or autonomy: children and the probability of self-employment in the USA

Researching the entrepreneurial behaviour of new and existing ventures in European agriculture

Product market competition and access to credit

Do entrepreneurs really earn less?

Entrepreneurial spawning and knowledge-based perspective: a meta-analysis

Exploring the link between innovation and growth in Chilean firms

Premium Partner