Title: Governance and scope economies in microfinance institutions

Authors: Valentina Hartarska; Roy Mersland; Denis Nadolnyak; Christopher Parmeter

Addresses: Department of Agricultural Economics and Rural Sociology, Auburn University, 210 Comer Hall, Auburn, Al 36830, USA ' Department of Economics and Business Administration, Agder University, Norway ' Department of Agricultural Economics and Rural Sociology, Auburn University, 209B Comer Hall, Auburn, Al 36830, USA ' Department of Economics, University of Miami, 517-E Jenkins Building, Coral Gables, FL 33124-6520, USA

Abstract: This paper studies the relation between board size and composition and cost savings (scope economies) from combining savings mobilisation and lending by microfinance institutions (MFIs). The findings support the hypothesis that employee representation on the board is associated with positive scope economies, possibly due to internal knowledge. However, CEO-Chairman duality is associated with equal or larger probability of scope diseconomies, which is consistent with previous findings. Representation of other stakeholders on the MFI board does not affect scope economies. The results seem to support the notion that, in highly uncertain environments, group cohesion may be an advantageous mechanism of control.

Keywords: MFIs; microfinance institutions; governance; board of directors; scope economies; intermediation; board size; board composition; savings mobilisation; lending; employee representation; internal knowledge; CEO-Chairman duality; group cohesion.

DOI: 10.1504/IJCG.2013.055174

International Journal of Corporate Governance, 2013 Vol.4 No.1, pp.74 - 96

Published online: 03 Mar 2014 *

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