Search

This paper examines agency costs incurred by microfinance organisations. We argue that differences in agency costs not only stem from differences in ownership form but are also influenced by the amount of power wielded by the chief executive officer (CEO). We proxy for agency costs using operating expenses, asset utilisation, liquidity and tangible asset intensity. Using a sample of 374 microfinance organisations located in 76 countries, we find evidence that agency costs are higher in microfinance organisations set up as non-profits, but only if the CEO is powerful. Our empirical evidence illustrates the importance of installing proper governance mechanisms to minimise agency costs, in particular in the non-profit sector., info:eu-repo/semantics/published

This study examines the relationships between the origin of chief executive officers (CEOs), and the performance and risk-taking levels of their companies. It is based on a sample of 353 microfinance institutions (MFIs) from 76 countries, with data covering the period 1996-2011. We use return on assets and operational costs as performance metrics, and the standard deviation of return on assets and operational costs as measures of risk. The results suggest that MFIs with an internally-recruited CEO achieve a significantly higher performance than MFIs with an externally-recruited CEO. More specifically, MFIs with an ‘insider CEO’ have a positive association with return on assets, but a negative association with operational costs. Moreover, internally-recruited CEOs appear to be associated with a lower level of risk. We believe that these results are important and have clear policy implications, in particular for an industry with such a thin labour market for CEOs and lack of managerial capacity. Our findings are consistent with the view that insider CEOs have firm-specific skills, experience and network resources that result in an enhanced MFIs performance and low-risk., info:eu-repo/semantics/published

This study uses a unique, hand-collected sample of microfinance institutions from 73 countries that typically are not investigated in accounting research to analyze the relationships between audit quality and governance mechanisms. We examine two measures of audit quality, namely, the use of Big Four auditors and the presence of internal auditors who report to the boards of these institutions. The empirical analysis of this study reveals that these two quality metrics are highly related, although we also demonstrate that these metrics capture distinctive aspects of audit quality. In particular, the presence of internal auditors is related to other indicators of stricter governance, whereas the use of Big Four auditors is generally unrelated to other control mechanisms. This study illustrates that there is no single association between audit quality and governance; instead, the relationships between these two characteristics are dependent on the specific mechanism that is investigated. However, for situations in which a significant relationship between audit quality and governance does exist, the sign of this relationship is always positive. Thus, our data support the complementarity view of these two traits that is espoused by prior research. We find no support for the contention that these control mechanisms function as substitutes., info:eu-repo/semantics/published

Rating assessments of microfinance institutions are claimed to measure a combination of creditworthiness, trustworthiness and excellence in microfinance. Using a global dataset covering reports from 324 microfinance institutions, this study suggests that these ratings are mainly driven by size, profitability, and risk. The ratings do not seem to capture the double bottom-line objective of microfinance institutions, as our analyses are unable to prove any statistical relationship between microfinance ratings and the social objectives of these institutions. Moreover, the association between operational efficiency and microfinance ratings appears weak. Although there are some minor differences between the rating agencies, the overall results suggest that microfinance ratings convey information very similar to that communicated by traditional credit ratings., info:eu-repo/semantics/published

Published version of an article published in the journal: Business and Economics Journal. Also available from the publisher at: http://astonjournals.com/manuscripts/Vol2010/BEJ-13_Vol2010.pdf The role of fair value accounting in the financial crisis is contorversial and heavily debated. Some claim that fair value accounting of financial instruments contributed to the recent crisis. This note acknowledges that, in many industries, a significant proportion of the financial instruments are entered into for hedging purposes. I examine if a crisis through the hedge accounting regulations, can affect the overall use og fair value accounting in an economy. I present analytical evidence that the boosting price volatility during the crisis lead to more companies complying with the hedge accounting requirements, and thus to an increased extent of hedge accounting at the expence of fair value accounting. Hence the analysis suggests that the hedge effectiveness provisions ensure more hedge accounting in uncertain and turbulent times, which are exactly the periods when hedge accounting is especially called for.

Published version of an article from the journal: The Open Business Journal, Bentham Publishing. Also available from the publisher: http://dx.doi.org/10.2174/1874915101003010001. Open Access article This study investigates the importance of accounting for the sign of earnings as well as disaggregating earnings in empirical value relevance research. The paper presents evidence that value relevance as measured by the explanatory power of regression analysis more than doubles if both the sign and the disaggregation effect are incorporated into the analysis. Thus, traditional value relevance regressions may seriously understate the value relevance of accounting information. However, value relevance is not equally underestimated across sub-samples. Hence, the conclusions of prior studies that have compared value relevance between sub-samples from different time-periods, industries, countries, etc. may be biased.

The dissertation consists of five independent essays on the value relevance of accounting information. Value relevance is defined as the ability of financial statement information to capture and summarise firm value. Value relevance is measured as the statistical association between financial statement information and stock market values or returns. The first essay of the dissertation is a thorough description of recent value relevance research. The remaining four essays are all empirical studies, conducted on Norwegian and Swedish samples. The first study concludes that if accounting earnings are a significant predictor of short term firm performance, it is reasonable to expect that they are also value relevant. However, this prediction may not be reversed. The second study finds that accounting information on average is equally value-relevant in traditional, mostly manufacturing, industries, and non-traditional, typically high-tech, industries when the higher frequency of transitory earnings in the non-traditional industries is taken into account. Still, the value relevance is significantly more unstable in non-traditional industries than in traditional ones. Specifically, the accounting information in non-traditional industries has particularly low information content, relatively speaking, to stock investors when the economy is doing well. The third study presents evidence that the value relevance of earnings increases dramatically if earnings are disaggregated and the sign of earnings is taken into account in the empirical analysis. The fourth and final empirical study concludes that the stock price’s association with book equity has increased after Norwegian exchange listed companies switched accounting regime to International Financial Reporting Standards (IFRS). However, the stock price’s response to earnings has actually gone down.