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

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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.

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Notes

  1. 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.

  2. 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.

  3. 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.

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

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Acknowledgements

The authors would like to thank participants at the CERMi research day 24th May 2014 at the University of Mons, Belgium; the 55th Annual Meeting of the Academy of International Business, 3rd–6th July 2013 Istanbul, Turkey; the third European Research Conference on Microfinance 10th–12th June 2013 Kristiansand, Norway; the 5th International Research Workshop on Microfinance Management and Governance, 18th–19th October 2012, Oslo, Norway; and the NFB-PhD research network conference 16th–17th August 2012, Kristiansand, Norway.

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  1. School of Business and Law, University of Agder, Servicebox 422, 4604, Kristiansand, Norway

    D. Pascal & R. Mersland

  2. University of Dar es Salaam Business School, Dar es Salaam, Tanzania

    N. Mori

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Correspondence to R. Mersland.

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Pascal, D., Mersland, R. & Mori, N. The influence of the CEO’s business education on the performance of hybrid organizations: the case of the global microfinance industry. Small Bus Econ 49, 339–354 (2017). https://doi.org/10.1007/s11187-016-9824-8

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