Sustainability and Mission Drift in Microfinance

Microfinance institutions (MFIs) are constrained by double bottom-lines: meeting social obligations (the first bottom-line) and obtaining financial self-sufficiency (the second bottom-line). The proponents of the first bottom-line, however, are increasingly concerned that there is a trade-off between these two bottom-lines—i.e., getting hold of financial self-sufficiency may lead MFIs to drift away from their original social mission of serving the very poor, commonly known as mission drift in microfinance which is still a controversial issue. This study aims at addressing the concerns for mission drift in microfinance in a performance analysis framework. Chapter 1 deals with theoretical background, motivation and objectives of the topic. Then the study explores the validity of three major and related present-day concerns. Chapter 2 explores the impact of profitability on outreach-quality in MFIs, commonly known as mission drift, using a unique panel database that contains 4-9 years’ observations from 253 MFIs in 69 countries. Chapter 3 introduces factor analysis, a multivariate tool, in the process of analysing mission drift in microfinance and the exercise in this chapter demonstrates how the statistical tool of factor analysis can be utilised to examine this conjecture. In order to explore why some microfinance institutions (MFIs) perform better than others, Chapter 4 looks at factors which have an impact on several performance indicators of MFIs—profitability or sustainability, repayment status and cost indicators—based on quality-data on 353 institutions in 77 countries. The study also demonstrates whether such mission drift can be avoided while having self-sustainability. In Chapter 5 we examine the impact of capital and financing structure on the performance of microfinance institutions where estimations with instruments have been performed using a panel dataset of 782 MFIs in 92 countries for the period 2000-2007. Finally, Chapter 6 concludes the study by summarising the results from the previous chapters and suggesting some directions for future studies.

New Evidence on the Properties of the Financial Statement Information Pricing Process

This study contributes to our knowledge of how information contained in financial statements is interpreted and priced by the stock market in two aspects. First, the empirical findings indicate that investors interpret some of the information contained in new financial statements in the context of the information of prior financial statements. Second, two central hypotheses offered in earlier literature to explain the significant connection between publicly available financial statement information and future abnormal returns, that the signals proxy for risk and that the information is priced with a delay, are evaluated utilizing a new methodology. It is found that the mentioned significant connection for some financial statement signals can be explained by that the signals proxy for risk and for other financial statement signals by that the information contained in the signals is priced with a delay.

How Do Different Types of Investors React to New Financial Statement Information?

The study contributes to our understanding of the forces that drive the stock market by investigating how different types of investors react to new financial statement information. Using the extremely comprehensive official register of share holdings in Finland, we find that the majority of investors are more probable to sell (buy) stocks in a company after a positive (negative) earnings surprise, and show a bias towards buying after the disclosure of new financial statement information. Large investors, on the other hand, show behavior opposite to that of the majority of investors in the market. Further, foreign investors show behavior similar to that of domestic investors. We suggest investor overconfidence and asymmetric information as possible explanations for the documented behavior.