Corporate Governance and Firm Performance: Evidence from Microfinance Institutions in Tanzania

Abstract

This study examined the impact of corporate governance on the performance of a
firm. Two elements of corporate governance were involved namely the board of
directors composition and audit committee composition which were assessed to find
out their relations to Microfinance Institutions' (MFIs) financial performance. This
study was done to contribute specific insights to the relationship and influence of
corporate governance on firm performance especially due to limited literature in
Tanzania. The study used a cross-sectional design, in which data were collected at
a single point in time. Quantitative data were collected from 80 CEOs/Managers of
MFIs under study. The study found that most of the respondents, which is equivalent
to 66.2%, had the title of managers or supervisors and 17.4% were the
CEOs/Directors. Moreover, MFIs agreed to have boards with independence
(M=4.48, SD=0.49) and gender diversity (M=4.67, SD=0.41). Moreover, MFIs
agreed
to
have
an
audit
committee
with
members who had
accounting/auditing/finance expertise. The findings from regression results further
show that the relationship was significant between board composition (board
independence and gender and geographical diversity) and audit committee
composition (educational background and experience in microfinance issues) with
the firm’s performance. The study concludes that corporate governance influences
the financial performance of MFIs in Tanzania. The study recommends that MFIs
and policymakers should ensure that the board of directors is characterised by
independence and gender and geographic diversity. Also, the audit committee
should comprise members who are experts in microfinance to enhance
performance.