1042-2587

© 2014 Baylor University

The Effect of Virtuous

E T&P and Entrepreneurial
Orientations on
Microfinance Lending
and Repayment:
A Signaling Theory
Perspective
Todd W. Moss
Donald O. Neubaum
Moriah Meyskens

The availability of capital for microenterprises has grown rapidly due to microfinancing
platforms such as Kiva. The investment decisions of microlenders are challenged due to the
limited information about the microenterprises’ characteristics and behavioral intentions.
Extending signaling theory, we suggest that microenterprises’ narratives on microfinancing
platforms are an important means to signal valuable characteristics and behavioral inten-
tions to prospective lenders. Results indicate that microenterprises, which signal autonomy,
competitive aggressiveness, and risk-taking, are more likely to receive funding, and to
receive it more quickly. Microenterprises that signal conscientiousness, courage, empathy,
and warmth are less likely to get funded. Rhetorical signaling proactiveness, conscientious-
ness, courage, warmth, or zeal is negatively associated with loan repayment.

Introduction

Most research analyzing the financing of entrepreneurs focuses on venture capital,

bank loans, and angel investments (Bygrave, 2009). Nevertheless, this type of capital
represents only a portion of the financing used by entrepreneurs worldwide (Bygrave,
Hay, Ng, & Reynolds, 2003; Kelley, Singer, & Herrington, 2011). Microfinance has
become a viable means to supply critical capital to microenterprises, especially those in
emerging countries that have limited access to traditional means of financing (Dorado,

Please send correspondence to: Donald O. Neubaum, tel.: 541-737-6036; email: don.neubaum@bus
.oregonstate.edu, to Todd W. Moss at tmoss@syr.edu, and to Moriah Meyskens at mmeyskens@sandiego.edu.

January, 2015 27
DOI: 10.1111/etap.12110
2001; Khavul, 2010). In recent years, microfinance has emerged as a vital industry
providing over $25 billion in small loans to over 150 million individuals (CGAP, 2013;
Diekman, 2007). Microfinance has been heralded as a means to create both economic and
social value as it provides financing to microenterprises, subsequently assisting in venture
growth and socially benefiting families and communities. Despite the potential promise of
microloans, there is a gap between what we know and what we need to know about the
microfinancing phenomenon and how to improve its effectiveness and impact.
While it has become easier for entrepreneurs in emerging markets to gain access to
capital, significant obstacles still remain (Yoshikawa, Rasheed, Datta, & Rosenstein, 2006).
In particular, the lack of credible, reliable information about borrowers poses serious
challenges to lenders (Yiu, Bruton, & Lu, 2005) as potential lenders may face particularly
uncertain ex-ante investment decisions. This information asymmetry can seriously dampen
microlenders’ willingness to provide capital to microenterprises. Further, it may prove
difficult for microlenders to choose between competing investment opportunities.
Recent research on initial public offerings (IPOs) has suggested that investors seek
tangible and intangible information about the characteristics of firms in which they might
invest, as this information can be used to alleviate concerns about risk and uncertainty
(Bruton, Chahine, & Filatotchev, 2009; Payne, Benson, & Finegold, 2009). In settings
featuring information asymmetry, the ability of the firm to signal, or convey value,
reliability, or potential success to the investment community can be a critical factor in
gaining funding. Thus, within the context of raising funds in the IPO market, signaling
theory (e.g., understanding how information is communicated between two parties with
access to different information) has been extensively researched (for a review, see
Connelly, Certo, Ireland, & Reutzel, 2011) and the signals IPO firms send to the market
via the language of their prospectuses can be an important input to the funding decision
(e.g., Amit, Brander, & Zott, 1998; Daily, Certo, & Dalton, 2005).
Extending signaling theory to IPOs in foreign and emerging markets, Payne, Moore,
Bell, and Zachary (2013) examined how the use of rhetoric reflecting a virtuous orien-
tation (VO; i.e., rhetoric reflecting organizational values of integrity, empathy, warmth,
courage, conscientious, and zeal) (Chun, 2005) in an IPO’s prospectus subsequently
influenced the IPO’s pricing. These researchers argued that because of the limited amount
of information available to investors in foreign and emerging markets, the rhetoric used in
an IPO’s prospectus can send signals to the market, which might increase investors’
confidence or reduce their perception of the risk of their investment. Results showed that
signaling a VO helped reduce IPO uncertainty as the use of rhetoric related to organiza-
tional virtue positively influenced investors’ perceptions of IPO firms and IPO perfor-
mance. While signaling “lies at the very heart of IPO research” (Payne et al., p. 233), our
understanding of (1) the determinants of microlending and repayment and (2) the role that
signaling may play in the context of microlending is far more uncertain.
In this study, we extend signaling theory to the microfinance literature and argue that
the manner in which the rhetoric is used in the narratives describing the microenterprises
on microfinancing platforms, such as Kiva, can help microenterprises signal critical
organizational characteristics to the microfinance market. Given that publicly available
market information about a specific microenterprise is likely to be nonexistent, or at least
very limited, we believe that the investment decision of microlenders will be significantly
influenced by these narratives. As such, the rhetoric reflected in these narratives will
determine whether or not the microenterprise is funded, as well as the speed at which it
receives funding.
Specifically, we believe that two organizational characteristics may be particu-
larly important to signal the microfinance market. According to the signaling theory,

28 ENTREPRENEURSHIP THEORY and PRACTICE

information asymmetry is particularly relevant when one party is not fully aware of (1)
the characteristics (e.g., quality or reliability) of the other party and (2) the behavioral
intentions of the other party (Stiglitz, 1990). Therefore, considering the means to address
information symmetries surrounding characteristics and behavioral intentions, we believe
that the use of rhetoric reflecting a VO may signal a microenterprise’s positive charac-
teristics toward ethical and virtuous values and behaviors (Payne et al., 2013). These
values, in turn, can improve microlenders’ trust and faith in the microenterprise and
reduce microlenders’ uncertainty. Therefore, microenterprises whose narratives signal a
VO are more likely to receive microfunding and will receive their funding more quickly
than those microenterprises that do not. Second, to overcome information asymmetries
related to behavioral intentions, we believe that the use of rhetoric related to entrepre-
neurial orientation (EO, e.g., rhetoric reflecting autonomy, competitive aggressiveness,
innovativeness, proactiveness, and risk-taking behaviors) (Lumpkin & Dess, 1996) will
also help microenterprises receive microloans and receive them more quickly. Rhetoric
conveying an EO will send positive signals to potential microlenders about how the
microenterprise intends to compete, as well as the strength of its business model and
competitive position. A strong EO signal will enhance microlenders’ confidence about the
microenterprises’ intentions and chances to succeed and grow revenues and profits, and in
turn, repay their loans. In addition to the important signals that either VO or EO rhetoric
may send to microlenders, we also hypothesize that they will be positively associated with
the likelihood and speed of microloan repayment.
Our study makes several contributions to the literature. First, it extends signaling
theory to the microfinance market and builds on the existing literature on the importance
of signaling in the face of information asymmetry. Second, it adds to the microfinance
literature by identifying organizational characteristics that influence microlenders’ assess-
ment of the microenterprise, as well the likelihood and speed with which microloans are
repaid. Third, it extends the literature on VO and EO in that it suggests that these
orientations can be influential to the perceptions and actions of key organizational stake-
holders (i.e., microlenders), as well as the performance of firms. Fourth, it contributes to
the social entrepreneurship literature by establishing a distinction between microfinance
and other types of social financing for different socially valuable activities. Finally,
it builds on existing work that uses computer-aided text analysis (Short, Broberg, Cogliser,
& Brigham, 2010) to show that organizational documents germane to microfinance, such
as loan descriptions, are fruitful sources for a variety of management constructs. To
accomplish these objectives, we examine microloans made through one well-known
microfinance Web site, Kiva. Drawing from signaling theory and the VO and EO litera-
tures, we present hypotheses and explore how rhetoric may signal certain characteristics
and behavioral intentions to potential microlenders and how these signals affect the
funding and repayment of loans made through the Kiva Web site. Thus, we investigate
multiple microlending performance measures in our study. Understanding the factors that
lead to both microfinance funding and repayment are needed to improve the overall
effectiveness of microfinance and crowdfunding platforms.

Theory Development and Hypotheses

Microfinance
Microfinance is being increasingly viewed as a powerful means to alleviate poverty as
over $25 billion has been distributed in loans to entrepreneurs in emerging markets around
the globe (Diekman, 2007; Khavul, 2010). Direct-to-borrower microfinancing platforms,

January, 2015 29
such as Kiva, enable individual lenders to provide small, uncollateralized loans to entre-
preneurs and entrepreneurial groups through a pass-through agent or partner microfinance
institution (MFI; Allison, McKenny, & Short, 2013). These partner MFIs find the entre-
preneurial ventures, determine their financing needs, and work directly with the ventures
to service the loans. They also work with Kiva by providing them with the narratives about
the ventures. Thus, microlenders invest in entrepreneurial ventures through the Kiva
platform, which in turn provides funding to MFIs that are working directly with the
ventures (Kiva, 2013). In the case of Kiva, prospective lenders can search the Kiva.org
Web site, which presents hundreds of potential entrepreneurial ventures that are seeking
small loans. For each venture, the Kiva Web site provides information featuring the name
and location of the borrower, as well as a short narrative about the entrepreneurial
opportunity being funded. The Web site also includes information about the size of the
loan, the purpose of the loan, the loan repayment schedule, and the MFI that will service
the loan on behalf of Kiva. The date of when the loan was first posted on the Kiva Web site
and how much progress the borrower has made in achieving their goal of full funding
are also provided. When an entrepreneur’s loan request is fully funded, Kiva releases the
loan to the MFI, which has already made the loan to the venture. As the venture makes
payments on the loan, the lender receives repayment of their principal; the interest paid by
the venture is captured by the MFI, which uses these proceeds to cover any expenses and
to retain any remaining interest for profit. Thus, microlenders using Kiva do not earn
interest from their loans; rather, the field partner MFI uses this interest as part of their
operating revenue (Kiva).

Signaling Theory
Decision makers need information, and individuals have access to two types of
information (Connelly et al., 2011; Stiglitz, 2002). First, individuals have access to public
information, which is widely and freely available to all parties. Second, individuals may
have access to private information, which is information available to only some parties.
Since “different people know different things” (Stiglitz, p. 469), some individuals may
possess private information that others may find valuable when making decisions. Under
these circumstances, individuals with private information may wish to provide signals to
others in an effort to reduce the information asymmetries that exist between parties.
Conversely, individuals lacking private information may be particularly attuned to signals
that may reflect unobservable characteristics, behavioral intentions, or private informa-
tion. Signaling theory (Spence, 1973) has been used to explain how information asym-
metries influence decision making in a wide variety of contexts. These include how
organizations may signal social responsibility by having a diverse board of directors
(Miller & Triana, 2009) or how an entrepreneurial firm can signal value through top
management team characteristics (Lester, Certo, Dalton, Dalton, & Cannella, 2006) or
founder involvement (Busenitz, Fiet, & Moesel, 2005).
According to Stiglitz (1990), two types of private information are particularly impor-
tant: (1) information about characteristics (e.g., quality or reliability) where one party is
not fully aware of the characteristics of another party, and (2) information about intent,
where one party is not fully aware of the behavioral intentions of another party. Signals,
however, can be used to help parties resolve information asymmetry related to these
unobservables. In the context of microfinance, lenders are largely unaware of the charac-
teristics and behavioral intentions of the borrower. However, the short narrative about
the entrepreneur and the entrepreneurial opportunity being funded, which is written by the

30 ENTREPRENEURSHIP THEORY and PRACTICE

MFI, is clearly a means to signal the characteristics and behavioral intentions of
the borrower. We, therefore, believe these signals will be particularly relevant to the
microfinance decision-making process.
Signaling theory is concerned with the manner in which insiders intentionally convey
imperceptible, positive information about themselves to outsiders (Connelly et al., 2011).
While insiders may be constantly communicating, not all of these conveyances are
signals. Typically, to be considered productive, signals must be (1) observable and (2)
costly. Observability refers to the extent to which outsiders are able to notice the signal.
Costly refers to the sender’s expense associated with signaling desirable characteristics,
such as quality, reliability, or genuineness. Educational degrees, industry certifications, or
professional credentials are examples of observable and costly signals.
While most signaling theory addresses costly signals, some researchers (see Farrell &
Rabin, 1996; Almazan, Banerji, & DeMotta, 2008; Payne et al., 2013) have observed that
cheap talk, or less costly signals, can also be used by senders to reduce information
asymmetries between parties. While on the surface it might seem that the entrepreneurial
narratives on the Kiva.org Web site are costless signals, we argue that these signals can
carry significant costs. First, the MFI could face considerable costs if they are caught
providing disingenuous signals about the entrepreneurial opportunity. Kiva’s Terms of
Use agreement (http://www.kiva.org/legal/terms) gives Kiva the right to terminate its
relationship with deceptive MFIs. Thus, while there might be a short-term incentive for
MFIs to provide misinformation in their signals, the long-term costs can clearly outweigh
those benefits. Second, if certain misleading signals were determined to be valuable, then
such signals would proliferate, and in the long run, these dishonest signals would lose
their value (Connelly et al., 2011). Finally, since senders can choose from a variety of
signals to send, the transmission of signals must be strategically managed (Austen-Smith
& Banks, 2000). Signaling one type of characteristic or behavioral intention comes with
the opportunity cost of not conveying another. For these reasons, we conclude that
microenterprises’ narratives are costly signals.
While interest in microloan funding has increased dramatically over the past few
years, empirical research of the microfinance decision process, however, is still in its
infancy. Two recent studies have examined the conditions that affect the propensity of
microloans being made. First, in their study of lender and borrower characteristics, Galak,
Small, and Stephenson (2011) find that lenders prefer to fund individual entrepreneurs
over groups. Further, Galak et al. find that lenders tend to more swiftly fund borrowers
who were similar to them along three lines of social proximity, namely sex, occupation,
and sharing the same first initial. This finding is consistent with the trust literature, which
suggests that individual similarity and commonalities can foster attraction and trust
(Mayer, Davis, & Schoorman, 1995). Galak et al. (p. 135) conclude that “despite the
financially-orientated nature of microfinance, people are nonetheless affected by more
psychological factors.”
In the second study, Allison et al. (2013) rely upon the theory of political rhetoric and
content analyze 6,051 entrepreneurial narratives from Kiva for groups and individuals
from the Democratic Republic of the Congo, Liberia, Mozambique, Rwanda, and
Cambodia. These authors argue the language used in the brief narratives describing the
borrower and the entrepreneurial opportunity, that is the rhetorical content of the narrative,
influences the speed and likelihood with which microloans are funded by lenders. They
specifically hypothesize that those narratives that possess language with the “warm-glow
effect” (i.e., the positive affect individuals receive when they provide assistance to those
in need) (Andreoni, 1990) will gain the attention of lenders and increase the likelihood of
funding. Allison et al. find that narratives that contain higher levels of language indicating

January, 2015 31
blame and concern are more likely and more swiftly funded than those narratives that
contain language related to accomplishment, tenacity, and variety. The results from these
two studies suggest that the rhetoric used in microenterprises’ narratives is influential in
the microfinancing decision-making process.
Our investigation builds upon the work of Galak et al. (2011) and Allison et al. (2013)
by examining the microlending decision through a signaling theory perspective. Given
the information asymmetry and uncertainty surrounding the microlending decision, we
reason that microlenders will be particularly attuned to information and signals that
would reduce their uncertainty. In addition, we ask what factors contribute to the likeli-
hood that one venture will repay its loan over another venture? In other words, is there a
difference in the likelihood that a venture will repay its loan based on whether or not the
microenterprise has a VO or EO? Since VO (Chun, 2005) and EO (Lumpkin & Dess,
1996) are considered key strategic tools an organization can use to differentiate itself from
others to gain a competitive advantage, we reason that these orientations can play critical
roles in the way microenterprises position themselves relative to other borrowers, as well
as the manner in which they behave and compete against their rivals. As such, these
orientations will influence not only their likelihood of getting funded, but will also be
associated with their ability to repay loans. We address these questions in the paragraphs
below.

VO and Microfinance Lending Decisions and Repayment

Defined as “ethical character traits that are learnt from an accumulative perception of
a firm’s behaviors in everyday business life, that drives internal and external stakeholder
satisfaction, and that is aligned with its ethical values used for strategic positioning,”
(Chun, 2005, p. 272), organizational virtue is the integrated set of beliefs that inform the
organization’s ethical traits and virtuous behavior. Character traits associated with a
strong VO include regularly and routinely displaying principles such as honesty, fairness,
reliability, trustworthiness, and commitment to others (Paine, 1991). An organization’s
VO is important because it can have two significant consequences (Payne, Brigham,
Broberg, Moss, & Short, 2011). First, the nature of an organization’s VO can affect the
organization’s processes, methods, and decisions (Cameron, Bright, & Caza, 2004).
Second, the content of the organization’s VO can influence the manner in which it
presents itself to its stakeholders. Communications, marketing, and narratives, which are
presented to external stakeholders will reflect the stance the organization takes on the
importance of ethical and virtuous behaviors and actions. In the context of this study, we
argue that the microventures’ VO will not only be reflected in the manner in which their
narratives present them, but it will also affect how they conduct their operations.
While numerous researchers have considered the dimensions that should be included
in a comprehensive list of business virtues (e.g., Murphy, 1999; Shanahan & Hyman,
2003; Solomon, 1992, 1999), Chun (2005) conducted a content analysis of companies’
ethical statements and provided an empirically verified list of six dimensions of organi-
zation virtue, namely conscientiousness, courage, empathy, integrity, warmth, and zeal.
Conscientiousness refers to the extent to which an organization can be considered depend-
able and hardworking (Barrick & Mount, 1991). Courage is defined as the attainment
of success in achieving a desired goal or objective and the level of effort taken to
accomplish the outcome (Harris, 2001). Empathy is portrayed by the ability to perceive
or consider the feeling of others (Sawyer, 1975) and showing a sense of concern or
sympathy for the circumstances of others (Davis, 1983). Integrity is defined as the
trustworthiness and honesty of an individual or organization (Butler & Cantrell, 1984).

32 ENTREPRENEURSHIP THEORY and PRACTICE

Warmth is characterized by open and pleasant expressions of courtesy, friendliness,
and generosity to others (Chun). Finally, zeal is an organization virtue characterized as
including elements such as humor, excitement, passion, or fun.
In their examination of how the strength of a firm’s VO influenced the perceptions of
IPO investors in foreign and emerging markets, Payne et al. (2013) found that IPOs that
signaled a strong VO were viewed as less uncertain investments by investors. By signaling
characteristics associated with ethicality and reliability, these firms were able to increase
investor confidence and reduce perceived risk. Because of the limited information about
ventures in foreign and emerging markets available to potential investors, investment
decisions were particularly sensitive to the nature of the language used in the IPOs’
prospectuses.
Extending this logic to the microfinance settings, we argue that rhetoric signaling the
dimensions of a VO in the narratives of microenterprises will significantly enhance
lenders’ perceptions of the microenterprise and subsequently affect the speed with which
the microloans are made. Microenterprises that signal high levels of conscientiousness
are essentially telling prospective lenders that they are dependable, reliable, hardworking,
and secure investments, which can reduce microlenders’ uncertainty. Indeed, conscien-
tious employees are more likely to have a calling orientation in their work and are thus
more productive; the accomplishment of doing their work well is a sufficient end in itself
(Wright & Cropanzano, 2004). We, therefore, believe that microenterprises that strongly
signal conscientiousness will be more likely to be funded than those that send weaker
conscientiousness signals.
Courageous microenterprises are ambitious, achievement oriented, leading, and com-
petent. They signal a determination to succeed despite the factors that hinder business
development and entrepreneurship, like corruption and weak enforcement of the rule of
law (Bowen & De Clercq, 2008)—factors commonly found in emerging markets where
microfinance takes place. As with conscientiousness, microenterprises signaling higher
levels of courage should be funded more quickly than their less courageous rivals because
their orientation signals their determination for success to potential lenders.
Microenterprises that display empathy are concerned, reassuring, supportive, and
sympathetic, and empathic organizations are thought to have higher stakeholder satis-
faction (Chun, 2005). Lloyd (1990) suggests that “nice” companies, characterized
by empathy toward society, industry neighborliness, and good corporate manners, are
actually more profitable than more “brutal” or “nasty” organizations because over time,
society has come to value these characteristics. Additionally, organizations with higher
levels of perceived compassion and forgiveness have been shown to have higher levels
of perceived innovation and quality (Cameron et al., 2004). Extending this logic to
microenterprises, we suggest that rhetoric associated with greater empathy reduce
microlenders’ uncertainty about reliability and behavioral intentions, which will
increase the likelihood and speed with which the microenterprise will receive full
funding.
Microenterprises that emphasize greater integrity are honest, sincere, socially respon-
sible, and trustworthy. Organizations that operate with integrity have a relatively fixed
character that is sustained over time (Moore, 2005). For example, Collins and Porras
(1998) provide examples of companies such as 3M (“absolute integrity”) and GE
(“honesty and integrity”), which have enduring ideologies to guide the organizations.
Integrity will help the enterprise to withstand the corrupting influences in the broader
environment (Moore). Additionally, integrity is significantly related to business profitabil-
ity, a key dimension of organizational performance (Cameron et al., 2004). In an effort to
reduce their investment uncertainty, microlenders are more likely to invest in enterprises

January, 2015 33
that signal honesty and trust, and will want to avoid investing in microenterprises
perceived as being associated with fraudulence.
Organizations that display warmth are friendly, open, caring, pleasant, and straight-
forward. Exceedingly few empirical studies have been conducted on warmth as a dimen-
sion of organizational virtuousness since Chun’s (2005) initial work. Payne et al. (2011)
found that family firms displayed higher levels of warmth in the shareholder letters of
company annual reports. Extensive work by Miller and Le Breton-Miller (2005) indicates
that family firms outperform nonfamily firms over the long term. Findings relevant to
warmth are that family firms that established a greater feeling of community within the
organization and connection with entities outside of the organization were more success-
ful. With regard to microenterprises, it is reasonable to expect that enterprises that signal
greater warmth will be more attractive investments to microlenders because these
microenterprises are more likely to create a stronger sense of community and connection
with lenders.
Zealous microenterprises are fun, exciting, attractive, imaginative, and spirited, and
such characteristics are frequently found in popular corporations today (Chun, 2005). Zeal
is not limited to “exciting” popular corporations such as Apple or Virgin Atlantic; IPOs
from developing countries have been shown to express greater zeal than IPOs from the
developed world, and zeal as a part of VO contributes significantly to IPO performance in
this context (Payne et al., 2013). Regarding our sample of microenterprises in developing
countries, we expect zeal to play a positive role in enterprise performance. Micro-
enterprises signaling a zest for business, and which take a more imaginative approach,
should be more appealing to customers and lenders alike, and should thus provide a better
lending opportunity than others with less zeal.
In sum, the microfinance context is one with limited information, which leads to
high levels of investment uncertainty in the mind of potential microlenders. In particular,
microlenders have difficulty assessing key characteristics (e.g., quality and reliability)
of potential borrowers. Any conveyance that signals a VO to microlenders will likely
increase lender confidence, which in turn will increase the likelihood of funding. If micro-
enterprises’ narratives can effectively signal characteristics associated with positive moral
and ethical values, such as conscientiousness, courage, empathy, integrity, warmth, and
zeal, then we believe that these characteristics are likely to reduce lender uncertainty. Fears
over moral hazard and adverse selection, which are prevalent in the microlending setting
(Bruton, Khavul, & Chavez, 2011), may also be reduced. Because of the inability to
effectively monitor the borrower, microlenders may be particularly wary of micro-
enterprises that do not convey an adequate level of trustworthiness or fail to demonstrate
sound ethical principles. Thus, microlenders will prefer narratives which signal the various
VO dimensions. This in turn will increase the speed with which borrowers’ requests for
loans are fully funded:

Hypothesis 1: The extent to which microenterprises signal (1) conscientiousness,

(2) courage, (3) empathy, (4) integrity, (5) warmth, and (6) zeal to microlenders is
positively associated with the likelihood that investors will fund microloan ventures.

Virtuous organizations are seen as fair, honest, reliable, trustworthy, and committed to the
support of others (Payne et al., 2013). In the case of microloan borrowers, those entre-
preneurs who possess dimensions of a strong VO are likely to feel a strong sense of moral
obligation to their lenders. They will be highly motivated and ethically driven to maintain
their positive perception in the mind of their stakeholders. The strength of their VO
dimensions will not only foster their efforts to satisfy stakeholders, but also influence their

34 ENTREPRENEURSHIP THEORY and PRACTICE

efforts to improve their organizational performance and competitive position (Chun,
2005). Their efforts in the six VO dimensions will, in turn, increase the efficacy, as well
as the likelihood, that borrowers will endeavor to follow through on repaying their
microloan. We, therefore, propose the following hypothesis for empirical testing:

Hypothesis 2: The extent to which microenterprises signal (1) conscientiousness,

(2) courage, (3) empathy, (4) integrity, (5) warmth, and (6) zeal to microlenders is
positively associated with the likelihood that microloan ventures will repay their loans.

EO and Microlending Decisions and Repayment

It has long been argued that an organization’s EO is positively associated with a
number of organizational outcomes related to growth and success (e.g., Lumpkin & Dess,
1996; Wiklund & Shepherd, 2005). Defined as the processes, practices, and decision-
making style of entrepreneurial firms (Lumpkin & Dess, 1996), EO reflects the mindset
and methods organizations use to search and pursue opportunities for growth. As concep-
tualized by Lumpkin and Dess, EO consists of five dimensions, namely autonomy,
competitive aggressiveness, innovativeness, proactiveness, and risk-taking.
In this paper, we use the Lumpkin and Dess (1996) conceptualization of EO with five
dimensions for two reasons, as suggested by Covin and Lumpkin (2011). First, Lumpkin
and Dess present EO as a superordinate construct, a specific manifestation of the five
independent constructs (dimensions) mentioned above; hence, our emphasis on these
five dimensions is individually rather than collectively. This stands in contrast to other
conceptualizations, such as the Covin and Slevin (1989) conceptualization, which sug-
gests that EO is a latent construct existing only to the extent that innovativeness,
proactiveness, and risk taking are concurrently manifested. Second, EO is considered a
real phenomenon and is thus amenable to reflective measurement models rather than
formative models. As we explain later in the Methods section, modeling EO via five
independent dimensions more closely aligns the theory with our methods. We thus use
reflective modeling of our constructs as independent EO dimensions to overcome inherent
challenges with formative modeling, as recommended by Covin and Wales (2012).
Autonomy refers to the extent to which individuals or teams are able to act indepen-
dently to foster new ideas and bring those to fruition (Lumpkin & Dess, 1996). Auto-
nomous actors are free to actively pursue new opportunities without being constrained
by existing organizational processes or structures, or the interest of other stakeholders.
The freedom to act is associated with innovation, the creation of new businesses, and
organizational effectiveness. We suggest that autonomy plays a significant role in
microenterprise performance, just as it does in other contexts (Lumpkin, Cogliser, &
Schneider, 2009). A principal purpose of microfinance is to increase the autonomy of
microenterprises (Bardy, Drew, & Kennedy, 2012). Autonomous microenterprises have
the freedom to exploit whatever opportunities arise in their locales and shift production
accordingly, such as making the move to raise goats instead of chickens. The opposite also
seems to hold true; microenterprises that lack autonomy would be unable to make such a
shift despite changes in demand, and thus be less successful.
Competitive aggressiveness considers the competitive posture the venture assumes
in the marketplace. It is characterized as offensive tactics aimed at gaining a strong
competitive position, or aggressive reactions intended to maintain a position in the face
of a strong threat from industry rivals (D’Aveni, 1994). Ventures that assume a strong,
aggressive stance in the face of competition are thought to perform well by swiftly
exploiting opportunities through decisive actions (Hamel, 2007). Likewise, competitive

January, 2015 35
aggressiveness should improve the fortunes of microenterprises because in developing
economies, resources are harder to come by than in the developed world (Prahalad & Hart,
2002), implying that competition for those scarce resources is required for firm survival.
Competition is also thought to improve performance by motivating individuals to invest in
greater intragroup cooperation (Tauer & Harackiewicz, 2004) to improve the likelihood of
resource acquisition. Aggressiveness may also be displayed as a drive to achieve success
for the family or community, rather than to put a rival out of business (West, Bamford,
& Marsden, 2008). Therefore, microenterprises a displaying greater competitive aggres-
siveness should outperform others that are less aggressive.
Innovativeness refers to the propensity of ventures to introduce new products, pro-
cesses, and routines as the result of experimentation and creativity (Lumpkin & Dess,
1996). Firms with an orientation toward innovation behave more entrepreneurially as
they are committed to disrupting current market conditions by stimulating new demand
or creating novel resources combinations. Continuous reinvention of organizational
systems, products, and services through innovative efforts is seen as the key to organiza-
tion survival and prosperity. The innovativeness dimension has the highest correlation
with increased performance than any other EO dimension, and EO has a greater impact
on microbusinesses when compared with small businesses (Rauch, Wiklund, Lumpkin,
& Frese, 2009). Additionally, case studies in a microenterprise context indicate that
innovativeness in production methods leads to entrepreneurial success, while a lack of
innovativeness stymies effective resource use (West et al., 2008). These findings suggest
that in a microenterprise context, innovative enterprises will signal to lenders that they will
outperform other less innovative enterprises.
Proactiveness is a function of foresight and the extent to which organizations antici-
pate changes forthcoming in the environment and position themselves in advance of those
evolving conditions (Lumpkin & Dess, 1996). Proactive firms are viewed as change or
market leaders as opposed to market laggards or followers as they develop and implement
innovations in advance of other actors. Crowdfunding has allowed microfinance to
become a globalized phenomenon, expanding capital availability and thus placing oppor-
tunities (whether discovered or created) within reach of microenterprises proactive
enough to seize them (Zahra, Newey, & Li, 2014). We, therefore, suggest that proactive
microenterprises will signal a more successful venture to lenders and outperform those
ventures that are not as proactive.
Finally, a firm’s risk-taking propensity reflects the extent to which it is capable and
comfortable in launching new, bold, and often costly action in the face of considerable
uncertainty. Calculated risk taking is the quintessential entrepreneurially characteristic
(Brockhaus, 1980) and “practically all theorists agree that entrepreneurship involves, by
definition, taking risks of some kind” (McClelland, 1960, p. 210). West et al. (2008) show
how microenterprises in one community used resources to successfully take economic
risks despite negative incentives, while those in another community were not as successful
in their entrepreneurial activities despite resource abundance in the area. It thus stands
to reason that microenterprises that display a risk-taking propensity will signal a more
successful venture than those that appear more risk averse.
In the context of our study, we believe that signaling dimensions of a strong
EO will be particularly beneficial to microenterprises. Specifically, we argue that lenders
will prefer to fund ventures that strongly signal the five EO dimensions. These
microenterprises will be perceived as more desirable investments as expressions and
rhetoric associated with EO dimensions will reduce information asymmetry related to
behavioral intentions. Also, microenterprises with narratives that strongly signal aggres-
sive entrepreneurial intentions consistent with EO will likely be viewed as having more of

36 ENTREPRENEURSHIP THEORY and PRACTICE

the characteristics necessary for success than those that do not. Those narratives that
possess direct, repeated references to EO dimensions and paint those ventures as those
that aggressively pursue new ideas, products, and processes in an innovative manner are
more likely to gain the attention of investors as uncertainty over behavior intentions
are reduced. Concerns associated with moral hazard and adverse selection may also be
reduced. We, therefore, propose that narratives that reflect the five dimensions of an EO
are more likely to be funded:

Hypothesis 3: The extent to which microenterprises signal (1) autonomy, (2) com-
petitive aggressiveness, (3) innovativeness, (4) proactiveness, and (5) risk taking to
microlenders is positively associated with the likelihood that investors will fund
microloan ventures.

Consistent with research on EO, we expect that those borrowers who signal and strongly
possess the five EO dimensions in their loan narratives will likely perform well in the
marketplace (Habbershon & Pistrui, 2002). We believe that the strength of borrowers’
beliefs of the importance of an entrepreneurial mindset will be reflected in the narratives
requesting their loans. Those ventures that are innovative, aggressive, and risk taking will
be well positioned to assume strong competitive positions over their rivals. As such, they
can more effectively build and execute strong business models, which will lead to revenue
growth and profitability. It naturally follows that these ventures will be in a better position
to repay their loans, and they will do so at a quicker pace than other borrowers who are less
focused on building and maintain strong EO dimensions. We, therefore, present the
following hypotheses for empirical testing:

Hypothesis 4: The extent to which microenterprises signal (1) autonomy, (2) com-
petitive aggressiveness, (3) innovativeness, (4) proactiveness, and (5) risk taking to
microlenders is positively associated with the likelihood that microloan ventures will
repay their loans.

Methods

Sample
The sample includes over 400,000 loans made to entrepreneurs who use the
microfinance crowdfunding platform Kiva to access capital for their ventures, from 2006
to 2012. Data on each of these entrepreneurs were obtained through the Web site http://
build.kiva.org/docs/data/loans in the format of XML files. These files were converted into
alternate file types so that the loan data could be analysed through computer-assisted
textual analysis and statistical software (CATA; Short et al., 2010).
Crowdfunding has become a popular means for individuals to pool their resources and
support clients served by MFIs (Davis & Webb, 2012; Schenk & Horska, 2012). Through
Kiva, individuals can invest $25 or more in a chosen entrepreneur profiled on their Web
site. Kiva has developed relationships with over 160 MFI field partners who know the
local communities and find entrepreneurs in need of financing. The MFI field partner is
responsible for the distribution, administration, and collection of the loan, while Kiva
serves as the intermediary between investors and the MFI. Throughout the life of a loan,
an individual investor can receive updates regarding the entrepreneur’s venture and
repayment. Once the loan is repaid, the individual investor receives Kiva credit, which

January, 2015 37
they can use to invest in another entrepreneur, donate to Kiva, or be repaid. As of January
14, 2013, Kiva has made a total of US$392,925,875 in loans to 956,512 entrepreneurs
through 515,843 loans (http://www.kiva.org/about/stats).

Dependent Variables
Following previous research (Allison et al., 2013; Galak et al., 2011), we created two
variables necessary for survival analysis: whether or not the loan was funded, and how
long it took to fund the loan. The first variable, to gauge whether or not the loan was
funded, was a dichotomous variable with the value of 1 if the loan was funded, and 0 if the
loan was not funded. A second, continuous variable measured the length of time, in days
and minutes, from which the loan was displayed on the Kiva Web site to the time it was
fully funded (or the date study closed). Thus, loans funded within 24 hours of their release
had a value less than 1, and those taking longer than 24 hours to fund had a value greater
than 1.
To provide an additional measure of venture performance, we also created two
additional variables related to loan repayment: whether or not the loan was repaid, and
how long it took to repay the loan. As with the funding performance measures, we created
a dichotomous variable and a continuous variable for repayment.

Independent and Control Variables

We use generalizable measures of EO and VO that utilizes a rare analysis technique
in microfinance research, namely computerized textual analysis of organizational narra-
tives. Content analysis, a qualitative method that classifies or categorizes communica-
tions, allows for contextual inferences that other methods do not (Krippendorff, 2004;
Weber, 1990). It is often used to explore issues of significance to management scholars
that are difficult to examine (Carley, 1997; Woodrum, 1984). Content analysis is often
applied to organizational narratives such as annual reports, letters to shareholders, and
organizational mission statements (e.g., Duriau, Reger, & Pfarrer, 2007; Moss, Short,
Payne, & Lumpkin, 2011; Palmer & Short, 2008).
While there are many content analysis techniques, in this paper, we use LIWC
(Linguistics Inquiry and Word Count), a computer-assisted text analysis program, to
examine loan descriptions (e.g., Pennebaker, Francis, & Booth, 2001). Loan descriptions
are a vital narrative for ventures seeking funding through Kiva and provide a generalizable
data source. LIWC has been used in content analysis studies in many contexts such as
customer service interactions (King, Shapiro, Hebl, Singletary, & Turner, 2006), negotia-
tions (Olekalns & Smith, 2009), newspaper and magazine articles (Humphreys, 2010;
Pfarrer, Pollock, & Rindova, 2010), and shareholder letters (Yadav, Prabhu, & Chandy,
2007). LIWC allows users to create custom dictionaries, which makes it ideal for use in
the present study. LIWC also provides standardized output to control for narrative length,
since longer narratives could naturally contain more instances of a specific type of
language.

EO and VO. To improve the construct validity of analysis, we used dictionaries employed
in previous studies. Doing so also serves to improve the generalizability of those diction-
aries as they are applied to additional contexts. First, we used validated measures to
explore the dimensions of VO (conscientiousness, courage, empathy, integrity, warmth,
and 0 zeal) (Payne et al., 2011; see article for complete word list). Examples of words used

38 ENTREPRENEURSHIP THEORY and PRACTICE

in these dictionaries include confident and prepared (conscientiousness), competent and
strong (courage), compassionate and patient (empathy), honest and sincere (integrity),
gracious and pleasant (warmth), and eager and passionate (zeal).1
Next, we also used the dictionaries created by Short, Payne, Brigham, Lumpkin,
and Broberg (2009) in which they gauged the extent to which chief executive officers
used entrepreneurial language in their letters to shareholders (see article for complete
word list). Their dictionary has also been used to gauge entrepreneurial language used
in mission statements of social and commercial ventures (Moss et al., 2011). We measured
all five EO dimensions (autonomy, competitive aggressiveness, innovativeness,
proactiveness, and risk taking) used in the loan narratives. We examined each EO dimen-
sion individually (Lumpkin & Dess, 1996) as the dimensions were conceptualized as
independent constructs. Examples of the types of words used in each dimension include
independence and do-it-yourself (autonomy), ambitious and intensive (competitive
aggressiveness), creativity and initiative (innovativeness), explore and prospect
(proactiveness), and bold and enterprising (risk taking). We follow Covin and Wales’s
(2012) recommendation to model the five EO dimensions as independent constructs when
using computer-assisted text analysis in conjunction with Lumpkin and Dess’s concep-
tualization, thus matching the theory with our methods.

Control Variables. We also included a number of control variables that could be expected
to influence the results, as has been done in other studies using Kiva data (e.g., Allison
et al., 2013; Galak et al., 2011). We included a dummy variable for year to account for
differences in loan-funding rates over time, as well as continuous variables for gross
domestic product per capita and infant mortality rate to account for individual country-
level effects. We controlled for loan size, since larger loans could be expected to take
longer to fund/repay, or even to not be funded/repaid at all. Since Kiva administers its
loans through over 160 MFI partners, who have different creditworthiness levels, we used
Kiva’s 5-star risk rating (with 0.5 star increments) to control for the effect of MFI partner
on loan funding. Kiva also provides the sex of the venture’s leader, or in the case of a
group loan, the sex of the person leading the group seeking a loan. We thus created
a dummy variable for sex: female (1) and male (0). Finally, since Kiva users may have
different preferences in loaning money to individuals or groups, we created a dummy
variable for a group loan (1) or individual loan (0).

Analysis
We use a Cox proportional hazards model (Cox, 1972) to model our hypotheses. This
analysis method is used to estimate the probability of an event occurring given the values
of the independent variables (Spruance, Reid, Grace, & Samore, 2004). In most cases,
when studying the length of time for an event to occur, the final state of some cases remain
unknown at the end of the study. Using ordinary least squares regression with this type of
data may result in significant bias (Spruance et al.). The usefulness of the Cox propor-
tional hazards model is thus its ability to account for biases that could arise due to data
censoring at the study’s end (right censoring). The Cox proportional hazards model
accounts for right censoring in our study by estimating the impact of the independent

1. Both the EO and VO dictionaries in the literature contain phrases, such as jockey for position (EO:
competitive aggressiveness). Since LIWC is not capable of detecting phrases, we hyphenated the phrases (i.e.,
jockey-for-position) to retain as much construct validity as possible given our analysis tools.

January, 2015 39
variables on the probability of the dependent variable occurring (e.g., funded or not).
None of the cases in our sample began to seek funding prior to the beginning of our study;
as such, our data are not left censored. The nature of Kiva’s funding process also
eliminates the possibility of random censoring due to dropouts in that the loan has already
been made once the funding request is released.
The output of the Cox models are exponentiated beta values (eβ), which specify the
effect that each independent variable has on the rate and probability of the event happen-
ing. In our study, eβ greater than 1.0 suggest that the variable increases the probability of
funding, while eβ less than 1.0 suggest that it decreases the probability of funding.
Exponentiated betas also signify that the event is likely to occur sooner for eβ values
greater than one and later for eβ values less than one (Spruance et al., 2004). Cox hazard
models have been used in marketing research on microlending where the similarity of the
borrower to the lender was used to predict time to funding (Galak et al., 2011), and in
microlending studies, examining political discourse used to influence venture funding
(Allison et al., 2013).

Results

Table 1 presents the descriptive statistics and correlations for our sample of loans.
All correlations between the variables representing language used in the loan were 0.10
or less, suggesting that each variable measures distinct language elements. Combs (2010)
recommends that studies employing large data sets report effect size, and given our sample
size, statistical power of 0.80, and significance of 0.001, the effect size is 0.0007. We
highlight the practical significance of our results in the Discussion section.
We conducted the Cox hazard models in steps as reported in Tables 2 and 3, to gauge
whether or not the loans reached funded status and whether or not the loans were repaid.
Control variables were entered in Model 1, followed by the independent variables in
Models 2 and 3. Given small effect sizes, Combs (2010) suggests reporting standardized
coefficients so that the relative magnitude of the coefficients can be assessed by the reader.
The eβ coefficients in the Cox hazard proportion model are standardized for the indepen-
dent variables.
We found contrasting findings for Hypothesis 1, which proposed that ventures sig-
naling the six dimensions of VO would be more likely to be funded. Results for consci-
entiousness (eβ = 0.99, p < 0.05), courage (eβ = 0.99, p < 0.01), empathy (eβ = 0.99,
p < 0.05), and warmth (eβ = 0.99, p < 0.05) were significant and in the opposite direction
as hypothesized, while integrity and zeal were not significant. Ventures in our sample were
less likely to be funded if they signaled conscientiousness, courage, empathy, or warmth.
We also found contrasting results for Hypothesis 2, which was significant in the
opposite direction for four out of the six VO dimensions: conscientiousness (eβ = 0.98,
p < 0.001), courage (eβ = 0.99, p < 0.001), warmth (eβ = 0.99, p < 0.01), and zeal
(eβ = 0.97, p < 0.001). Results for empathy and integrity were not significant. Contrary to
our hypothesis, this finding supports the idea that ventures that signaled conscientious-
ness, courage, warmth, or zeal are less likely to repay their loans, and when they do repay
them, the loans tend to be repaid less quickly.
Hypothesis 3 suggested that the extent to which microenterprises signaled the five
dimensions of an EO would be positively associated with likelihood of being funded.
This hypothesis was supported for three out of the five EO dimensions: autonomy
(eβ = 1.03, p < 0.01), competitive aggressiveness (eβ = 1.02, p < 0.01), and risk taking
(eβ = 1.02, p < 0.05). Innovativeness and proactiveness were not supported.

40 ENTREPRENEURSHIP THEORY and PRACTICE

 Table 1

January, 2015
Descriptive Statistics and Correlations (N = 407,716)

Variable Mean SD 1 2 3 4 5 6 7 8 9 10 11

1 Funded Y/N 0.98 0.14

2 2006 0.00 0.03 0.00*
3 2007 0.03 0.17 0.02*** −0.01***
4 2008 0.09 0.28 0.04*** −0.01*** −0.05***
5 2009 0.16 0.36 0.05*** −0.01*** −0.07*** −0.13***
6 2010 0.20 0.40 0.06*** −0.01*** −0.09*** −0.15*** −0.22***
7 2011 0.27 0.44 0.08*** −0.02*** −0.10*** −0.19*** −0.26*** −0.30***
8 2012 0.26 0.44 0.21*** −0.02*** −0.10*** −0.18*** −0.26*** −0.30*** −0.36***
9 Loan amount 792.44 788.15 −0.10*** 0.00* −0.03*** −0.01*** −0.05*** −0.02*** 0.01*** 0.07***
10 Infant mortality 33.71 19.23 0.03*** 0.01*** 0.01*** 0.03*** −0.01*** −0.00* −0.01*** −0.00 0.04***
11 GDP per capita 5,070.24 4,084.73 −0.02*** 0.01*** 0.03*** 0.02*** 0.01*** −0.01*** 0.01*** −0.04*** 0.21*** −0.59***
12 NGO risk 3.26 0.84 −0.03*** −0.01*** −0.01*** −0.02*** −0.03*** −0.03*** 0.02*** 0.05*** 0.10*** −0.20*** 0.16***
13 Sex 0.27 0.44 −0.09*** 0.01*** −0.02*** −0.03*** −0.04*** −0.00* 0.04*** 0.03*** 0.07*** 0.01*** 0.05***
14 Group 0.12 0.32 0.02*** −0.01*** −0.05*** 0.03*** −0.01*** 0.01*** −0.01*** 0.01*** 0.46*** 0.24*** −0.08***
15 Autonomy 0.02 0.13 −0.00 −0.00 −0.01*** −0.01*** −0.00*** 0.01*** 0.00 0.01*** 0.00 0.00 −0.00
16 Competitive aggressiveness 0.08 0.25 −0.00 −0.01*** −0.04*** −0.08*** −0.03*** 0.05*** 0.04*** 0.01*** −0.00 0.00 −0.01***
17 Innovativeness 0.09 0.29 −0.01*** −0.00* −0.04*** −0.06*** −0.02*** −0.02*** 0.04*** 0.05*** 0.00*** −0.00* −0.00
18 Proactiveness 0.05 0.20 −0.01*** −0.00*** −0.03*** −0.03*** −0.00*** 0.01*** 0.00 0.02*** 0.00 0.00 −0.01***
19 Risk taking 0.03 0.15 −0.00 −0.00 −0.02*** −0.04*** −0.01*** 0.02*** 0.01*** 0.01*** 0.00 −0.00* 0.00
20 Conscientious 0.16 0.38 −0.01*** 0.00 −0.02*** −0.02*** −0.02*** −0.00* 0.01*** 0.03*** 0.00*** −0.00 0.00
21 Courage 0.38 0.60 −0.01*** −0.00 −0.04*** −0.07*** 0.03*** 0.00 −0.00 0.03*** 0.00*** −0.00* 0.00
22 Empathy 0.11 0.32 −0.01*** −0.01*** −0.03*** −0.05*** −0.00* 0.02*** −0.01*** 0.03**** 0.00 0.00 −0.01***
23 Integrity 0.08 0.27 0.01*** 0.00 −0.02*** −0.04*** 0.02*** 0.03*** −0.00 −0.01*** 0.00 −0.01*** 0.01***
24 Warmth 0.19 0.43 −0.01*** −0.00 −0.02*** −0.06*** −0.04*** −0.02*** 0.03*** 0.06*** 0.01*** −0.00 −0.00*
25 Zeal 0.07 0.24 0.00 0.00* −0.01*** −0.02*** 0.01*** 0.03*** −0.00 −0.01*** 0.00 −0.00 0.00

41
42
Table 1

Continued

Variable 12 13 14 15 16 17 18 19 20 21 22 23 24

1 Funded Y/N
2 2006
3 2007
4 2008
5 2009
6 2010
7 2011
8 2012
9 Loan amount
10 Infant mortality
11 GDP per capita
12 NGO risk
13 Sex 0.04***
14 Group −0.10*** −0.14***
15 Autonomy −0.00 0.00 0.00
16 Competitive aggressiveness 0.00 0.01*** −0.00 −0.00
17 Innovativeness 0.01*** 0.01*** 0.00 0.04*** 0.00*
18 Proactiveness −0.00 0.00 0.00 0.00 0.03*** 0.02***
19 Risk taking 0.00 0.00 0.00 0.00 0.06*** 0.00*** 0.03***
20 Conscientious 0.00 0.00 0.00 0.02*** −0.02*** 0.02*** 0.00 0.00*
21 Courage 0.00 0.00* 0.00 0.03*** 0.01*** 0.07*** 0.02*** −0.00 0.05***
22 Empathy 0.00 0.00 −0.00 −0.01*** 0.10*** −0.04*** 0.02*** 0.02*** 0.03*** −0.03***
23 Integrity −0.00 −0.00 0.00 0.04*** 0.01*** 0.02*** 0.00* 0.02*** 0.06*** 0.04*** −0.00
24 Warmth 0.00 0.00* 0.01*** 0.01*** −0.01*** 0.03*** 0.03*** −0.00 0.08*** 0.10*** 0.02*** 0.04***
25 Zeal −0.00 −0.00 0.00* 0.01*** −0.00 0.02*** 0.01*** 0.01*** 0.04*** 0.01*** 0.02*** 0.00* 0.03***

* p < 0.05; ** p < 0.01; *** p < 0.001

GDP, gross domestic product; NGO, nongovernmental organization; SD, standard deviation.

ENTREPRENEURSHIP THEORY and PRACTICE

Table 2

Cox Proportional Hazard Model for Loan Funding (N = 403,445)

Variable Model 1 Model 2 Model 3

Control variables†
2006 1.74*** 1.75*** 1.74***
2007 3.56*** 3.57*** 3.56***
2008 2.10*** 2.10*** 2.09***
2009 1.96*** 1.96*** 1.95***
2010 1.85*** 1.85*** 1.84***
2011 1.39*** 1.39*** 1.39***
Loan amount 1.00*** 1.00*** 1.00***
Infant mortality 1.01*** 1.01*** 1.01***
GDP per capita 1.00*** 1.00*** 1.00***
Partner MFI risk 0.98*** 0.98*** 0.98***
Sex 1.76*** 1.76*** 1.76***
Group 0.91*** 0.91*** 0.91***
Independent variables
Autonomy 1.03**
Competitive aggressiveness 1.02**
Innovativeness 1.00
Proactiveness 1.00
Risk taking 1.02*
Conscientiousness 0.99*
Courage 0.99**
Empathy 0.99*
Integrity 1.00
Warmth 0.99*
Zeal 1.01
Model χ2 94,627.61*** 94,642.02*** 94,647.65***
Δχ2 17.80** 20.63**
df 12 17 18

* p < 0.05; ** p < 0.01; *** p < 0.001

†
Year 2012 excluded from analysis due to collinearity.
df, degrees of freedom; GDP, gross domestic product; MFI, microfinance institution.

Finally, with regard to EO dimensions and repayment, Hypothesis 4 was not sup-
ported. Four of the five EO dimensions were not significant, with proactiveness being the
only dimension that was significant, but in the opposite direction hypothesized (eβ = 0.97,
p < 0.001). Ventures signaling high levels of proactiveness in their loan descriptions are
less likely to repay their loans, with nonsignificant results for the dimensions of autonomy,
competitive aggressiveness, innovativeness, and risk taking.

Discussion and Conclusion

Financing new ventures is an extremely important yet challenging component of

the entrepreneurial process (Aldrich & Ruef, 2006; Cassar, 2004). Microfinance repre-
sents an important tool to assist microenterprises in their growth (Bruton et al., 2011;
Khavul, 2010). In recent years, crowdfunding sources such as Kiva have served as an
increasingly popular medium to assist in the funding and growth of these ventures

January, 2015 43
Table 3

Cox Proportional Hazard Model for Loan Repayment (N = 403,419)

Variable Model 1 Model 2 Model 3

Control variables†
2006 2.91*** 2.91*** 2.91***
2007 4.16*** 4.16*** 4.15***
2008 4.51*** 4.50*** 4.49***
2009 2.40*** 2.40*** 2.40***
2010 1.43*** 1.43*** 1.43***
2011 1.41*** 1.41*** 1.41***
Loan amount 1.00*** 1.00*** 1.00***
Infant mortality 1.00** 1.00** 1.00**
GDP per capita 1.00*** 1.00*** 1.00***
Partner MFI risk 1.03*** 1.03*** 1.03***
Sex 1.36*** 1.36*** 1.36***
Group 0.87*** 0.87*** 0.87***
Independent variables
Autonomy 0.99
Competitive aggressiveness 1.00
Innovativeness 1.00
Proactiveness 0.97***
Risk taking 1.01
Conscientiousness 0.98***
Courage 0.99***
Empathy 1.00
Integrity 1.00
Warmth 0.99**
Zeal 0.97***
Model χ2 92,947.99*** 92,960.70*** 93,009.03***
Δχ2 14.23* 63.15***
df 12 17 18

* p < 0.05; ** p < 0.01; *** p < 0.001

†
Year 2012 excluded from analysis due to collinearity.
df, degree of freedom; GDP, gross domestic product; MFI, microfinance institution.

worldwide. Management scholars are only at the beginning phases of analyzing different
components of these phenomena (e.g., Allison et al., 2013; Galak et al., 2011). This study
provides further insight into how different organizational characteristics and the rhetoric
in entrepreneurial narratives influence both the financing of microenterprises as well as the
repayment of this funding.
Specifically, this study makes five contributions to the microfinance and micro-
enterprise literatures. First, it extends signaling theory to microfinance and strengthens the
signaling literature regarding the importance of signaling under conditions of information
asymmetry. Second, it adds to the microfinance literature by highlighting venture char-
acteristics that influence lenders’ assessment of the venture, and the likelihood and speed
with which microloans are funded and repaid. Third, it advances work on VO and EO by
suggesting that certain dimensions of these orientations can influence the perceptions
and actions of microlenders, as well as the performance of microborrowers. Fourth, it
contributes to the social entrepreneurship literature by establishing a distinction between
microfinance and other types of social financing. Finally, the study builds on other studies
using computer-assisted textual analysis to study a variety of organizational constructs in

44 ENTREPRENEURSHIP THEORY and PRACTICE

a microenterprise context. We expand on each of these contributions and our results below,
as well as discuss the study’s limitations and highlight opportunities for future research.
Signaling theory provides a logic in which to situate our findings, suggesting that Kiva
lenders are more likely to fund ventures that signal autonomy, competitive aggressiveness,
and risk taking. These same lenders are less likely to fund ventures that signal cons-
cientiousness, courage, empathy, or warmth. While prior research suggests that a strong
VO creates a positive impression for stakeholders and reduces investor uncertainty
(Fiol, Hatch, & Golden-Biddle, 1998; Payne et al., 2011, 2013), our study suggests these
characteristics do not create the same impression in the minds of microlenders. This
finding contributes to double bottom line research (Clark, Rosenzweig, Long, & Olsen,
2004; Emerson, 2003) that for investors focusing on the microfinance sector, signaling
certain competitive or an economic characteristic is more important than emphasizing
characteristics related to trust and ethics. In the case of microfinance, uncertainty associ-
ated with competitive behavioral intention (i.e., EO) might be more meaningful than
uncertainty associated with characteristics (i.e, VO). This might be due to the fact that
microlenders do not expect a return on their investment, which might make rhetoric
signaling trust less important to their decision-making process. Given the lack of infor-
mation about the microenterprise available to investors—essentially limited to loan
descriptions on the Kiva Web site—our results show the impact that signaling can have on
loan funding and repayment.
At the same time, for prosocial lenders perhaps all microenterprises demonstrate
dimensions of virtuousness as these ventures are operated by “necessity entrepreneurs”
who engage in entrepreneurship as a means to survive, provide for their family, and
alleviate poverty (Khavul, 2010). Thus, microlenders may believe all microenterprises are
in essence ethical and virtuous in that they provide an income to the poor. Or at least, from
a signaling perspective, there might be more uncertainty surrounding microenter-
prises’ intentions than characteristics. Social investors, therefore, may prefer those
microenterprises that present themselves as more business-oriented, as arguably they
could have a greater social and economic impact.
This finding also suggests that microenterprises need to signal the business dimen-
sions of their venture in their narratives to social investors. Some of the narratives might
have been written to appeal to the social sentiments of social investors (signaling the
dimensions of VO) when they could have focused on the EO dimensions of the venture.
As suggested by Allison et al. (2013), narratives appealing to investors should be carefully
managed in order to improve chances of funding. Signals need to be strategically managed
(Austen-Smith & Banks, 2000) as the benefits, and opportunity costs, of different signals
must be considered. Future research could better assess who writes these narratives, with
what prompts, and how this varies from MFI to MFI.
Our findings also have implications for the VO and EO literatures. Rather than taking
a higher order approach to these constructs, our study examines their dimensions indi-
vidually. It is important to reiterate that the results are not significant for all dimensions of
these constructs. The preference for funding microenterprises that signal a higher EO and
lower VO is significant for all dimensions of EO except proactiveness and innovativeness
and for all dimensions of VO except integrity and zeal. This could be because these
microenterprises are led by necessity entrepreneurs who are not necessarily known for
their innovativeness or creativity or for their willingness to explore (proactiveness) or
for their zealousness (eagerness, passion). Rather, they seek to meet their basic needs
and those of their families (Kelley et al., 2011). Our study thus uncovers contextual
conditions under which certain VO and EO dimensions may or may not be important to
the performance of microenterprises.

January, 2015 45
 Relatedly, our results highlight the importance of the independent variance of the five
EO dimensions. The difference in how the EO dimensions affect funding versus repay-
ment in Kiva loans emphasizes this variance. Ventures on Kiva tend to be funded—and to
be funded more quickly—when they present themselves as having higher autonomy,
competitive aggressiveness, and risk taking. They also tend to not repay their loans—or to
do so more slowly—when they use language higher in proactiveness. These findings
highlight the need for further research into how EO dimensions vary in different contexts
since most studies present EO as a unitary construct (Rauch et al., 2009).
This study also contributes to the social entrepreneurship literature by providing a
rigorous quantitative study establishing a distinction between microfinance and other
types of social financing (Short, Moss, & Lumpkin, 2009). This study focuses on analyz-
ing the factors that influence investors to provide loans to microenterprises that are
underserved. Other studies in the social entrepreneurship space focus on analyzing dif-
ferent aspects of social finance or financing for people contributing to the social good
or engaged in socially valuable activities (e.g., Scarlata & Alemany, 2010). The micro-
enterprises that are the focus of this study concentrate on developing their own enterprise,
and in the process, they create varying degrees of economic and social value. Investors
supporting social entrepreneurs through social finance might give importance to different
characteristics as the primary purpose of these social entrepreneurs is to create social
good. Thus, this study contributes to the social entrepreneurship literature by focusing on
analyzing the factors that influence lending to and repayment by microenterprises that
operate in the developing world.
Finally, the study builds on other studies using computer-assisted textual analysis
to study a variety of organizational constructs in a microenterprise context. By analyz-
ing how a VO and EO of a microenterprise influences lenders’ decision making as
well as a microenterprise’s repayment, we use these constructs in a novel way. Assess-
ing VO and EO by content analyzing the narratives of microenterprises allows us to
assess the lending and repayment tendencies of a great number of microlenders and
microenterprises.
Like all studies, ours is not without its limitations. Our study can only draw conclusions
with the way the ventures present themselves; we cannot draw causal attributions
to actual venture behavior (Moss et al., 2011). Additionally, our analysis relies on word
counts from specific dictionaries, which creates the possibility of taking words out of
context or of missing the rich understanding available through using human coders (Duriau
et al., 2007). Yet despite these limitations, computer-assisted text analysis was required
to enable us to examine the hundreds of thousands of documents made available by Kiva.
Additionally, our use of the Kiva data set limits the generalizability of our findings
to crowdfunding microfinance solutions and may not be generalizable to other types of
venture financing, such as traditional bank loans, venture capital, and angel investors.
Finally, it is statistical fact that larger sample sizes are able to detect significant
relationships with smaller effect sizes, bringing the practical significance of the results
into question. Discussing the real-life impact of the results is therefore even more impor-
tant in such cases (Combs, 2010). At first glance, the eβ of the Cox regression results
seems close to 1.0—the point at which no effect is present. Yet practically speaking, even
a small change in the eβ in a sample size of over 400,000 has significant real-life
implications in the lives of microentrepreneurs. For example, the coefficient for
Autonomy in Table 2, Model 2 (eβ = 1.03, p < 0.01) suggests that for every incremental
use of the word “autonomy” (for every 100 words in the narrative), there is a 3% increase
in the likelihood of receiving funding. The same concept holds true for eβ values less than
1.0, meaning that for each incremental occurrence of a word in the narrative, there is less

46 ENTREPRENEURSHIP THEORY and PRACTICE

chance of being funded, or the loan being repaid. For example, in the case of zeal, (see
Zeal in Table 3, Model 3: eβ = 0.97, p < 0.001), each incremental use of a word related to
zeal will decrease the chance of repayment by 3%.
Building on the results of this study, we now discuss four specific areas for future
research.

(1) Microlender Characteristics. Future research should more thoroughly assess the role
of the lender in a crowdfunding platform. Previous studies suggest that lenders give on
Kiva to feel a warm glow or to feel good about themselves (Allison et al., 2013) and
that they make their funding decisions based on those that are more socially proximate
to themselves (Galak et al., 2011; Loewenstein & Small, 2007). Nevertheless, there
are many other aspects of the lender–borrower relationship that could be assessed.
Future studies can further analyze the relationship between lender characteristics and
those of borrowers. Are women more likely to lend to women or men? What stimu-
lates lenders to invest in more ventures? Do investing patterns change over time? Do
those who invest over longer time periods prefer certain types of ventures? Will these
lenders eventually seek a return on their investment in the form of interest or a share
in the venture or are they content as social investors?
(2) Crowdfunding Impact. Crowdfunding is a relatively new mechanism for micro-
enterprises to receive funding. Crowdfunding has been referred to as pass-through
microlending as an MFI acts as an agent between the prosocial lender/social investor
and the individual entrepreneur (Allison et al., 2013). Nevertheless, hundreds of
millions of dollars have been raised for microenterprises via crowdfunding Web sites
like Kiva. It would be interesting to better understand how this funding source and its
process impact both microentrepreneurs and the MFI serving as the back-office for
the loan. Do these investments really improve the economic and social value of the
MFI and the microenterprise? Has this funding mechanism impacted the develop-
ment of microenterprises and the overall alleviation of poverty? How do MFIs and
microenterprises interact with lenders?
(3) Global Differences. This study assesses VO and EO on a global scale. However,
perhaps some of these results vary by region or by institutional or cultural character-
istics of different countries. Future studies could look at these same hypotheses in
different regions. Lenders may also prefer to invest in different countries. What factors
influence the choice of which country a social investor chooses? How do institutional
pressures in different countries influence likelihood of funding and repayment?
(4) Microenterprises. This study focuses on the likelihood that microenterprises are
funded and they repay their loans based on VO and EO. However, there are many
elements of the microenterprises that could be further analyzed. We suggest that these
microenterprises are primarily composed of necessity-based entrepreneurs, but is
this really the case? Are some of these entrepreneurs more opportunity focused? In
addition, are these microenterprises equivalent to family firms? How could research on
family firms be applied to microenterprises? How many employees do these ventures
have and what are their growth plans?

We look forward to future studies that develop these questions. Although micro-
enterprises are a special category of business and Kiva/crowdfunding represents a differ-
ent type of investing, together they represent a large segment of the entrepreneurial
and financing populations. We present only a few areas in which research could be
conducted. We invite scholars to offer their own contributions to further our knowledge of
microfinancing.

January, 2015 47
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Todd W. Moss is an Assistant Professor of Entrepreneurship and Sustainability, Whitman School of Manage-
ment, Syracuse University, Syracuse, NY 13244, USA.

Donald O. Neubaum is an Associate Professor of Strategy and Entrepreneurship, College of Business, Oregon
State University, Corvallis, OR 97331, USA.

Moriah Meyskens is Instructor in Management in the Management Department, School of Business, Univer-
sity of San Diego, San Diego, CA 92110, USA.

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