Bahir Dar University

College of Business & Economics

Department of Accounting and Finance
PhD in Accounting and Finance.

Course Title: Advanced Finance Theory & Empirics

Article Reviewed: Capital structure and earnings quality in

Microfinance Institutions.

Submitted to: Tilahun Aemiro Tehulu (PhD), Assoc. Professor of Finance.

Reviewed and critiqued by: Abdinassir Ali Abdi.

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 Executive Summary.

This article entitled: Capital structure and earnings quality in microfinance institutions was
authored by Naima Lassoued, (2020). on Emerald Insight.

Governments, international donors, humanitarian organizations, and pension funds provide the
majority of the grants and debt that microfinance institutions rely on funding and lending to the
poor people. External funding improves financial inclusion because microfinance institutions
can expand the number of clients they serve and the range of financial products they offer. Fund
providers are unable to assess the profitability, risk, and capacity of microfinance institutions to
support their financial and social obligations due to a lack of trustworthy information.
Questions about the accuracy of financial information increased discussions about earnings
management. The goal of this study is to determine whether external financing has an impact on
how earnings are managed in microfinance institutions. This study is motivated by the lack of
research on earnings management of microfinance institutions and in particular the role of
external financing. Furthermore, Funding allocation would be improved by more transparency.
According to this research, when accounting information system is available, individual donors
are more likely to make a contribution to the nonprofit sector.

A sample of 3830 Microfinance Institutions (MFIs) a –year observations for 575 MFIs across 78
countries distributed across 6 different regions were used in this study. The author highlighted
that the dependent variable was the provisions for impairment loss (PIL) The independent
variables were factors related to the provisioning process of microfinance institutions. The
author used a two-step analysis to assess earnings management. The first glance, the author has
examined the part of the provision for loan impairment that is discretionary and takes into
account the expected loan loss, which may be highly subjective. The second glance, the author
has examined the effect of equity and debt on earnings management.

The result provides substantial support for the claim that debt and equity have an impact on
managing profitability. While debt has a negative impact on managing earnings, Finally,
Managers of microfinance Institutions are motivated to manage their earnings when they receive
external equity.

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Article Critique:

The Title: The title of the paper does not adequately address the problem statements, research
objectives, and research questions. Additionally, it is really challenging for the audience to
appreciate what the author may be trying to say with this study. However, there are many other
effective ways to display the title, and it should be well-equipped, well-organized, and ultimately
well-comprehensible to the audience.

The Abstract: The authors' abstract is sufficiently well-structured and well-documented to

include all necessary information, including the purpose, methods, and results. In my own
understanding, this study initially seems exceptional.

Introduction: There is too much material in the Introduction, which emphasizes the
significance of microfinance institutions Instead of outlining the study's problem statements and
research questions, the author has concentrated more on explaining and describing the reputation
of microfinance organizations. and that criticism is truly outstanding.

Literature Review: There is too much redundant (data) information in the literature review.
The biggest flaw in this study is that the author has been repeating what she said in the
introduction. the author has focused too much about earnings management and microfinance
Institutions instead of focusing the effects of debt and equity on discretions for loan
impairments. On the other hand, the author chooses a hypothesis that is already known to be
easily rejected, which makes the section on hypotheses quite weak for this study.

Data and Methodology: The main resources of data are from the Microfinance
Information exchange “MIX dataset” which is a web-based microfinance platform that provides
self-posted data on individual microfinance institutions but MixMarket closely monitors data
entry. The sample of 3830 MFI–year observations for 575 MFIs across 78 countries were used
this study. Unfortunately, the study suffers from the development of estimation procedures
including econometric techniques because the author did not engage some comprehensive
estimation techniques widely and comprehensively.

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Results and Discussions: The majority of the results have been presented using
descriptive statistics and a correlation matrix. As problem statements was not largely
investigated, the results will be narrowing in terms of theoretical framework and conceptual
framework of the study. The effects of debt and equity on loan impairment discretions should
have been the author's primary concern rather than earnings management and microfinance
institutions.

Conclusions and Implications: The author has taken more explanations and more
definitions what is all about Microfinance institutions (MFIs), She devotes a lot of energy to
discuss the significance, contributions, and achievements of microfinance institutions in fostering
economic growth, instead of focusing comprehensive investigation of her studies. She
emphasized the steps which Microfinance Institutions (MFIs) are gradually overcoming the
barriers. In critiquing, the conclusions are more limited in terms of the study's theoretical and
conceptual framework because the problem statements were not thoroughly presented.

Language: In the language of this article is rational and challenged when it comes the
scientific research papers.

Overall Evaluation: This article entitled: Capital structure and earnings quality in
microfinance institutions was authored by Naima Lassoued, (2020). on Emerald Insight. needs
some minor revision when it comes to the presenting of framework of the study.