Macro-Institutional Quality and Capital Structure in Microfinance Institutions: A Global Dynamic Panel System-GMM Analysis

Abstract:

Microfinance institutions (MFIs) operate in diverse institutional environments, but evidence on the relationship between national governance, financing choices and board composition remains inconclusive. This study examines whether institutional quality is associated with MFI capital structure and whether women's board representation moderates that association. It combines MIX Market financial and governance records with Worldwide Governance Indicators and World Development Indicators for 2010–2018. Dynamic relationships are estimated using collapsed two-step system GMM with Windmeijer-corrected standard errors, supported by alternative leverage measures and fixed-effects sensitivity checks. Aggregate institutional quality and its six governance dimensions show no statistically significant association with debt-to-equity in the main system-GMM estimates. The interaction between institutional quality and women's board representation is also insignificant. The debt-to-equity model produces an economically questionable adjustment estimate, while the borrowing model displays plausible persistence but fails important instrument-validity tests. A country-clustered fixed-effects estimate yields a negative institutional-quality association, demonstrating estimator sensitivity. The findings therefore do not establish a general institutional-quality effect on MFI financing. They underscore the importance of leverage measurement, sample composition and instrument diagnostics when assessing dynamic capital structure in microfinance.