International Journal of Social Science & Economic Research
Submit Paper

Title:
THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK

Authors:
VISEMIH WILLIAM MUFFEE (Ph.D)

|| ||

VISEMIH WILLIAM MUFFEE (Ph.D)
Higher Institute of Commerce and Management, The University of Bamenda, P.O. Box 39, Bambili, Bamenda, Cameroon

MLA 8
MUFFEE, VISEMIH WILLIAM. "THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK." Int. j. of Social Science and Economic Research, vol. 4, no. 7, July 2019, pp. 4849-4897, ijsser.org/more2019.php?id=371. Accessed July 2019.
APA
MUFFEE, V. (2019, July). THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK. Int. j. of Social Science and Economic Research, 4(7), 4849-4897. Retrieved from ijsser.org/more2019.php?id=371
Chicago
MUFFEE, VISEMIH WILLIAM. "THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK." Int. j. of Social Science and Economic Research 4, no. 7 (July 2019), 4849-4897. Accessed July, 2019. ijsser.org/more2019.php?id=371.

References
[1]. Abor, J. (2005). The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana. [Article]. Journal of Risk Finance (Emerald Group Publishing Limited), 6(5), 438-445. doi: 10.1108/15265940510633505
[2]. ADB. (2000). Finance for the Poor: Microfinance Development Strategy. ADB: Asia.
[3]. Ahlin, C. and Jiang, N. (2008). Can micro-credit bring development? Journal of Development Economics, Vol. 86 No. 1, pp. 1-21.
[4]. Akande, J.O. (2013). Is debt a Blessing or Curse? An Empirical Analysis of some Nigerian Firms. Journal of Business and Organizational Development, 5 (2), 74- 107.
[5]. Almendariz, B. and Labie, M, (2011). The Handbook of Microfinance. London, Singapore: world Bank Scientific Publishing.
[6]. Al-Taani, Khalaf. (2013). The relationship between capital structure and firm performance: evidence from Jordan. Journal of Finance and Accounting; 1(3), 41-45.
[7]. AMFI. (2014). 2014 Sector Report on Microfinance sector in Kenya . Transunion .
[8]. Basu, Anupam, Blavy, Rodolphe and Yulek, Murat (2004). Microfinance in Africa: Experience and Lessons from Selected African Countries. IMF Working Paper, African Department, 2004.
[9]. Baxter N. (1976). Leverage risk ruin and the cost of capital. Journal of Finance 22 September, 395 -403.
[10]. Baxter, N. D., and Cragg, J. G., (1970). Corporate Choice among Long-Term Financing Instruments. The Review of Economics and Statistics, 52(3):225-235
[11]. Berens, L. and Cuny, J. (1995). The Capital Structure Puzzle Revisited. Review of Financial Studies , vol. 8, issue 4, 1185-1208.
[12]. Berger, A. and di patti B., E. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance , vol. 30, issue 4, 1065-1102..
[13]. Berk, J., & DeMarzo, P. (2007). Corporate Finance. Boston: Pearson/Addison Wesley.
[14]. Bierman , H. (1999). Corporate Financial Strategy and Decision Making to Increase Shareholder Value. Frank J. Fabozzi Associates, Pennsylvania, USA
[15]. Boateng A. (2004). Determinants of capital structure: evidence from international joint ventures in Ghana. International Journal of Social Economics, Vol. 31, pp.56-66.
[16]. Brammers, S. and Millington, A (2005). Profit Maximisation vs. Agency: An analysis of charitable giving by UK firms. Cambridge journal of Economics, vol.29, no.4, pp.517-534
[17]. Brealey, R. A. and Myers, S. C. (1992). Principles of Corporate Finance, New York
[18]. Brealey, Richard and Myers, S.C. (2003); Principles of Corporate Finance, 7th Edition, McGraw Hill, London UK.
[19]. Brockington (1987). Dividend Policy in Perspective. Journal of Finance, Volume 42, Issue 4, Pages 889-911
[20]. Brockington, Raymond (1990). Financial Management, 1992 Edition, ELBS, London, UK
[21]. Buehler, Kevin S. and Pritsch, Gunnar (2003). Running with Risk, The McKinsey Quarterly, 2003, Number 4
[22]. CamCCUL (Cameroon Cooperative Credit Union League). (1993). CamCCUL Annual Report: Bamenda, Cameroon
[23]. CGAP. (2006). Annual Report .World Bank, Washington, DC, USA.
[24]. Charreaux, G. (1997). Corporate Governance Theories: From Micro Theories to National Systems Theories. Bourgogne.
[25]. Chinaemerem, O & Anthony, O, (2012). Impact of Capital Structure on the Financial Performance of Nigerian Firms. Arabian Journal of Business and Management Review, Vol 1 (12), pp 43-61.
[26]. Cornel, B. and Shapiro, A. C. (1987). Corporate stakeholder and corporate finance. Financial Management, vol.16, pp. 5-14.
[27]. Damodaran, A. (2016). Financial Inclusion: Issues and Challenges. Akgec International Journal Of Technology , Vol. 4, No. 2., p. 54-59
[28]. Damodaran, Aswath. (2001). Corporate Finance: Theory and Practice. 2nd edition, wiley, ISBN: 978-0-471-28332-4
[29]. David, F.D., & Olorunfemi, S. (2010). Capital Structure and Corporate Performance in Nigerian Petroleum Industry: Panel Data Analysis. Journal of Mathematics and Statistics, 6 (2), 168- 173.
[30]. Davis, R., Onumah, G. and Butterworth, R., (2004). Making rural finance work for the poor, DFID, unpublished mimeo, [Online] Available: http://dfid-agriculture-consultation.nri.org/pdf (April 25, 2017).
[31]. Desai, M.A., (1998). A multinational perspective on capital structure choice and internal capital markets. Havard , Harvard Business School.
[32]. Fosu, A. K. (2013) 'Growth of African Economies: Productivity, Policy Syndromes and the Importance of Institutions'. Journal of African Economies, 22 (4): 523-51.
[33]. Froot, K.A., Scharfstein, D.S. and Stein, J.C. (1993) Risk Management: Coordinating Corporate Investment and Financing Policies. The Journal of Finance, 48, 1629-1658. https://doi.org/10.1111/j.1540-6261.1993.tb05123.x
[34]. Graham, J.R., Harvey, C.R. (2001): The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243.
[35]. Graham, John. (1999). How Big Are the Tax Benefits of Debt?. The Journal of Finance. Volume54, Issue1 , Pages 237-268
[36]. Green, R. C. (1986). Positively Weighted Portfolios on the Minimum?Variance Frontier. Wiley .
[37]. Hart, S., L. (1995). A natural resource based view of the firm. Academy of Mgt review, vol. 20, no.4, pp.986-1014
[38]. Hartarska, V. (2005). Governance and Performance of Microfinance Organizations in Central and Eastern Europe and the Newly Independent States. World Development , 33(10):1627-1643.
[39]. Haugen, A. Robert and Senbet, W. Lemma. (1986). The Role of Options in the Resolution of Agency Problems: A Reply. The Journal of Finance , Volume 41, Issue 5, P.1091-1095.
[40]. Helms, Brigit. (2006). Access for All: Building Inclusive Financial Systems. Washington, DC: World Bank.
[41]. Hyvonen, J. (2007). Strategy, performance measurement techniques and information technology of the firm and their links to organizational performance. Management Accounting Research, 18 (3), pp. 343-366.
[42]. Ittner, C. D. (2008). Does measuring intangibles for management purposes improve performance? A review of the evidence. Accounting and business research, 38(3), 261-272.
[43]. Jensen F.E., Langemeier, L.N. (1996). Optimal leverage with risk aversion: Empirical Evidence. Agricultural Finance Review, Vol. 56, pp. 85-97.
[44]. Jensen, M.C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
[45]. Jensen, Michael C. and William H. Meckling (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3: 305-360.
[46]. Johnson, S. A., (1997). An Empirical Analysis of the Determinants of Corporate Debt Ownership Structure. Journal of Financial and Quantitative Analysis, Volume 32, pp. 47-69.
[47]. Joshi, D. P. (2011). Financial inclusion and financial literacy . India : Internship Report .
[48]. Kar, A. K. (2012). Does capital and financing structure have any relevance to the performance of microfinance institutions?. International Review of Applied Economics. 26 (3), 329-348.
[49]. Kenneth Kaoma Mwenda, Gerry Nkombo Muuka (2004). Towards best practices for micro finance institutional engagement in African rural areas: Selected cases and agenda for action, International Journal of Social Economics, Vol. 31 Issue: 1/2, pp.143-158, https://doi.org/10.1108/03068290410515475
[50]. Kerlinger, Fred N. (1973) Foundations of Behavioral Research. 2nd edition. Holt, Rinehart and Winston
[51]. kleindorfer, Paul R. and Saad,Germaine H. (2005). Managing Disruption Risks in Supply Chains. Production and Operations Management , Volume 14, Issue 1 .
[52]. Kochhar, R., (1997). Strategic assets, capital structure, and firm performance. Journal of Financial and Strategic Decisions, Vol.10, No3, pp.23-36.
[53]. Kyereboah-Coleman, A. (2007). The impact of capital structure on the performance of microfinance institutions [Article]. Journal of Risk Finance (Emerald Group Publishing Limited), 8(1), 56-71.
[54]. Kyereboah?Coleman, A. (2007). The impact of capital structure on the performance of microfinance institutions. The Journal of Risk Finance, Vol. 8 Issue: 1, pp.56-71, https://doi.org/10.1108/15265940710721082
[55]. Ledgerwood, J. 1999. Microfinance Handbook. An Institutional and Financial Perspective. Sustainable Banking with the Poor. Washington, DC: World Bank
[56]. Ledgerwood, J. and White, V. (2006). Transforming Microfinance Institutions Providing Full
[57]. Leland, H. E. and Toft, K. B. (1996). Optimal capital structure, endogenous bankruptcy, and the term structure of credit spreads. Journal of Finance, 51(3):987-1019.
[58]. Long M.S. and I.B. Malitz (1985). Investment Patterns and Financial Leverage, in Benjamin Friedman, ed. Corporate Capital Structure in the United States, University of Chicago Press,
[59]. Lopez, Victoria & Garcia, Arminda & Rodriguez, Lazaro. (2007). Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index. Journal of Business Ethics. 75. 285-300. 10.1007/s10551-006-9253-8.
[60]. MacKie-Mason, Jeffrey. (1990). Do Taxes Affect Corporate Financing Decisions?. Journal of Finance. 45(5):p.1471-1493.
[61]. Maina, L. & Kondongo, O. (2013). Capital Structure and Financial Performance in Kenya: Evidence from Firms Listed at the Nairobi Securities Exchange. Paper Presented at the Jomo Kenyatta University of Science and Technology Research Conference, Kenya.
[62]. Maroko, P.M. (2014). Influence of Capital Structure on Organizational Financial Performance. International Scientific Research Journal in Business and Management, 1(1), 25- 36.
[63]. Mayer, Colin and Sussman, Oren (2002). A New Test on Capital Structure, Said Business School, University of Oxford.
[64]. Miller, M. H., & Modigliani, F. (1966). Some estimates of the cost of the capital to the electric utility industry, 1954-1957. American Economic Review, 56, 333-391
[65]. Modigliani, F., Miller, M.H., (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review, vol. 53, No. 3, pp. 433-443.
[66]. Modigliani, Franco and Merton H. Miller. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 48:261-297.
[67]. Myers, Stewart C. (1977). Determinants of Corporate Borrowing. Journal of Financia1 Economics.November, 52, pp.147-75.
[68]. Nivorozhkin, E (2000). The Dynamics of Capital Structure in Transition Economies. Economics of Planning, Vol. 37, Number 1
[69]. Onaolapo, A.A. & Kajola, Sunday.O. (2010). Capital Structure and Firm Performance: Evidence from Nigeria. European Journal of Economics, Finance and Administrative Sciences, 25, 70- 82.
[70]. Orlitzky, M. (2011). Corporate social responsibility and sustainability education: A trans-Atlantic Comparism . Journal of Management Organisation , 17(5):583-603.
[71]. proxfin. (2016). Financial Inclusion: Leverage for Attaining the UN Sustainable Developments Goals. Quebec: Developpement International Desjardins (DID),.
[72]. Reilly, F. K., & Brown, K. C. (2003). Investment analysis and portfolio management. Mason, Ohio: South-Western/Thomson Learning.
[73]. Robinson, Marguerite S.; Fidler, Peter J. (2001). The microfinance revolution: sustainable finance for the poor (English). Washington DC; World Bank.
[74]. Shivastiva, P. (1995). The role of cooperation's in achieving ecological sustainability. Academy of management review, vol. 20, no. 4, pp. 936-960.
[75]. Shuetrim, G., Lowe, P. and Morling, S. (1993). The determinants of corporate leverage: A panel data analysis, RBA Research Discussion Papers 9313, Reserve Bank of Australia.
[76]. Shuetrim, Geoffrey and Lowe, Philip and Morling, Steve (1993); The Determinants of Corporate Leverage: A Panel Data Analysis, RBA Research Discussion Papers, RDP 9313
[77]. Silva, M. W. S. S. (2008). The effect of capital structure on microfinance institutions performance. Master's thesis, University of Agder, Kristiansand.
[78]. Spicer, B.H. (1978) Investors, Corporate Social Performance and Information Disclosure: An Empirical Study. Accounting Review, 53, 94-111.
[79]. Stewart C. Myers, Nicholas S. Majluf. (1984). Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have. Cambridge .
[80]. Timan, S. and Wessels, R. (1988).The Determinants of Capital Structure choice, Journal of Finance, 43, p. 1-19.
[81]. Warner, J. B. (1977). Bankruptcy Costs: Some Evidence. The Journal of Finance , Vol. 32, No. 2, Papers and Proceedings of the Thirty-Fifth Annual Meeting of the American Finance Association, Atlantic City, New Jersey, pp. 337-347.
[82]. Watkins, K. ( 2002,). Making Globalization Work for the Poor. Finance and development a quarterly magazine of the IMF , pp. Volume 39, Number 1.
[83]. Watkins, Thayer (2002), Leverage and the Risks to Shareholders and Bondholders, San Jose State University, Economics Department
[84]. WCED. (1987). Bruntland Report: Our Common Future. Bruntland : Worldbank Group.
[85]. World Bank . (2014). Global Financial Development Report: Financial Inclusion . Washington DC: world Bank group .
[86]. Yunus, M. (2003). Halving poverty by 2015-we can actually make it happen. Commonwealth Lecture, Commonwealth Institute, London, March 11.
[87]. Zahra, S. A. (1995). Corporate entrepreneurship and financial performance: The case of management leveraged buyouts. Journal of Business Venturing , vol. 10, issue 3, 225-247.
[88]. Zhu, Q., Sarkis, J., Lai, K. (2012). Green supply chain management innovation diffusion and it relationship to organizational improvement: An Ecological modernization perspective. Journal of engineering and technology management, vol.29, n.1, pp. 168-18.

Abstract:
The Microfinance sector is very important to any country's socio-economic development given the fundamental role it plays in financial inclusion. However, the sector has been facing numerous challenges which have threatened the survival and growth of the industry. It is based on this background that this research aimed at examining the extent to which capital structure affects the profitability of MFIs under the CamCCUL network was undertaken. The research adopted the Ex-post facto causal research design with main source of data being secondary data collected from the period of 2007-2015 using a sample of nine (9) credit unions selected from Fako Division. Using panel regression and specifically random effect regression to examine the effect on profitability measured by Return on Assets (ROA) of equity and debt capital alongside membership and liquidity, the study found that for the selected credit unions, both forms of capital negatively affect their profitability. However, we found that whereas the effect of debt capital on profitability is significant, that of equity was insignificant. Overall, we found that debt capital, equity, liquidity and membership accounted for only 37.9% of the total variation in the profitability (ROA) of the selected credit unions. Hence, it is recommended that the choice of debt as a source of capital finance should be done in line with the costs and benefits associated with its use because any change to the capital structure is likely to provoke some form of market reaction. Therefore, it is necessary to determine how any change e.g raising more debts will be perceived by shareholders, lenders and rating agencies. Strategies should be put in place for monitoring, reporting and reviewing liquidity levels to ensure the long and short term stability of the entire system. The gearing ratio should also be calculated to be able to know whether the credit unions are highly leveraged or not and this will enable them know the best option to maximize. It shows that high debt credit unions perform less than low debt credit unions. The difficult objective is therefore to find that capital structure that satisfies all parties and offers the best tradeoff between capital cost, financial needs, bankruptcy risks, and market perceptions.