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Previous studies on firm capital structure has established the competing determinants of firm capital structure, that is, firm-specific determinants and institutional-specific determinants. In the firm specific determinants, recent studies have focused in analysing the relationship between corporate governance mechanisms such as board of directors and firm capital structure. However, the directors in most studies are treated as a homogenous group without controlling for personal characteristics such as gender. Variations in these characteristics, and gender in particular, may be able to explain the difference financing choices among firms (Alves et al., 2015; Campbell and Vera, 2010).

Most of the research in the area of gender diversity on boards of directors focuses on profitability and, so far, there is no consensus in the literature on the relationship between female board representation and performance. Some studies find that board diversity leads to better performance while others find no such relationship (e.g., Carter et al., 2003; Huang and Kisgen, 2013; Gregory- Smith et al., 2014; Gulamhussen and Santa, 2015; Sila et al., 2016). Another strand of the literature looks at the determinants of boards appointing female directors. Firm risk is found to be one of the determinants of female board appointments. Adams and Ferreira (2004) find that firms with more volatile stock returns tend to have fewer female directors on their board. The authors explain these results with reference to Kanter's (1977) argument that group homogeneity (i.e., a male-dominated board) is essential in environments where uncertainty is high.

Similarly, Farrell and Hersch (2005) find that the probability of female director appointments is higher in less risky and better performing firms. The authors argue that female directors self-select into these firms due to demand for gender diversity. Farrell and Hersch (2005) also find that female directors are more likely to be appointed to boards with fewer female directors or to replace female

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directors on the board. Gregory-Smith et al. (2014) find similar results for UK firms. However, they cannot establish a relation between firm capital structure and the gender of directors being appointed. Overall, the results of both Farrell and Hersch (2005) and Gregory-Smith et al. (2014) confirm that neither a director's gender nor the proportion of female directors on the board are exogenous random variables, and that reverse causality is likely to be an issue when investigating the impact of gender diversity of non-financial firms.

Not only are the findings in sectors other than the microfinance sector inconclusive, Adam and Mehran, (2003) argue that financial firms differ from non-financial firms, and that the conclusion drawn for other sectors cannot be generalized for financial firms such as MFIs. Unlike non- financial firms, microfinance institutions nature of regulation, manner in which revenues are generated and risk management objectives generates novel challenges for corporate governance that justify focused attention (Strom et al., 2014; Mersland and Strom, 2009). Using the microfinance experience, we try to examine the effect of female directors on MFIs capital structure.

In the microfinance sector, results tend to show positive relationship between female directors and financial performance (Strom et al., 2014; Mersland and Strom, 2009). However, these studies are restricted to MFIs performance model. Little is known about the influence of female directors on MFIs capital structure. In fact, Tchuigoua (2014), investigates MFIs capital structure mix from an institutional perspective, but fail to cover the governance perspective. The study has highlighted that MFIs source their funding from various channels such as deposits, borrowings, equities and subsidies. This is where the role of female directors could have been very pertinent in attracting a

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particular type of funding3. Female directors on board could therefore be important determinants of MFI capital structure. To our knowledge, there is no study that links board gender diversity to capital structure in the microfinance sector.

Research on the institutional-specific determinants of MFIs capital structure across countries points to an important role factors such as creditor’s right and financial sector development in influencing MFIs capital structure (Tchuigoua, 2014, 2015; Bogan, 2012). Although this research has identified several empirical regularities, it suffers from erroneous assumptions, weak results and more importantly some econometric problems. For instance, study by Tchuigoua (2014) used a cross-country MFIs data from 66 countries and find that institutional factors affect MFIs capital structure. However, this study implicitly assumes that the impact of firm-specific factors on MFIs capital structure are the same across countries as observed in many previous non-MFI capital structure studies (Booth et al., 2001; Giannetti, 2003; Fan et al., 2012). The procedure of pooling firms from different countries into single regression model that contains both firm-specific and institutional-specific variables while the assuming that there are no differences across country. With a large number of observations, this process is more likely to produce a statistically significant result for most of their institutional-specific variables.

As an additional contribution to the paper by Tchuigoua (2014), we go a step further by decomposing our analysis into stages. In the first, we start by analysing the impact of firm-specific factors on MFIs capital structure on a country-by-country basis. Several empirical studies on non- MFIs have reported the estimated coefficients for firm-specific determinants of capital structure per country and have acknowledge the fact that firm-level determinants on capital structure does

3_{An anecdotal evidence suggest that female directors are instruments through which investors, donor agencies and other capital providers ensure}

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differ in terms of signs, magnitude and significance levels across countries (Booth et al., 2001; Gianetti, 2003; Fan et al., 2012). Most recently, de Jong et al., (2008), find that firm-level determinants of leverage do differ across countries. We build on this implicit assumption to show whether the impact of firm-specific factors on capital structure of MFIs does differ across countries.

Furthermore, the link between deposits and borrowing decision has not been investigated in the past. The joint determinants of deposit and borrowings is examined owing to the fact that they are examined independently in previous microfinance literatures (Tchuigoua, 2014; Bogan, 2012). While empirical studies on substitutability of financial asset employ the least squares method to analyse data (Mehran et al., 1999), a recent US study by Yan (2006) uses generalised method of moments (GMM) technique. With this method in place, a re-examination of Tchuigoua (2014) in presenting the microfinance evidence on the extent of deposit-borrowing substitutability relationship is warranted.

4.6. Summary

Based on the theoretical framework reviewed in chapter 2, this chapter presents a comprehensive literature review on the impact of institutional-specific determinants on MFI capital structure, including specific discussion on the direct and indirect impact of institutional-specific determinants. Detailed discussion on the joint determinants of MFI capital structure and the extent to which these financing choices (deposits and borrowings) are substitute or complement is presented. In the next chapter we present the research methodology used in this study.

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