Normativa de la aplicación de las NIIF´s en Empresas de

The four theories (agency, bureaucracy, accountability and performance management) explained in this chapter, are all relevant to this study in various ways. Each theory provides a theoretical basis for the analysis of each category of indicators. However, they were not all used in the analysis of the activities in the entities indicated. Instead, the performance management theory was used as it encompasses most of the aspects of the study.

In addressing the key question, ‘are DFIs succeeding in creating viable businesses that are sustainable and able to create jobs that lead to economic growth and development?’, three key focus areas emerged, namely: financial sustainability, performance, and governance of the DFIs. The purpose of the literature review was to re-visit existing knowledge on the effectiveness of DFIs in South Africa and to find a theoretical basis for this study. Relevant theories were therefore identified for each of the focus areas as discussed in the preceding pages and summarised in Table 2.2.

Table 2.2: Summary of theories applied

Agency Theory Accountability Theory Bureaucracy Theory Performance Management Theory Are the DFIs

pursuing their mandates?

Is there a need to account for DFIs?

Are the entities susceptible to bureaucracy like government departments?

Are the DFIs achieving their performance targets and overall objectives, such as job creation and growth?

Is the funding utilised for its intended purpose?

Do entities account to shareholders /

stakeholders accordingly?

Why government formed entities outside the public service?

Performance and reporting culture, are the funding criteria adhered to? What is the nature of the relationship between MECs and boards? Accounting is part of governance. DFIs should account to government

Is bureaucracy bad for DFIs? Which aspects are good, which ones are bad?

Number and nature of businesses funded each year

What if the agent

is right? Repayments rates

Are the DFIs financially sustainable?

Table 2.2 shows how in reviewing the governance arrangement of the DFIs, the agency theory and accountability theories were found to be relevant. While both these theories have limitations, they provided an acceptable perspective for the analysis of the relations within DFIs, given that DFIs in South Africa are owned by the government through different departments, and government is seen as the principal while the DFIs are the agents of government. They are required to execute the government mandate of growing the economy through financing high-risk projects with a social return. At the same time, the amount of resources channelled through these DFIs by government requires that some form of accountability be maintained for good governance purposes. The two theories provided a foundation for the study to explore the effectiveness of DFIs.

Exploring the effectiveness of the DFIs could not be accomplished without a detailed review of the operations and performance standards of DFIs. For this area, performance management theory, with a specific focus on performance indicators and performance targets, was used as the basis for the review in order to come up with an opinion on the performance of DFIs. Financial sustainability of DFIs is closely related to effectiveness, and therefore the bureaucracy theory provided the basis for engaging with the DFI environment compared to that of government departments.

Figure 2.8: Linking focus areas of the study to the theories

When DFIs are governed with a certain set of rules wherein each stakeholder fulfils its role, it is likely that DFIs will be effective. From the accountability theory, the need and the reasons for DFIs to account are clearly stated as well as the role of governance structures in enhancing effectiveness. The bureaucracy theory explains why some DFIs manage to reach financial sustainability while others struggle to do so. The different interpretations and implementation of policies, rules and regulations and lack of innovation talk to the different levels of adherence to bureaucratic structures. The performance management theory assisted in finding a theoretical basis for the stance of DFIs in setting performance standards, targets and indicators, and how the achievement of such targets contribute to the attainment of the DFIs’ objectives.

Effectiveness of DFIs Leadership & management: Performance Management Theory Financial sustainability: Bureaucracy Theory Governance: Accountability Theory & Agency

Table 2.3: Key concepts defining effectiveness emerging from the theories

No. Key concept The relevance of the concept

1. Governance

The literature reflects that weak governance led to the failure of most DFIs in world, particularly in under-developed countries. All the DFIs surveyed complied with their reporting requirements, they submitted quarterly reports to the shareholders, tabled to Parliament and published their annual reports. However, the content of their reports could not always be verified to have supporting documents for validation and accuracy verification. Integrity in the reporting requires attention. This reflects negatively on both leadership and governance arrangements within DFIs. The ethics in reporting to the stakeholders becomes a governance issue.

2. Financial

management

The value for money concept, also central to this study, was defined by efficiency (achievement of objectives within allocated budgets) and economy (quality of spending) in the spending by the DFIs. The management of funds for disbursements or the maintenance of the DFIs plays a key role in ensuring their effectiveness.

3. Leadership and management

i) Performance indicators must reflect organisational goals and must be key to its success (Parmenter, 2010); and

ii) There is a weak correlation between performance indicators and performance itself (Meyer and Gupta, 1994).

From the data collected, not all DFIs had managed to define performance indicators accurately to indicate their actual level of performance, hence, Meyer and Gupta (1994) are correct in their analysis of a weak correlation between indicators and actual performance.

Figure 2.9 shows an integration of the theoretical consideration, conceptual framework and the findings.

Chapter 3: Research Methodology