Corporate governance and internal controls over financial reporting in Ugandan MFIs

Abstract

PurposeThe purpose of this paper is to investigate the relationship between corporate governance and internal controls over financial reporting (ICFR) of microfinance institutions (MFIs) in Uganda.Design/methodology/approachThis study was cross-sectional and correlational. In all, 70 Ugandan MFIs were surveyed and the data were analyzed using SPSS Version 20 to test the nine hypotheses which were put forward. The hypothesized relationships were tested using the ordinary least squares regression.FindingsThe findings based on multiple regression analysis suggest that board role performance, expertise and Association of Microfinance Institutions in Uganda (AMFIU) membership are significant predictors of the ICFR. However, board independence and separation of CEO and chairman roles are not significant predictors. The results also show that the firm-specific control variables (auditor type, size, accounting qualification and age) are also not significant.Research limitations/implicationsThis study has limitations in that it is cross-sectional, thus limiting monitoring changes in behavior over time and also because the effectiveness of the ICFR was assessed using perceptions.Practical implicationsEfforts by regulators and other stakeholders to improve the ICFR must focus on the corporate governance aspects such as board expertise and ensure that the board performs its roles.Originality/valueThe paper adds to the existing literature on the corporate governance and ICFR by documenting the relationship between the corporate governance and ICFR. The study complements the previous studies on the ICFR by demonstrating that board expertise and board role performance improve the ICFR. Such evidence does not currently exist. The findings also indicate that an MFI which is a member of AMFIU was found to have better ICFR supporting self-regulation.