Firm size and performance: an econometric analysis of the financial performance of deposit taking microfinance institutions in Kenya

Abstract

Firm size has been a dominant control variable in most cost finance studies involving organizational performance where it has been used as proxy for corporate competitiveness. However, its isolated effect on performance has been ignored. Resource Based View theory and Efficient Structure hypothesis has anticipated its contribution to performance by proposing a beneficial link between size and organizational. This notwithstanding, empirical evidence on the effect of firm size on performance is mixed. On this basis, therefore, this paper investigates the effect of firm size on the financial performance of deposit taking microfinance institutions in Kenya using both a static and a dynamic panel data model. The study has secondary data over the period 2011 to 2018 on six institutions. On the static model the study finds a positive influence of total assets on financial performance while customers’ deposits did not significantly influence financial performance. On a dynamic model, the study finds a significant positive influence of one year lagged financial performance on the contemporaneous financial performance of deposit taking microfinance institutions.