"Legitimacy, Transparency, and Economic Performance Within the Microfinance Industry "

This paper examines a theoretical framework which suggests that financial performance (profit) of firms can be achieved through the voluntary adoption of legitimate practices. We explore this framework in the context of the microfinance industry by analyzing the adoption of a key legitimate practice in the field--the implementation of transparent financial reporting. Using archival records and a survey of top managers, we present a set of results that show a significant positive relationship between firm-level transparency and financial performance in both contemporaneous and lead-lag formulations. These findings suggest that in an organizational population with an intermediate level of legitimacy, firms that adopt legitimate practices are likely to outperform their peers.