160 Finance dissertation on gender diversity and profitability of commercial bank in Vietnam,Master''''s Thesis

⅞1 ∣a UWE Dissertation submitted in partial fulfillment of the Bristol I niversip of the U Requirement for the MSc in Finance FINANCE DISSERTATION ON GENDER DIVERSITY AND PROFITABILITY OF COMMERCIAL BANK IN VIETNAM NAME OF STUDENT: NGUYEN NGOC TRAM ID No: 17047734 Intake Supervisor: Dr Pham Chi Quang ħ i -W Abstract This research examines the effects of gender diversity in the board of directors of a large sample of commercial banks in Vietnam on their financial performance, measured by return on equity (ROE) and return on assets (ROA) The empirical analysis is conducted via descriptive statistics, correlation matrix and analysis of multivariate regression in order to answer the research question: What is influence of women presence in board on profitability of commercial banks in Vietnam? This research is highly structured and quantitative in nature, using the data collected from largest banks in the Vietnamese banking system in period from 2013 to 2017, with data related to the board of director being extracted from the annual reports for all commercial banks listed on both HNX and HOSE, while data related to dividend payment and bank-specific characteristics were extracted from the published financial reports by banks The research findings show that there was positive relationship between woman in board and performance of commercial banks in Vietnam, although the influence could not cover both return on assets and return on equity Acknowledgement This research is completed successfully thanks to the contributions from the following people; Firstly, I owe my deepest gratitude to my supervisor for all of his dedication and enthusiasm in giving me detailed and constructive feedback so that I can improve the quality of my research I would also like to extend my sincere thanks to my colleagues and lecturers in the University who inspired and equipped me sufficient research skills to conduct this study, Last but not least, I would love to thanks my parents for their unconditional love and support Table of Contents Abstract Acknowledgement Chapter Introduction 1.1 Research background 1.2 Research rationale, motivation andcontribution 1.3 Research purpose, questionandstatementof research objectives 1.4 Research structure Chapter Literature Review 10 2.1 Boards and Board composition 10 2.2 Board effectiveness 10 2.3 Board composition and Bank performance 11 2.4 Board gender diversity and financial performance 12 2.5 Bank financial performance and measurement 13 2.6 The role of gender diversity and its effect on performance: Evidence 14 2.7 Female in board and bank performance 18 2.8 Literature gaps and hypotheses development 20 Chapter Methodology 22 3.1 Type of research 22 3.2 Research philosophy 24 3.3 Research approach 24 3.4 Research design 25 3.5 Data collection method 25 3.6 Variables Definition 26 Gender diversity measurement .26 Bank performance measurement 26 Chapter Research result analysis 28 4.1 Descriptive Statistics 28 4.2 Correlation Analysis 29 4.3 Discussion of the Findings 30 Chapter Result discussion 32 Chapter Conclusion and recommendation 33 6.1 Summary of the research 33 6.2 Summary of the main empirical findings andimplications 34 6.3 Policy recommendations 35 6.4 Research limitations and suggestions for futurestudies 35 References 36 Appendices 42 Chapter 1.1 Introduction Research background Director board is one of the most internal governance mechanisms helping organizations to be effectively directed and controlled so that they can maximize shareholder’s wealth Classical theorists of corporate governance therefore emphasized the increasing importance of the corporate board seeking to provide managerial oversight and control to deter it from opportunistic behavior (Fama & Jensen 1983, Jensen 1993, Jensen & Ruback 1983) Arguably, the academic discussion of board structure and composition has extensively focused on many board attributes and how to maintain board effectiveness to drive financial performance However, the subject of board diversity as an important corporate governance concept has recently caught the attention of policy makers, corporate stakeholders and academia As defined by Ahern and Dittmar (2012), board diversity refers to the variation among its members, Effective corporate governance is believed to have a positive association with board diversity, which is the prerequisite for boosting profitability Consistent with the self-interest principle and free cash flow hypothesis posited by Akhigbe and McNulty (2013), good governance with diversity at the boardrooms enhances decision-making process and performance The observable attributes of board diversity as concluded by Anderson and Reeb (2008) and Arano et al (2010), refer to personalities, values, learning styles age, gender, race and educational and managerial background In recent years, gender diversity in the boardroom has become a newly explored and highly debated governance topic since gender diversity and the participation of female directors on board have been reported to be predictors for financial performance Director board and its composition have been a focal point of corporate governance structure, directing affecting market value of organizations In the banking industry, this mechanism plays as an important role in maximizing shareholder’s wealth while ensuring operating stability of banks since they are responsible for creating wealth for various stakeholders including clients, borrowers, regulators and depositors (Peterson & Philpot 2006, Smith et al 2006) In emerging markets, director board role is quite complicated because of the serious asymmetric information risk which affect the efficiency in allocating bank resources Therefore, despite having high regulation level, the role of director board in banking governance is given higher attention since the collapses of credit institutions might disturb the resources allocation as well as system for payment, negatively affecting directly the world economy This motivates the researcher to conduct the current study on the contribution of women participation in boardrooms and oversight role of the director boards in Vietnamese commercial banking 1.2 Research rationale, motivation and contribution Over decades of empirical research, the effect of the women directors into the boardrooms on profitability and financial performance of banks has gained inconclusive and mixed results due to the influence of national culture, regulation, economic context, level of governance effectiveness and the scope of financial markets across nations of developed and developing economies (Peterson & Philpot 2006, Smith et al 2006) Board diversity has still been hugely contemplated as the most effective governance policy as concluded in the empirical study of Kahn and Santos (2005) and Dobbin and Jung (2011), Diversified structure for firm governance can be indicated based on geography with local administration versus foreigners, minority versus majority shareholders, characteristics of the board such as age, qualification, ethnicity The appointment of female directors in bank board in a number of empirical studies indicated a strong effect on financial performance (see for example Smith et al 2006, Adams & Funk 2012, Dobbin & Jung 2011) On the other hand, in another research conducted in ASEAN-5 listed commercial banks by Zulkufly et al (2015), the female presence in the bank boardrooms among a selected number of commercial banks in ASEAN is merely for the regulatory compliance and the market for high performing female executives could be limited, especially in commercial banking As agreed by Staikouras et al (2010) and Zulkufly et al (2015), countries in ASEAN mainly constitute of developing economies in which the lowest rates of gender diversity This is a wonder that how the gender structure with participation of female directors impact on bank performance This is the rationale which inspires the implementation of this research with a particular emphasis on Vietnamese commercial banking context, which has been left unexplored in the existing literature The present research therefore concentrates on the participation of women directors in bank boardrooms as board diversity variable which is the predictor for the bank performance The empirical effect of this board composition attribute on performance of a selected number of Vietnamese commercial banks is investigated According to Zulkufly et al (2015), the circles of corporate governance feature board gender diversity which includes the participation of women on the boardrooms, which is the definition applied in the present research Unlike prior studies, this research intends to use financial data collected from largest banks in the Vietnamese banking system in period from 2013 to 2017 with data related to the board of director being extracted from the annual report for all commercial banks listed on both HNX and HOSE for the 5-yearsperiod between 2013 and 2017, while data related to dividend payment and bank-specific characteristics were extracted from the published financial reports by banks Furthermore, other non-banking industries which have been conducted in another economic contexts are not capable of being generalized to commercial banking since there is a significant difference between banking and non-banking industries (Zulkufly et al 2015, Croson & Gneezy 2009) Another motivation for choosing the commercial banking data is that almost all of the prior research articles have been dealt with multi-sectoral companies therefore tending to produce inconclusive findings as acknowledged by Balasubramaniam et al (2015) and Dobbin and Jung (2011) In order to contribute to the academic literature, this research seeks to focus merely on the commercial banking sector and the data for the research is quite easily accessible This research contributes to the extant literature by supplying updated empirical evidence on the influence of women presence and board monitoring on the financial performance of commercial banks in Vietnam To the best of the researcher’s knowledge, there has been virtually no prior examination to be implemented regarding the extent to which Vietnamese banking sector has performed after it has undergone the structure change with a particular attention to gender diversity in the boardroom As such, this research intends to provide a number of practical understandings as well as implications regarding the contribution of female executives in general or independent female directors in particular Finally, the results of the present empirical research promise to generate practical insights and implications into the authority accountable for controlling the extent of gender diversity as well as oversight mechanism of the board of directors 1.3 Research purpose, question and statement of research objectives Based on research background, context and identified motivations as well as significance for the research topic, the present empirical study aims to investigate the effects of gender diversity in the board of directors of a large sample of commercial banks in Vietnam on their financial performance, measured by return on equity (ROE) and return on assets (ROA) The empirical analysis is conducted via descriptive statistics, correlation matrix and analysis of multivariate regression The research question is therefore as follows: What is influence of women presence in board on profitability of commercial banks in Vietnam? In order to answer the key question, the following research objectives can be stated: To study the impact that gender diversity on board can have on banks’ profitability in Vietnam To study the level of gender diversity in boardrooms of commercial banks in Vietnam To examine if there is any relationship between boards gender diversity and banks profitability levels To make contributions towards gender diversity research in Vietnam banking sector 1.4 Research structure The remaining of this research can be structured as follows Chapter two presents the literature review and the development of hypotheses Chapter three justifies the chosen methodology and discusses how the data are collected and analyzed Panel data analysis is employed to examine the relationship between board gender diversity and firm performance The sample consists of 12 commercial banks listed on the HNX and HOSE for the 5-years-period between 2013 and 2017 We used a five-year period to mitigate any potential sample bias The identities of directors were obtained from the firms’ annual reports From these reports, the number of board members is calculated Accounting data, such as the book value of debt, the book value of total assets, and the return on assets were obtained from securities companies, such as BaoViet Securities, BIDV Securities Chapter four presents the main empirical results Chapter five discusses the empirical results in light of the previous empirical evidence Chapter six concludes the research by summarizing the key results, practical implications, limitations of the research and how to improve in future studies ... UWE Dissertation submitted in partial fulfillment of the Bristol I niversip of the U Requirement for the MSc in Finance FINANCE DISSERTATION ON GENDER DIVERSITY AND PROFITABILITY OF COMMERCIAL BANK. .. that gender diversity on board can have on banks’ profitability in Vietnam To study the level of gender diversity in boardrooms of commercial banks in Vietnam To examine if there is any relationship... issue in the context of a sample of commercial banks in Vietnam Following the increasing academic interest in board gender diversity and the effect of the presence of female directors on the