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The impact of corporate governance on firm performance the case of listed companies in vietnam

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Tiêu đề The Impact Of Corporate Governance On Firm Performance: The Case Of Listed Companies In Vietnam
Tác giả Nguyễn Minh Trí
Người hướng dẫn Dr. Võ Hồng Đức
Trường học University of Economics
Chuyên ngành Development Economics
Thể loại Thesis
Năm xuất bản 2013
Thành phố Ho Chi Minh City
Định dạng
Số trang 128
Dung lượng 555,02 KB

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University of Economics International institute of Social Studies Ho Chi Minh City, Vietnam Erasmus University of Rotterdam The Netherland VIETNAM- THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF CORPORATE GOVERNANCE ON FIRM PERFORMANCE: THE CASE OF LISTED COMPANIES IN VIETNAM By Nguyễn Minh Trí A thesis submitted in Partial fulfillment of the Requirements for the Degree of Master of Art in Development Economics Under the supervision of Dr Võ Hồng Đức Vietnam - Netherlands Programme, November 2013 DECLARATION It is to certify that this thesis entitled “The impact of corporate governance on firm performance: the case of listed companies in Vietnam” meets all requirements for the Master Degree of Art in Development Economics This thesis and all contents presented in it are developed by me as my own original research It is neither in part nor in whole been presented for another degree elsewhere Nguyễn Minh Trí (Author’s name) (Signature) (Date) The above declaration is affirmed Dr Võ Hồng Đức (Supervisor’s name) (Signature) (Date) Page ii Page ii ACKNOWLEDGE First and foremost, I would like to thank my supervisor, Dr Võ Hồng Đức, an expert in corporate finance for his advice, guidance and support My thesis could not be completed without his invaluable feedback and comment about the theory, data and research methodology I would like to express my sincere gratitude to all lectures of Vietnam – Netherlands program for their knowledge and provide me opportunity to study this topic Special thanks to Dr Trương Đăng Thụy and Dr Lê Văn Chơn, who support me in using econometric models in this thesis Furthermore, I would like to thank my friends, who have controversial discussions with me about my topic and provide some contribution for my thesis Last but not least, I would like to send many thanks to my family, who support to me in both physical and mental extent during my thesis process Page iii Page iii ABSTRACT This empirical research is conducted to examine the relationship between corporate governance and firm performance In this study, corporate governance is proxied by a set of variables, including a dual role of the CEO, board’s size, board independence and ownership concentration In addition, firm performance is measured by four different methods which are (i) return on asset (ROA), (ii) return on equity (ROE), (iii) Z-score by Altman (1968) and (iv) Tobin’s Q Using the Feasible Generalized Least Squares (FGLS) on the dataset of 177 listed companies in Vietnam for the period of years, from 2008 to 2012, the findings of this study indicate multiple effects of corporate governance on firm performance First, duality role of the CEO is positively correlated with firm performance Second, there is a structural relationship between managerial ownership and firm performance Third, board independence has opposite impacts on firm performance Fourth, this study however fails to provide an empirical evidence support the statistically significant relationship between board size and firm performance Key words: corporate governance, firm performance, listed companies, Vietnam Page Page LIST OF CONTENTS CONTENTS Page DECLARATION .ii ACKNOWLEDGE iii LIST OF FIGURES vii LIST OF TABLE vii LIST OF ABBREVIATIONS .vii CHAPTER 1: INTRODUCTION 1.1 Problems statement 1.2 Research objectives: 1.3 Research question: 1.4 Research scope 1.5 Research methodology 1.6 The structure of this thesis CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical review 2.1.1 Legalistic perspective .6 2.1.2 Resource dependence 2.1.3 Class Hegemony 2.1.4 Agency theory 2.1.5 Stewardship theory 11 2.2 Empirical review 14 2.2.1 CEO duality and firm performance 14 2.2.2 Board independence and firm performance 17 2.2.3 Ownership concentration and firm performance 22 CHAPTER 3: 28 DATA AND METHODOLOGY 28 3.1 Data .28 3.2 Variables 29 3.2 3.2.1 Dependent variables 29 3.2.2 Independent variables 33 3.2.3 Control variables 35 Methodology .37 CHAPTER 4: 39 DATA ANALYSIS AND EMPIRICAL RESULTS 39 4.1 Data statistics 39 4.2 Results 44 4.2.1 Empirical results by OLS 44 4.2.2 Empirical results by FGLS 45 CHAPTER 5: 50 DISCUSSIONS .50 CHAPTER 6: 54 CONCLUSIONS AND IMPLICATIONS 54 REFERENCES .56 performance increases when ownership increases The interpretation for this relation is that on one hand, at a low level of ownership, the board of directors has made bad decisions for developing firms On the other hand, at a higher level, the results support the stewardship theory that Davis, Schoorman and Donaldson (1997) presented that board members act for firms’ benefits when they have strong relation with firms through ownership This decreases transaction cost and increases operating efficiency The interests of the board and firms are aligned, and this match of the interests makes firm performance worse However, the decreasing level of performance is lower than increasing stage, so in overall, the percentage of share associate positively to financial performance as stated on model (1), (2) and (4) CHAPTER 6: CONCLUSIONS AND IMPLICATIONS The main findings of this study present various effects of corporate governance on firm performance First, the research supports a stewardship theory which confirms the role of CEO as chairperson in improving firm performance Second, CEO’s ownership and board’s ownership have structural relationship with firm performance In details, when the CEO’s ownership goes up from percent to 30 percent, there is a reduction in firm performance After that, when CEO’s ownership increases above 30 percent, this increase leads to an improvement of firm performance In contrast, the relationship between board’s ownership and firm performance has inversed U-shape with the peak at 35 percent of ownership Third, this empirical study fails to provide an empirical evidence to confirm the significant relationship between the board’s size and firm performance Final, the most interesting finding of this study is that the board independence, as measured by proportion of independent members, has different impacts on firm performance in different measures The empirical research suggests solutions for listed companies in enhancing firm performance through improving corporate governance Based on the empirical results, the lessons for corporate governance are proposed The listed companies should focus on the role of CEO in managing and monitoring companies The CEO should ideally be as chairperson in the board In addition, the study presents that a low level of ownership does not encourage the CEO to improve firm performance; as such, board of director should compensate CEO by shares rather than by cash The ownership represents to the voting right The CEO with higher voting right will make good decisions for firm performance For board of director, its ownership should keep lower because at this level, the interests of board director and companies are aligned Although this empirical study provides some valuable findings in the relationship between corporate governance and firm performance, it also experiences some limitations First, the period time of this sample is rather short, only from 2008 to 2012, so the result does not refer to the effect of corporate governance in the long - run Second, the period selected may not be a good representative period As such, the impact of corporate governance on firm performance can be different in normal situation Third, for Tobin’s Q estimation, although it is the most popular ratio in previous studies, it seems inefficient in measuring firm performance and the market price does not reflect exactly firm value because: (i) the stock market in Vietnam is small and in early stage; (ii) the transparency of information and liquidity of stock market are low; and (iii) the scope of this study is between 2008 and 2012 – crisis period of Vietnamese economy REFERENCES Journals Abidin, Z Z., Kamal, N M., & Jusoff, K (2009).Board structure and corporate performance in Malaysia International Journal of Economics and Finance, 1(1), P150 Altman, E I (1968) Financial ratios, discriminant analysis and the prediction of corporate bankruptcy The journal of finance, 23(4), 589-609 Baliga, B., Moyer, R C., & Rao, R S (1996) CEO duality and firm performance what's the fuss Strategic Management Journal, 17(1), 41-53 Barnhart, S W., & Rosenstein, S (1998) Board composition, managerial ownership, and firm performance: An empirical analysis Financial Review, 33(4), 1-16 Bhagat, S., Bolton, B (2008) Corporate governance and firm performance Journal of Corporate Finance, 14(3), 257-273 Bhagat, S., & Black, B (1999).The uncertain relationship between board composition and firm performance The Business Lawyer, 921-963 Bhagat, S., & Black, B (2000).Board independence and long-term firm performance Unpublished paper, University of Colorado from http://leedsfaculty.colorado.edu/bhagat/bb-022300.pdf Boyd, B K (1995) CEO duality and firm performance: A contingency model Strategic Management Journal, 16(4), 301-312 Brainard, W C., & Tobin, J (1968).Pitfalls in financial model building The American Economic Review, 58(2), 99-122 Brown, L., & Caylor, M (2004).Corporate governance and firm performance Available at SSRN 586423 from http://ssrn.com/abstract=586423 Chen, C R., Guo, W., & Mande, V (2003) Managerial ownership and firm valuation Evidence from Japanese firms Pacific-Basin Finance Journal, 11(3), 267-283 Cui, H., & Mak, Y T (2002).The relationship between managerial ownership and firm performance in high R&D firms Journal of Corporate Finance, 8(4), 313-336 Daily, C M., & Dalton, D R (1992).The relationship between governance structure and corporate performance in entrepreneurial firms Journal of Business Venturing, 7(5), 375-386 Daily, C M., & Dalton, D R (1994) Bankruptcy and corporate governance The impact of board composition and structure Academy of Management Journal, 37(6), 1603-1617 Davis, J H., Schoorman, F D., & Donaldson, L (1997).Toward a stewardship theory of management Academy of Management review, 22(1), 20-47 Demsetz, H., & Villalonga, B (2001) Ownership structure and corporate performance Journal of Corporate Finance, 7(3), 209-233 Donaldson, L., & Davis, J H (1991) Stewardship theory or agency theory CEO governance and shareholder returns Australian journal of management, 16(1), 4964 Eisenberg, T., Sundgren, S., Wells, M T (1998) Larger board size and decreasing firm value in small firms Journal of Financial Economics, 48(1), 35-54 Hart, O (1995) Corporate governance some theory and implications The economic journal, 105(430), 678-689 Hermalin, B E., & Weisbach, M S (1991) The effects of board composition and direct incentives on firm performance Financial management, 101-112 Hillman, A J., & Dalziel, T (2003) Boards of directors and firm performance Integrating agency and resource dependence perspectives Academy of Management Review, 28(3), 383-396 Joh, S W (2003) Corporate governance and firm profitability evidence from Korea before the economic crisis Journal of Financial Economics, 68(2), 287-322 Judge, W Q., Naoumova, I., & Koutzevol, N (2003).Corporate governance and firm performance in Russia an empirical study Journal of World Business, 38(4), 385396 Klapper, L F., & Love, I (2004) Corporate governance, investor protection, and performance in emerging markets Journal of Corporate Finance, 10(5), 703-728 Klein, A (1998) Firm Performance and Board Committee Structure 1.The Journal of Law and Economics, 41(1), 275-304 Le Minh, T., & Walker, G (2008).Corporate governance of listed companies in Vietnam Bond Law Review, 20(2), Morck, R., Shleifer, A., & Vishny, R W (1988) Management ownership and market valuation An empirical analysis Journal of financial economics, 20, 293-315 Muth, M., & Donaldson, L (1998) Stewardship theory and board structure a contingency approach Corporate Governance An International Review, 6(1), 5-28 Nguyen, N.D (2008) Corporate governance in Vietnam: regulations, practices and problems.Availableat:http://www.smegtz.org.vn/Portals/0/AnPham/CORPORATE%20GOVERNANCE%20IN%20VIET NAM.pdf (accessed April 27, 2012) Pfeffer, J (1972) Size and composition of corporate boards of directors The organization and its environment Administrative Science Quarterly, 218-228 Rechner, P L., Dalton, D R (1991) CEO duality and organizational performance A longitudinal analysis Strategic Management Journal, 12(2), 155-160 Rosenstein, S., Wyatt, J G (1990) Outside directors, board independence, and shareholder wealth Journal of Financial Economics, 26(2), 175-191 Short, H., & Keasey, K (1999).Managerial Ownership and the Performance of Firms Evidence from the UK Journal of corporate finance, 5(1), 79-101 Vo, H D., & Phan, B G T., (2013a) Corporate governance and firm performance: Empirical evidence from listed companies on Ho Chi Minh City Stock Exhange UEH Journal of economic development, 275, 1-15 Vo, H D., & Phan, B G T., (2013b) Woman member in board of directors and firm performance: Empirical evidence from Vietnam Banking journal, 85, 21-30 Vo, H D., & Phan, B G T., (2013c) The role of CEO duality, experience of board and growth opportunity on firm performance Open University journal, 3(31), 52-65 Vo, H D., & Phan, B G T., (2013d) The relationship between corporate governance and firm performance Unpublished paper, Ho Chi Minh City Open University Williamson, O E (1988) Corporate finance and corporate governance The journal of finance, 43(3), 567-591 Zahra, S A., & Pearce, J A (1989) Boards of directors and corporate financial performance A review and integrative model Journal of management, 15(2), 291334 Books Wooldridge, J., M., (2002), “Introductory Econometrics: A Modern Approach” 2nd Ed., South-Western College Laws and regulations Prime Minister of Socialist Republic of Vietnam, (2007), Decision 599/QĐ-TTg: converting Hochiminh Stock Center into Hochiminh Stock Exchange Available from government portal website http://chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id=1&mode =detail&document_id=24536 Vietnam Ministry of Finance, (2012), “Circular No 121/2012/TT-BTC dated on July 26, 2012 issuing the regulations on corporate governance which is applied to listed companies Available from law library website http://thuvienphapluat.vn/archive/Thong-tu-121-2012-TT-BTC-quy-dinh-quan-tricong-ty-ap-dung-cho-cong-ty-dai-chung-vb145477.aspx Website HOSE’s website: http://www.hsx.vn/hsx/Default.aspx FPTS’s website: http://www.fpts.com.vn/ http://vietstock.vn/ ... 2012 in Vietnam are considered In addition, firm performance in this study is only considered on the ground of financial performance As such social performance or economic performance is beyond the. ..DECLARATION It is to certify that this thesis entitled ? ?The impact of corporate governance on firm performance: the case of listed companies in Vietnam? ?? meets all requirements for the Master Degree of. .. type of firm The impact of the board on financial performance occurs inside the company through the influence on strategic initiatives by creating the concept and framework for good business

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