Tieng anh summary: The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.

The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.The impact of agency cost on firm performance: a comparison between stateowned and nonstateowned enterprises listed on Vietnam stock market.MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY Le Hoang Yen Khanh THE IMPACT OF AGENCY COST ON FIRM PERFORMANCE A COMPARISON BETWEEN STATE OWNED AND NON STATE OWNED ENTERP.

1 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY Le Hoang Yen Khanh THE IMPACT OF AGENCY COST ON FIRM PERFORMANCE: A COMPARISON BETWEEN STATE-OWNED AND NON-STATE-OWNED ENTERPRISES LISTED ON VIETNAM STOCK MARKET Major: Finance and Banking Reference: 9340201  SUMMARY OF DOCTOR OF PHILOSOPHY IN ECONOMICS Ho Chi Minh city - 2022 The PhD dissertation has been accomplished at: Academic supervisors: Dr Pham Phu Quoc; Dr Tran Phuong Thao First reviewer: Second reviewer: Third reviewer: Dissertation will be defended for academic committee’s assessment at: University of Economics Ho Chi Minh city ………………………………………………………………………… At…… ………… on …………… PhD dissertation will be searched at: Vietnam National Library; Library of University of Economics Ho Chi Minh city CHAPTER INTRODUCTION 1.1 PRACTICAL RESEARCH CONTEXT In the 20th century, Vietnam has witnessed significant innovation that has changed its whole economy as well as its residential lifestyle Vietnam’s economy was transformed from a centrally-planned to a market economy with a "socialist orientation" at its Sixth National Congress in 1986 under a renovation program, known as "Doi moi," which supported bringing impressive development to the whole country After the reformation policy in 1986, Vietnam's economy entered a new era of development and integration in which state-owned enterprises (SOEs) play an important role in leading the whole country in the new development period However, during the process of industrialization and modernization, 100% state-owned companies show signs of ineffective operations and suffer long-lasting losses in production This situation causes a big burden on the government and the whole country For that reason, at the beginning of the 1990s, the process of equitizing state-owned companies was under experimentation In 1992, the Vietnamese government officially introduced the equitization campaign of state-owned companies to improve their operating productivity compared with counterparts in the region and worldwide Over the past nearly 30 years, the original number of around 12,000 state-owned enterprises in the 1990s of the 20th Century has been downsized to approximately 5,600, with around 800 companies still having 100% state capital However, state-owned companies in Vietnam are still commanders in the economy since they control the key industries as well as hold and manage a total of more than million billion VND (Quach, 2016) In addition, industrialization and modernization processes have also been undergone to upgrade the economy Thereby, Vietnam has needed huge capital for investment from internal and external resources to maintain stable economic growth as well as restructure the economy in the new era External capital is becoming more and more difficult to attract because Vietnam needs to compete with other neighboring countries in the region with similar conditions, like China, Malaysia, Thailand, etc Therefore, there is an urgent demand for internal capital from the public through the establishment of a stock market in Vietnam to mobilize capital both within and outside the country for economic investment nationwide In addition to the equitization process of state-owned enterprises, the development of the private sector provides up to 40% of GDP and 30% of the national budget (Le, 2018) Along with the inauguration of the stock market, it would provide the country with a more open and healthier business environment The establishment of the two trading centers and then later transferred to stock exchanges in Vietnam and Upcom (Unlisted Public Company Market) facilitated not only the equitization of state-owned enterprises but also the listing of both SOEs and other non-state-owned enterprises or private-owned enterprises When companies become public and get listed on the stock market, they have expanded in scale and complexity in association with alternation of ownership to the public of shareholders that need outside expertise to run the business effectively In practice, investors putting abundant capital into a company employ experts – the Chief Executive Officer (CEO) – to help them run the business On the one hand, the separation of ownership and management helps to resolve the conflict between having capital and running a business; on the other hand, inefficient corporate performance can be triggered by interest conflicts between owners and managers, as both want to maximize their benefits While shareholders want to increase their wealth and firm performance, managers are eager for a salary, allowance, and bonus In addition, the second reason is information asymmetry between managers and owners of a company’s assets and performance, since professional managers daily operate the business and know their own target, attempt, and have confidential information that is difficult for public investors to approach and understand In the context of Vietnam, the above-mentioned subjects trigger some issues that need to be carefully considered At first, the controversy appears whether the interest conflict and information asymmetry between managers and shareholders are really harmful to both shareholders’ benefit and firm performance Moreover, the country has been undergoing an equitization process with a dominant role of state ownership in key industries and involvement in listed firms, as well as the growing role of the private sector in the economy, which places the government in a dilemma of how to allocate scarce national resources between the two sectors for optimal economic development In addition, the theme of to what extent of state participation in the prominent sectors and listed firms which plays an encouraging role for the whole economy is an inspiring phenomenon because it is unanswerable The first issue has already been mentioned in academic literature and is known as the agency problem between owners and managers, or principal and agent Therefore, agency costs arise in addition to daily operating costs to sustain the relationship between the parties in the companies, and they may have a certain influence on firm efficiency As for the second occurrence, in academic society, the role of state ownership has also been referred to with contrary and inconsistent evidence This topic needs further research to make some contributions to the academic literature as well as propose some practical solutions for practitioners and policy makers 1.2 RESEARCH MOTIVATIONS The above-mentioned practical phenomena in the Vietnamese context inspire the author to pay special attention to the impact of agency cost and state ownership Furthermore, in academic society, the scarcity and inadequacy of empirical evidence on the effect of agency cost on firm performance, as well as the impact of state ownership on firm performance in transitional countries, particularly in Vietnam, are the impetus for this research Because agency costs and their impact on firm performance are critical issues in finance, some theories mention this relationship Agency costs are the result of managerial actions that can be interpreted using agency and stewardship theory Agency theory, as specified by Jensen and Meckling (1976), Arnold (1985), and Jensen (1986), deals with two parties, including the management and stockholders, in such a relationship that the former works on behalf of the latter The task of management is to operate the companies on the shareholders’ behalf in an optimal way (Jensen and Meckling, 1976; Alabdullah, 2013) When management with a large stake in the company does a good job and devotes themselves to the company, interest conflicts between owners and managers disappear Nevertheless, when the ownership structure is scattered over a number of investors, which will trigger the benefit disagreement occurring between managers and shareholders, as the latter would like to witness the increasing corporate performance, whereas the managers’ benefit is related to salary, bonus, and allowance (Jensen and Meckling, 1976)  Furthermore, information asymmetry worsens the relationship as the managers who run the business have confidential information that is inaccessible or incomprehensible for public investors Therefore, the interest conflict and information asymmetry between the principal and agent are mentioned as sources of the agency problem Thus, agency costs will occur to balance the difference and maintain the agentclient relationship effectively On the other hand, another contrary theory argues a different view of managerial action from agency theory and can be named stewardship theory (Silverman 1970; Etzioni 1975; Barney, 1990; Donaldson et al., 1991) According to this theory, the executive manager wants to work for the business and be a good steward of the corporate assets Thereby, there is no inherent, general problem of executive motivation as reckoned by stewardship theory since managers have a sense of achievement and responsibility leading to nearly no agency cost Given the nonappearance of stimulating problems among executives, the phenomenon of how far executives can achieve optimal corporate performance Therefore, the efficiency variations come from whether the corporate structure facilitates effective action of the executive The issue becomes whether or not the organization structure helps the executive to implement plans for high corporate performance Specifically, structures will be facilitative of this goal to the extent that they provide clear, consistent role expectations and empower senior management Concerning empirical evidence, research to date has focused on various aspects of agency cost However, there is limited research explaining the relationship between agency costs and firm performance comprehensively Concretely, studies linking agency costs with firm performance only attempt to identify the determinants of firm performance, including board committee, industry, group affiliation, capital structure, and corporate governance (Ciftci and Tatoglu, 2019) Furthermore, the literature examining the effect of agency costs on firm performance often focuses on managerial ownership, foreign ownership, ownership concentration, and management compensation (Alabdullah, 2013; Alfadhl, 2013; Trinh, 2017) Almost no empirical research previously has been conducted to examine the impact of state ownership on the relationship between agency costs and firm performance Meanwhile, state ownership is common in transitional countries due to the privatization process and partly due to the nature itself As a result, one of the primary goals of this study is to gain an understanding of the impact of agency costs on firm performance during the privatization process with the participation of state ownership in listed firms Generally, a wide range of philosophies and research have investigated state-ownership Nevertheless, the influence of state-ownership on firm performance has not been comprehensively clarified by any single theory Moreover, mixed and diversified outcomes in empirical studies on this rapport imply that it is subject to specific situations In addition, while most empirical research regarding state-ownership assumes that state-ownership impacts negatively on firm performance (Konings, 1997; Lin, Ma, and Su, 2009; Tran et al., 2014), some studies have discovered a positive rapport between state-ownership and firm performance (B.-B Jiang, Laurenceson, and Tang, 2008; Le and Buck, 2009) Thus, it is reckoned that there are still contradictory and inconsistent empirical studies on the influence of state ownership on firm performance, particularly in developing and transitional countries, which stimulate new research on the rapport between state ownership and firm performance Vietnam’s economy has been in a transition process from a centrally-planned to a market economy under "socialist orientation" It is worth noting that, despite accounting for only 0.4 percent of total enterprises, SOEs account for 28.8 percent of total capital, contributing 20% to the country's GDP (Nguyen and Ramachandran, 2006; Phang, 2013) For that reason, the economy is still dominated by the state, but the role of the supplementary private sector is acknowledged and is on the way to developing to a higher level as the country is opened up to foreign investment and international integration With these typically distinguished features different from other transitional economies, the Vietnam context deserves further research on economic issues in general and agency costs in particular in maintaining firm efficiency in the prominent context of privatization 1.3 RESEARCH OBJECTIVES AND QUESTIONS This study has three major objectives based on the literature gaps discussed in the above section The first one is with a view to inspecting whether the agency cost of state-owned firms is higher than that of non-state-owned enterprises The second objective is to figure out the different effects of agency costs on the firm performance of two groups of companies And finally, the research examines the rapport between state-ownership and firm performance under a privatization perspective Thereby, the three research questions are developed as per below to fulfil the research objectives: RQ1: Is the agency cost of SOEs higher than that of non-SOEs/POEs? RQ2: Is there a difference in the impact of agency costs on the firm performance of two groups of enterprises? RQ3: Is there a relationship between state-ownership and firm performance? 1.4 RESEARCH CONTRIBUTIONS This research may contribute to theory, methodology, together with practice It contributes to the literature of agency cost in transitional economies with typical characteristics of a market economy with a "socialist orientation" in which the state still plays a dominant role in controlling the whole country Furthermore, it extends the existing agency cost literature by directly comparing the agency costs of state-owned enterprises (SOEs) and those of non-state-owned companies in an empirical study, because in a transitional economy like Vietnam, besides the public sector, the private sector has also seen phenomenal growth Furthermore, it may be the first to thoroughly investigate the agency cost in every aspect of two groups of publicly traded companies Moreover, this research might provide evidence for a better explanation of the relationship between agency cost and firm performance of two separate kinds of enterprises What is more, it seems to be the first to find out the proportion of state-ownership that makes firm performance turn from negative to positive to propose some reference and policies for the government Additionally, from the results of control variables, the study finds the negative conjunction between capital structure and firm performance in transitional and emerging countries like Vietnam, in order to suggest some practical solutions for policy makers and practitioners Moreover, it uses the latest databases and several proxies for agency cost as well as firm performance across two groups of companies to improve the previous literature Furthermore, unlike previous research that only measured state ownership with dummy variables, this study applied both dummy variables and the concrete proportion of shares owned by the state as a proxy for more comprehensive analysis Finally, the instrumental variable GMM is also applied to strengthen the results and ensure reliability of the findings CHAPTER LITERATURE REVIEW 2.1 AGENCY COST AND FIRM PERFORMANCE: THEORY AND EVIDENCE 2.1.1 Agency cost in business operation The agency theory and stewardship theory are mainly used to interpret the manager's motivation in running the business with contradictory arguments The agency theory (Berle and Means, 1932; Alchian and Demsetz, 1972; Jensen and Meckling, 1976; Fama, 1980; Fama and Jensen, 1983; Jensen, 1986) states that shareholders hire agents to run the business for their own benefit and firm efficiency (Ferris and Yan, 2009) The reason is that managers employed by the shareholders have inconsiderable shares in the companies, together with the inconsistent interest between owners and managers As managers could be more facilitated to run the business in favor of their own self-interest but at the owners’ expense Thus, the more dispersed the ownership structure, the more severe the agency problem, which is detrimental to shareholder benefit and firm performance (Jensen and Meckling, 1976), Regarding agency problems, agency theory addresses other disputes of control between managers and owners owing to information asymmetry (Jensen and Meckling, 1976) Accordingly, top management provides information in the business operation reports which is expected to reflect a good and real condition of work progress In contrast, this information is unreal and deformed by management to make decisions in their own interests (Myers and Majluf, 1984; Harris and Raviv, 2010) Therefore, the managers could take advantage of their privilege of operating information in favor of their own interest at other owners’ expenses in both pecuniary and non-pecuniary forms However, on the contrary to the agency theory, the stewardship theory (Donaldson et al., 1991) explains the managers’ motivation for being opportunistic As managers have stimulation, all of their actions are in favor of corporate efficiency Furthermore, managers also have other positive intentions, such as a sense of showing their effort, ability, and responsibility (Etzioni, 1975; Donaldson et al, 1991) 2.1.2 Impact of agency cost on firm performance Empirical studies on agency costs offer dispersed outcomes and results As claimed by agency theory, managers normally seek their own personal objectives as well as the highest bonuses and perks possible (Jensen and Meckling, 1976; Denning, 1993) instead of optimizing firm performance Therefore, they likely prefer decisions that lead them to maximize their own perceived self-interest Thereby, managers tend to override corporate concerns and recommend higher discretionary expense accruals in order to maximize their bonus potential (Beaudoin and Dang, 2012) Furthermore, agency conflict can also be more noticeable in companies where the owners are liable with all their assets for the actions of partners (Michalskia, 2015) with little control and attention In addition, agency costs are increasing in accordance with the number of non-manager shareholders However, they are lower with elevated monitoring by banks (Ang et al., 2000) Three determinants of management behavior are used, namely management ownership, financial leverage, and information asymmetry, to study the relationship between management behavior and agency cost (Alabdullah, 2013) It is finally found that there is a notable rapport between management ownership and agency cost As the ownership increases, the agency cost will decrease accordingly, because the managers consider the company’s assets as their own and work efficiently to maximize both their wealth and the whole company’s (Alfadhl, 2013) Firm performance is a vital indicator of how the market ascribes value to a company as well as a thermometer to analyze the company’s financial health for potential investors to consider their investment in the enterprise Therefore, companies with better firm efficiency would enjoy a better financial position and be more profitable for prospective investors To improve corporate performance, it is necessary to figure out determinants 13 business environment of that country To nearly reflect the entire set of factors influencing firm performance, external determinants such as GDP, CPI, and country investment should be added to the model (David and Marvin, 1980; Shyam et al., 2015; Xiang and Ching, 2020) Table 3.1: Variable’s definitions and predicted signs Variables Definitions / Formula Firm performance (ROE) Net Income/Shareholder's Equity Firm performance (ROA) Net Income/ Total Assets Firm performance (TobinQ) Equity Market Value / Equity Book Value Asset turnover (A.Turn) ratio Sales / Total asset “+” Ang et al (2000) General and Administrative G&A Expense / Total sales Expense ratio (GA Exp) State ownership (Stateown) Predicted signs Percentage of state-owned shares “-“ Ang et al (2000) “-“ Xu, Zhu & Lin (2002); Yu(2013) Capital structure (Cap) Total liabilities / Total asset “+/-” Ang et al.(2000); Le and Phan (2017) Growth Opportunity Growth rate in sales (Gro Op) Profit growth (Prof.Gro) “+” Hossain and Nguyen (2016) Growth rate in profit “+” Detthamrong and Chancharat (2017) 14 Investment Opportunity Growth rate in total asset “+” (Invt Op) GDP Rashid (2018) Growth rate Product CPI in Gross Domestic Growth rate in Customer Price index External factors “+” Shyamet al.(2015) Country Investment(Country Growth rate in Country Investment Invt.) 3.3 RESEARCH MODEL Panel data is collected to analyze and answer the research questions developed in this study Variables that cannot be monitored or calculated namely culture, dissimilarity in business practices as well as variables at different levels of analysis like students, schools, states can be controlled by using panel data There are three techniques to analyze panel data including pooled OLS, fixed effect model and random effect model With a view to exploring the data and assisting in recognizing data errors, descriptive statistics are utilized to summarize and present the model's variables Following that, correlation analysis is used to determine the relationships between agency cost and firm performance, as well as between state ownership and firm performance Thus, the appearance of multicollinearity is inspected by using correlation analysis along with the variance inflation factor (VIF) test After controlling for firm characteristics, multiple regression analysis is implemented to examine the extent and direction of the relationships among variables Generally, pooled ordinary least squares (OLS), fixed effect (FE), and random effect (RE) models are normally applied to estimation of panel data On the whole, the general linear model can be illustrated as below: Yit = α + β*Xit + uit Where: 15 – Yit is the dependent variable (DV) where i = firm and t = time – Xit represents one independent variable (IV), – β is the coefficient for that IV, – uit is the error term When unobserved heterogeneity is vanishing and the u it is unrelated to Xit, OLS estimators are unbiased and persistent If the unobserved individual specific effects exist which is prevalent in non-experimental research (Baltagi, 2005), the fixed effect model (FEM) or random effect model (REM) become better than the OLS Thereby, u it is presumed to be equals αi plus eit in which αi is individual error component at firm level and eit is idiosyncratic error that is unrelated to both X it and αi Thus, the model changes into: Y it = α + β* X it + αi + e it If αi is related to Xit which means uit is related to Xit, then FEM could offer consistent estimators while OLS method becomes inconsistent Howver, if α i is not connected to X it , OLS may be consistent but inefficient since u it is heteroskadistic and serial autocorrelated Thereby, the REM is proposed with a view to upgrade the efficiency Multiple tests are performed to determine which model is most appropriate in which case The F-test is used for the FEM, the Breusch-Pagan Lagrange Multiplier (LM) test is used for the REM, and the Hausman test is used for both the FEM and the REM (Green, 2008, chapter 9) Based on the results of these tests, the most suitable models for this study are selected Furthermore, the Wald test for heteroskedasticity and the Wooldridge test for autocorrelation are implemented in order to increase the efficiency of the model If in the research model, heteroskedasticity and autocorrelation appear, it is advisable to supplement robust standard errors for improvement of estimators’ efficiency Although heteroskedasticity and autocorrelation may be resolved with a model-adjusted standard error, bias concerning endogeneity still happens since FEM and REM can only monitor unobserved heterogeneity (Wintoki et al., 2012) Moreover, the endogeneity problems 16 caused by measurement errors, time-invariant endogenous variables, and reverse causality are not taken into consideration by FEM and REM Therefore, with short panel data, these two models could offer biased and inconsistent outcomes (Cameron and Trivedi, 2005) It is commonly assumed that the Generalized Method of Moments (GMM) approach not only addresses model drawbacks such as autocorrelation and heteroskedasticity, but also provides one of the best identification strategies in the case of explanatory variable endogeneity Therefore, in this study, the endogeneity will be solved by applying the GMM explored by Hansen (1982) The GMM model has the strong point of being simpler to obtain exogenous variables as instrument variables in other time periods or lags of variables (Li and Tang, 2010; Wei Huang, 2011; Le and Tran, 2019) Thus, a wide range of instrument variables are provided by GMM, which makes it easier to meet the conditions of valid instruments and estimators’ overidentification CHAPTER EMPIRICAL RESULTS 4.1 COMPARISON OF AGENCY COST OF TWO GROUPS OF ENTERPRISES The result supports the developed hypothesis H.1: "Agency costs in state-owned companies are higher than those of non-state-owned companies." This finding is in line with the argument of Xu et al (2002) that companies with high state ownership usually want to show up and are passive in managing their investment, leading to "overinvestment" to use the company’s assets in even negative NPV projects Furthermore, in her study, Yu (2013) asserts that state representative managers pursue political incentives rather than manage effectively the company’s assets In addition, in SOEs, managers may enjoy high salaries, perks, bonuses, and fancy, luxurious facilities, such as offices, etc Table 4.1: Difference in agency cost between Non-SOEs and SOEs (Asset turnover ratio) 17 Mean difference (Non-SOEs – SOEs) t-test Median difference (Non-SOEs – SOEs) Wilcoxon test ROE 0.037 2.914* 0.029 2.350* ROA 0.027 1.203** 0.018 1.002** TobinQ -0.04 -0.424 -0.019 -0.215* A.Turn 0.481 7.423*** 0.515 7.922*** G&A Exp -0.036 -5.040*** -0.099 -7.940*** Stateown -0.582 -6.394* -0.579 -6.056*** Cap -0.141 -16.180** -0.103 -13.030** Gro-Op 0.109 10.02 0.12 12.23 Prof.Gro 0.095 8.131* 0.121 11.87* Invt-Op -0.199 -16.18 -0.185 -13.15 Variable Note: ROE: Return on equity; ROA: Return on asset; TobinQ: the ratio of the firm’s market value to firm’s book value; A.Turn: Asset turnover ratio; G&A Exp: General and Administrative expense ratio; Stateown: Percentage of state ownership; Cap: Capital structure; Gro-Op: Growth Opportunity; Invt-Op: Investment Opportunity; *, **, *** respectively indicate significance at 10%; 5% and 1% Source: Compiled by author 4.2 DIFFERENT IMPACT OF AGENCY COST ON FIRM PERORMANCE OF TWO GROUPS OF ENTERPRISES It can be confirmed that there is a relationship between agency cost and firm performance (in line with H.2.1, "There is a negative relationship between agency cost and firm performance") Moreover, the empirical study also indicates that the agency cost in state-owned companies is higher (supporting H.1: "Agency cost in state-owned companies is higher than in non-state-owned corporations") and has a greater negative impact on firm performance than non-state-owned ones (in agreement with H.2.2: "Agency cost has a dissimilar influence on the firm performance of two groups of companies") Table 4.2: The different effect of agency cost on firm performance of two groups of companies 18 ROE (1) A.Turn (2) 0.067*** [10.02] GA.Exp (3) -0.032*** [-4.80] A.turn x Stateown_dv -0.013*** [-2.82] x Cap TobinQ (4) 0.033*** [11.75] -0.015*** [-3.16] Stateown_dv GA.Exp Stateown_dv ROA -0.039*** [-7.16] (5) 0.060*** [1.03] -0.09*** [-4.61] -0.07*** [-2.67] -0.013*** [-5.75] -0.06*** [-3.26] -0.034*** [-4.35] (6) -0.06** [-0.17] -0.013** [-0.24] -0.064*** [-1.39] -0.024** [-0.58] -0.07** [-2.34] -0.215*** [-3.16] -0.03*** [-16.25] -0.03*** [-16.00] -0.01*** [-1.62] -0.01*** [-1.48] -0.027*** [-16.37] -0.027*** [-16.37] Gro.Op 0.006 [1.08] 0.004 [0.77] 0.002 [1.23] 0.001 [0.75] 0.001 [0.22] 0.001 [0.24] Pro.Gro 0.06*** [6.26] 0.06*** [6.43] 0.01*** [4.01] 0.01*** [4.20] 0.03*** [0.46] 0.04*** [0.50] Invt.Op 0.001 [0.97] 0.0008 [0.04] 0.002** [2.55] 0.001* [1.72] 0.053*** [3.26] 0.0494** * [3.01] GDP 0.183 [0.36] -0.133 [-0.25] 0.111 [0.51] -0.055 [-0.25] -0.092 [-0.02] -0.539 [-0.12] CPI -0.041 [-0.76] -0.011 [-0.21] -0.049** [-2.17] -0.033 [-1.41] -0.880* [-1.87] -0.847* [-1.81] Country-Invt 0.707*** [9.17] 0.756*** [9.64] 0.258** [7.97] 0.284*** [8.51] 0.326** [0.49] 0.356* [0.54] Constant -0.115*** [-2.67] -0.037*** [-0.86] -0.037*** [-2.06] 0.003*** [0.18] -0.046*** [-0.13] 0.015*** [0.04] 4.3 THE RELATIONSHIP BETWEEN STATE OWNERSHIP AND FIRM PERFORMANCE A non-linear U-shape relation between state ownership and firm performance occurs in which state ownership is initially negatively related to firm performance, but after a reflection point (over 60%), more state ownership begins to have positive implications for firm performance Better corporate governance can be carried out with concentrated ownership since blockholders, unlike diversified shareholders with minor equity fractions, can have enough power to effectively control the companies they put money ... to pay special attention to the impact of agency cost and state ownership Furthermore, in academic society, the scarcity and inadequacy of empirical evidence on the effect of agency cost on firm. .. addition, the second reason is information asymmetry between managers and owners of a company’s assets and performance, since professional managers daily operate the business and know their own target,... owners and managers, as both want to maximize their benefits While shareholders want to increase their wealth and firm performance, managers are eager for a salary, allowance, and bonus In addition,