MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY o0o NGUYỄN THỊ THANH TÂM FOREIGN OWNERSHIP AND FIRM PERFORMANCE CASE OF VIETNAM MAJOR BUSINESS ADMINISTRATION MAJOR CODE 60 34[.]
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY -o0o - NGUYỄN THỊ THANH TÂM FOREIGN OWNERSHIP AND FIRM PERFORMANCE: CASE OF VIETNAM MAJOR: BUSINESS ADMINISTRATION MAJOR CODE: 60.34.05 MASTER THESIS SUPERVISOR: Dr VÕ XUÂN VINH HO CHI MINH CITY, 2012 123doc i ACKNOWLEDGEMENT I would like to express my greatest gratitude to my supervisor, Dr Võ Xuân Vinh, for his continuous support for the thesis, from initial advice in the early stages of conceptual inception and through ongoing advices and encouragement to this day, without which this research would hardly have been completed I am grateful to the Examination Committee (Professor Nguyễn Đông Phong, Dr Nguyễn Trọng Hồi, Dr Nguyễn Đình Thọ, Dr Nguyễn Văn Ngãi, and Dr Nguyễn Thị Mai Trang) for their valuable advices to make my thesis improved I would like to thank my professors at Faculty of Business Administration and Postgraduate Faculty, University of Economics Ho Chi Minh City for their teaching, guidance and support during my MBA course I owe my sincere thanks to my classmates for their encouragement and a special thank of mine goes to my class monitor, Bùi Hồng Thu, for his great assistance in collecting data for this thesis and for his guidance in econometrics respects I wish to thank my family for their unconditional support and encouragement during my MBA course 123doc ii ABSTRACT Purpose – The thesis aims to investigate the relationship between foreign ownership and firm performance on a selective sample of firms listed on Hochiminh Stock Exchange for period 2007-2010 Methodology – The thesis applies the Ordinary Least Squares method to run multiple regressions on the whole sample and on each level of foreign ownership in order to give a closer view at the relationship between foreign ownership and firm performance Findings – The empirical results show a significant correlation between foreign ownership and firm performance, measured by Tobin’s Q The regressions on each level of foreign ownership indicate that foreign ownership was found to be significantly positive correlated with Tobin’s Q when foreigners own between 5% and 20% of shares in firms, while a negative correlation occurs where foreign holdings are more than 20%, specially considerably negative where the level is more than 40%; and there is no significant relationship between the two variables where foreigners own less than 5% of shares Originality/Value – The thesis tries to analyze how foreign ownership affects firm performance and suggests that Vietnamese business owners should take a scrutiny on benefits and costs of foreign investment Key words – Foreign ownership, firm performance 123doc iii TABLE OF CONTENTS ACKNOWLEDGEMENT i ABSTRACT ii LIST OF TABLES iv LIST OF FIGURES .v ABBREVIATIONS vi INTRODUCTION 1.1 Background 1.2 Purpose 1.3 Scope 1.4 Research questions 1.5 Structure LITERATURE REVIEW .6 METHODOLOGY 16 3.1 Data 16 3.2 The model 16 3.3 Statistical Method 22 DATA ANALYSIS 23 4.1 Descriptive Statistics 23 4.2 Correlations 25 4.3 Regression Results 26 CONCLUSION 37 REFERENCES 39 APPENDICES 43 123doc iv LIST OF TABLES Table 4.1 Descriptive Statistics 23 Table 4.2 Correlation matrix .25 Table 4.3 Ordinary Least Squares Regression Results .27 123doc v LIST OF FIGURES Figure 1.1 FDI contributions for the period 2006- 2011 Figure 1.2 FDI registered and implemented capital for the period 2006-2011 123doc vi ABBREVIATIONS debt_asset Financial Leverage FDI Foreign Direct Investments foreing_own Foreign Ownership GDP Gross Domestic Product HoSE Hochiminh Stock Exchange ln_asset Firm Size OLS Ordinary Least Squares ROA Return on Asset ROE Return on Equity R&D Research and Development Q Tobin’s Q (Firm Performance) 2SLS Two Stage Least Squares 123doc 1 INTRODUCTION 1.1 Background The relationship between ownership structure and firm performance has been examined since decades Some researches shows no effect of ownership structure on firm performance, while others indicate there is a correlation between these two factors Demsetz (1983) argues that there should be no relationship between ownership structure and firm performance Pursuing this argument empirically, Demsetz and Lehn (1985) find no significant correlation between profit rates and various measures of ownership concentration in a sample of 511 United States companies using 1980 data Himmelberg et al (1999) extend the Demsetz and Lehn (1985) study by adding new variables to explain the variation in the ownership structure Ownership structure is measured by shareholdings of insiders (officers plus directors) Firm performance measure is Tobin’s Q They employ the capital-to sales, R&D-to-sales, advertising-to-sales, and operating income-to-sales ratios as instrumental variables Controlling for these variables and fixed firm effects, they find that changes in ownership holdings have no significant impact on performance Demsetz and Villalonga (2001) continue to examine the ownership-performance relation by treating ownership structure as an endogenous variable and as an amalgam of shareholdings owned by persons with different interests By estimating a two-equation model for United States firms, their evidence shows that performance (defined as Tobin’s Q or the accounting profit rate) is not found to be influenced by ownership (defined as 123doc managerial ownership (Chief Executive Officers, board of directors, top management) or ownership by the five largest shareholders) Despite the fact that Demsetz and Lehn (1985), Himmelberg et al (1999), and Demsetz and Villalonga (2001) find no significant correlation between ownership structure and firm performance, series of subsequent researches, which had been done and built on the Demsetz heritage, prove the converse results For instance, Andersson et al (2004) find that dispersed ownership is associated with worse performance when examining firms listed on Sweden Stock Exchange A significant negative relationship is also found by Lee and Chuang (2009) when investigating the relation between insiders and corporate performance of Taiwanese firms In line with this, Fishman et al (2005) find that managerial ownership impacts negatively on performance This is opposite to the findings reported by Drakos and Bekiris (2010), where managerial ownership is found to be significantly positive correlated with Tobin’s Q Figure 1.1 FDI contributions for the period 2006-2011 % 35 30 25 20 15 10 29.8 16.98 17.96 16.3 16 2006 2007 FDI contribution to GDP 25.7 25.8 26 18.43 18.33 18.72 19 2008 2009 2010 2011 Year FDI contribution to the total national investments (Source: Foreign Investment Department, Ministry of Planning and Investment) 123doc Figure 1.2 FDI registered and implemented capital for the period 2006-2011 (Source: Foreign Investment Department, Ministry of Planning and Investment) As a part of ownership structure, foreign ownership plays an important role In Vietnam, foreign investments contribute considerably to Vietnam economy Figure 1.1 and Figure 1.2 indicate that FDI implemented capital continuously increases during the period 2006-2011 FDI implemented capital in 2011 reaches 11 billion USD, which contributes 26% to the national investments and 19% to GDP Companies with foreign capital participation are a form of FDI Foreign investors bring to the receiving companies some benefits, such as solid financial sources, modern technology, and management skills To some extent, foreign ownership should have impact on firm performance 1.2 Purpose The relation between ownership structure and firm performance remains controversial in numerous studies in diverse economies For instance, 123doc ... significant correlation between foreign ownership and firm performance, measured by Tobin’s Q The regressions on each level of foreign ownership indicate that foreign ownership was found to be significantly... of Planning and Investment) As a part of ownership structure, foreign ownership plays an important role In Vietnam, foreign investments contribute considerably to Vietnam economy Figure 1.1 and. .. relationship between foreign ownership and firm performance, Aitken and Harrison (1999) use a panel of more than 4,000 Venezuelan plants between 1976 and 1989 and find that increases in foreign equity