The impact of corporate governance factors on company performance case study of vietnamese food processing companies listed on ho chi minh stock exchange

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON THE IMPACT OF CORPORATE GOVERNANCE FACTORS ON COMPANY PERFORMANCE: CASE STUDY OF VIETNAMESE FOOD PROCESSING COMPANIES LISTED ON HO CHI MINH STOCK EXCHANGE NGUYEN THI NGOC MINH ID No: 19046138 Intake Supervisor: Associate Prof Dr Pham Quoc Khanh September 2020 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014129051431000000 EXECUTIVE SUMMARY In order to survive and develop, companies always need to improve the performance of their production and business activities Company performance is a comparative relationship between the results achieved in the production and business process with the costs to achieve such results (Zeitun and Tian, 2007) The study focuses on researching the business status of food processing companies, mainly companies listed on Ho Chi Minh Stock Exchange, in order to improve their capacity and company performance, helping them timely issue policies suitable to their business activities and to avoid the risk of bankruptcy, and at the same time creating conditions for economic stability and development, market development, inflation decrease and provision of better food to serve the needs of the people Based on empirical evidence, the research inherits a number of ideas from previous studies, at the same time, supplementing and adjusting to better suit the research content as corporate governance factors affecting company performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange The author finds out that Company size, Growth rate, Management of customer receivables, Investment in fixed assets, Capital structure, Business risk, and Company age have impact on Company performance The author proposes some ideas to improve company performance of food processing companies listed on Ho Chi Minh City Stock Exchange such as building a reasonable capital structure, investing and expanding revenue, improving the efficiency of managing and using machines, managing accounts receivable and some other solutions i ACKNOWLEDGEMENTS First of all, I would like to send the most sincere thanks to my Supervisor – Associate Professor Dr Phạm Quốc Khánh for his valuable comments on my dissertation Without his advices, my work cannot be completed Secondly, my thanks will be sent to all who helped me in fulfilling my dissertation Their help is definitely precious for me Last but not least, I would like to thank my family and friends who were always besides me and encouraged me to complete my dissertation September 2020 Author ii TABLE OF CONTENTS EXECUTIVE SUMMARY i ACKNOWLEDGEMENTS ii LIST OF TABLES v LIST OF FIGURES vi INTRODUCTION 1 Background Objectives Methodology Research scope Overview of dissertation structure CHAPTER 1: LITERATURE REVIEW AND INDUSTRY BACKGROUND 1.1 Literature review 1.1.1 Definition of company performance 1.1.2 Roles of company performance for companies 1.1.3 Previous studies on factors affecting company performance 1.1.4 Theoretical and conceptual basis 1.2 Industry background 14 CHAPTER 2: METHODOLOGY, RESEARCH METHODS AND HYPOTHESIS DEVELOPMENT 20 2.1 Research process 20 2.2 Data collection 21 iii 2.3 Data analysis 21 CHAPTER 3: FINDINGS AND DISCUSSION 23 3.1 Findings in Vietnam related to corporate governance factors and their impact on company performance 23 3.2 Regression results 25 3.3 Discussion on research findings 37 3.3.1 Investment in fixed assets 37 3.3.2 Capital structure 39 3.3.3 Business risk 40 3.3.4 Company age 42 CHAPTER 4: CONCLUSION AND RECOMMENDATIONS 45 4.1 Conclusion 45 4.2 Recommendations 45 4.2.1 Building a reasonable capital structure 45 4.2.2 Investing and expanding revenue 47 4.2.3 Improving the efficiency of managing and using machines 47 4.2.4 Managing accounts receivable 48 4.2.5 Other solutions 49 REFERENCES 53 APPENDIX 1: LIST OF COMPANIES ON RESEARCH 56 iv LIST OF TABLES Table 1.1: Corporate governance factors affecting company performance 13 Table 3.1: Descriptive analysis of corporate governance factors on performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange 25 Table 3.2: Correlation matrix among corporate governance factors on performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange 26 Table 3.3: POOLED OLS results 27 Table 3.4: Breusch-Pagan applied to test the POOLED OLS results 28 Table 3.5: Regression analysis by FEM 29 Table 3.6: Regression analysis by REM 32 Table 3.7: Hausman test 33 Table 3.8: Regression analysis by REM for the second time 36 v LIST OF FIGURES Figure 1.1: Proposed theoretical model vi INTRODUCTION Background In order to survive and develop, companies always need to improve the performance of their production and business activities Company performance is a comparative relationship between the results achieved in the production and business process with the costs to achieve such results (Zeitun and Tian, 2007) Company performance is influenced by many different factors of corporate governance Food processing and manufacturing industry is an industry in which Vietnam has many advantages and development potentials (Wertheim-Heck and Spaargaren, 2015) However, the development of this industry is greatly affected by the requirements of food safety, quality and pressure to compete with countries around the world (Nguyen et al., 2017) Since Vietnam joined the World Trade Organization (WTO) up to now, the economic situation with many positive changes has opened up a lot of investment opportunities and increased incomes; thus, the demand of people for food has been increasing significantly Therefore, the development of food processing companies is indispensable (Nguyen et al., 2017) Moreover, due to the relatively high profits of this sector, it has attracted many companies, and at the same time encouraged them to increase their business and expand their operations However, accompanied by the recent economic crisis and government policies to handle inflation such as reducing public investment, monetary policies, limiting non-production loans, etc., food processing companies have had to face up with many difficulties and challenges The biggest challenge is the fierce competition of the market economy, with rivals who are stronger in capital, in technology; wiser in using capital and managing In such fiercely competitive conditions, how to maintain company performance and create profit is a big question and not easy to answer for food processing companies (Wertheim-Heck and Spaargaren, 2015) From that fact, analyzing factors, especially corporate governance factors affecting company performance of food processing companies listed on Ho Chi Minh Stock Exchange is a matter that needs attention in the current context Therefore, the study focuses on researching the business status of food processing companies, mainly companies listed on Ho Chi Minh Stock Exchange, in order to improve their capacity and company performance, helping them timely issue policies suitable to their business activities and to avoid the risk of bankruptcy, and at the same time creating conditions for economic stability and development, market development, inflation decrease and provision of better food to serve the needs of the people Stemming from the importance and the need to understand corporate governance factors that affect company performance in order to help food processing companies improve their competitiveness, the author chose the topic: “The impact of corporate governance factors on company performance: Case study of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange” for study and research Objectives The research is conducted to meet the following objectives - To collect the theoretical model consisting of corporate governance factors affecting company performance; - To analyze the performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange under the impact of corporate governance factors; - To make some recommendations to improve company performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange Methodology In this dissertation, the author applied theories and concepts related to company performance (dependent variable) and corporate governance factors including company size, growth rate, management of customer receivables, investment in fixed assets, capital structure, business risk and company age (independent variables) as proposed and analyzed in Chapter 1: Literature review and industry background The method applied in this method to meet the research objectives as mentioned above is quantitative method Because the author analyzed the relationship between corporate governance factors and company performance, only numerical data just could help to deal with such relationship Therefore, quantitative research method was taken rather than any other research method to be applied in this dissertation Research scope Regarding research object, the research focuses on analyzing corporate governance factors on company performance of Vietnamese food processing companies listed on Ho Chi Minh Stock Exchange Regarding geographical space, the research is conducted for food processing companies in Ho Chi Minh City Regarding timing, data collection is from 2016 to 2019 to propose solutions in the period of 2020 – 2025 Overview of dissertation structure The final dissertation cocnludes four main chapters as follows Chapter 1: Literature review and industry background Chapter 2: Methodology, research methods and hypothesis development Chapter 3: Findings and Discussion Chapter 4: Conclusion and Recommendations