INTRODUCTION
Since an organization's capacity to prosper depends on how much risk it takes, which can affect investments, performance, growth, and longevity, understanding business risk habits is crucial (Hiebl, 2012) Risk-taking by corporations is essential to their survival For a considerable amount of time, scholars have maintained that the primary factor influencing firm success and expansion is managers' readiness to assume risks in the quest for profitable prospects (Bromiley, 1991; JOHN et al., 2008) There is evidence that a significant number of managers consider taking risks to be a crucial component of their managerial responsibilities (March &
Corporate risk-taking and the decision-making process are directly impacted by the quality of management (Li & Tang, 2010; Sanders & Hambrick, 2007) We think that the evaluation of management quality, which considers the demographic traits of CEOs, is continuously reflected in firm risk-taking According to (Nana, 2016) study, senior CEOs are more likely to make varied acquisitions, and their organizations have a wider range of business areas and circumstances, because a CEO typically establishes corporate rules as a team member rather than alone, the risk preferences of other senior executives may also impact the organization's overall risk profile.
CEOs, the official leaders of the firm, are primarily responsible for making these managerial decisions Their judgments serve as the foundation for their appraisal, which is eventually reflected in the company's reported profits and stock price The decision-making process and performance of the CEO may be influenced by various factors To illustrate their perspective and productivity, the CEO's age, gender, income, holding, duality, and abilities are all important factors that ultimately impact the performance of the company The CEO's decision- making authority concerning financial data is also dependent on the fundamental and significant elements of the business (for example, current assets, tangible fixed assets, intangible fixed assets, total assets, liabilities, short-term debt, equity, net revenue, profit after tax, etc.) For instance, Lieberson & O’Connor (1972) discover that the industry and firm effects account for a far larger portion of the variation in business performance than the CEO effect, which only accounts for roughly 6.5 percent to 14.5 percent Therefore, we think it's appropriate and could add new perspectives to the literature in this field to investigate CEO demographic traits and their impact on company risk-taking.
According to agency theory, ownership structure has an impact on owners' capacity to influence how much risk a company takes Large shareholders profit from the control and cash flow of the businesses they own and operate To maximize their profits, they have strong incentives to gather data and keep an eye on management (Amihud & Lev, 1981; Grossman and Hart, 1980, 1982; Shleifer & Vishny, 1986) Ceteris paribus, shareholders are more motivated to take on riskier ventures that boost a company's profit as their ownership grows.
Large shareholders may be forced to take more risks in their business dealings than they would if they owned a diverse portfolio of companies if they concentrated a significant portion of their money in a single company According to JOHN et al (2008), wealthy owners prioritize private benefits, thus they might pursue more cautious ventures to ensure such benefits Large shareholders are therefore encouraged to take on riskier ventures, but their returns may be reduced because of their heavy reliance on a single business.
Research on significant shareholders' take-on of company risk is driven by at least a few factors According to Morck et al (1988), large shareholders are a common class of investors globally Second, because they own large holdings in corporations, shareholders have a big influence on the financial decisions made by firms They have the power to influence a company's business risk-taking strategy, which could ultimately impact its viability and competitiveness (Wright et al., 1996) The high-variance asset composition that might arise from an overindulgence in risk can have detrimental effects on the economy.
Using a sample of 356 companies that were listed on the Vietnam Stock Exchange between 2010 and 2022, we look for the impact of CEO traits on companies that were listed on the Vietnam Stock Exchange when it comes to taking risks Following that, we focus on investigating the impact of ownership structure on business risk-taking There are several other contributions from our investigation First, CEOs typically exert the greatest influence over decision-making Therefore, CEO ownership should have the greatest impact if insider ownership has any discernible impacts Second, according to earlier studies, foreign investors are predicted to have a beneficial impact because they are often huge entities with the ability to influence a firm's policy (Cronqvist & Fahlenbrach 2009; Gillan & Starks 2003; Shleifer &
Vishny 1986) They should be able to lessen managers' common inclination to take on too little risk, in particular
The structure of our thesis is organized as follows In Chapter 2, we provide our developed hypothesis and a survey of the relevant literature The data and study methods are covered inChapter 3 In Chapter 4, we present our primary findings and conclusions The implications and limitations of this study are finally covered in Chapter 5, where we bring this study to a close.
LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
CEO gender and firm risk-taking
The resource dependence theory assumes that female directors offer unique viewpoints and backgrounds to the board The literature shows that female directors are less willing to take risks Tabassum et al (2023) give proof that, when leverage is considered a major risk factor, the gender of the CEO has a favorable effect on the corporate risk profile Using the cross- country panel data comprising 69 companies (30 companies from the UK (LSE) and 39 companies from the USA (NYSE) during the period 2012-2020 There are signs that the risk is higher when a woman serves as CEO.On the other hand, CEO gender generally has a negative effect when the volatility of returns is measured as a measure of organizational risk using the standard deviation of ROA According to the study, having a female CEO tends to lower the risk associated with business decisions Peltomọki et al (2021) using data on the S&P 1500 firms have shown that the age and gender of the chief executive officer (CEO) and chief financial officer (CFO) have a direct impact on market-based company risk indicators After optimizing for firm-specific characteristics, policy decisions, and managerial risk-taking incentives, their findings imply that female-led businesses are linked to lower levels of overall and idiosyncratic risks.
On the contrary, Safiullah et al (2022) find that firms with female directors take higher risks, which puts a new insight into the long-standing tale that female directors are risk averse.
Alternative measures of performance, and risk, alternative model specifications, and a two-step system GMM approach are used to address possible endogeneity The dataset contains 165 firms and 805 firm-year observations for the period 2013–2018 Adams & Funk (2012), usingMM Partner, a database containing names of board members of all public and private firms in
Sweden, they discovered that while female directors are less focused on power than their male colleagues, they are more generous and considerate to all people In addition, compared to male directors, female directors tend to love taking perhaps more risks This implies that greater risk- averse decision-making is not necessarily a result of having women on the directors This suggests that having women need not lead to more risk-averse decision-making Based on the above discussion we formulate our hypothesis:
Hypothesis H2: There is a negative relationship between the presence of female CEOs and corporate risk-taking.
CEO Ownership and firm risk-taking
The specific institutional and market conditions also influence how a CEO would influence the company's willingness to take risks For example, a CEO's ability to take risks and be powerful depends on the ownership structure of the company The legal possession and control of any kind of asset, whether tangible or intangible, is known as ownership Multiple rights, generally referred to as titles, that may be divided and owned by various people can be a portion of ownership Risk-taking, debt, and dividend policy are all correlated with management ownership Brisley et al (2021) hand-collected a sample of 549 S&P500 corporations adopting stock ownership requirements ('SORs') for their CEOs during 1993–2018 SORs have been commonplace for senior executives of U.S public firms in recent years According to Haider &
Fang (2018), who also discovered that CEO ownership increases CEO authority, CEO ownership has a favorable impact on risk-taking The guardianship of the company over theCEO is more restricted the more powerful the CEO is, therefore, the management of the board of directors will have greater challenges if they decide to remove the CEO Similar to this,CEOs who are overconfident in their ability to keep their job are more inclined to take greater chances According to Daily & Dalton (1994), businesses where the CEO also retains a big stake make judgments that are far more extreme and, as a result, are more likely to go bankrupt.
Similarly, R B Adams et al (2005) conducted an empirical study and discovered that there is a considerable variation in the corporate risk-taking of US enterprises where the CEO has control over decision-making power We postulate that there is a positive correlation between CEO ownership and company risk-taking based on these empirical scraps of evidence.
Hypothesis H3: CEO Ownership is positively related to corporate risk-taking.
CEO Tenure and firm risk-taking
The debate also surrounds the impact of CEO tenure on investment decisions made by firms.
Longer tenure is thought to positively influence a CEO's decision-making concerning creative initiatives, according to certain studies He et al (2022) employed a sample of 8830 Chinese listed enterprises' firm-year observations from 2012 to 2018 CEO tenure is found to be detrimental to entrepreneurial risk-taking by Zahra (2005) According to other research, a company that has a longer CEO tenure would exhibit less innovative behavior This is because inertia makes it more difficult for a company to adapt to change and remain competitive(Hambrick and Finkelstein 1987) Longer CEO tenures may encourage relationship-building and informal risk-taking, but routines and rigid habits might make it difficult for the CEO to remain open-minded When sustaining the business takes precedence over being innovative and taking risks, relevant data for the risk identification process may be overlooked or lost(Finkelstein et al 1996) CEOs with longer tenures can gain influence, knowledge, and social capital They can also use internal and external company data to strengthen their decision- making skills (Souder et al 2012; Xie 2014; Kao and Chen 2020) Gaining a great deal of knowledge is necessary for businesses making high-risk investments like branding As a result,these projects are more likely to be carried out by CEOs who have been with the company longer and have a deeper understanding of it In the meantime, CEOs with shorter tenure prioritize profits to maintain their position inside the company and carry out low-risk operations There are those that disagree CEOs tend to protect their International
Entrepreneurship and Management Journal careers and grow risk averse as their tenure increases, according to Zajac & Westphal (1996), who note that this tendency occurs as CEOs acquire authority and position in the workplace Consequently, longer-serving CEOs are less likely to invest in brand equity Founder CEOs are limited in their abilities to control ongoing innovation In light of the aforementioned assertion, we put forth the following theories:
Hypothesis H4: CEO tenure is negatively related to corporate risk-taking.
CEO duality and firm risk-taking
The concept of C.E.O duality has been extensively researched from several angles Adams et al (2005) note that from the perspective of agency theory, C.E.O duality creates a concentration of power in a single executive, letting them impact the company's decision- making without facing major objections from other internal stakeholders According to Kim et al (2009), C.E.O duality raises management opportunism, lowers board vigilance, and lowers the firm's risk via unrelated diversification In this way, C.E.O.s retain the status quo within the company, maintain the security and prestige of their jobs, and gain personal rewards at the expense of shareholders In conclusion, the agency study shows that these C.E.O.s utilize their influence and judgment inside the organization's management to avoid these types of dangerous choices and solidify their standing.
Does the practice of having one individual hold the positions of board chair and CEO of a company enhance or detract from the performance of the company? According to agency theory, CEO dualism undermines the CEO's oversight and control, which explains why it is detrimental to performance (Peng et al., 2007) While using a database covering 403 publicly listed firms and 1,202 company years in China, Peng et al., (2007), with conflict statements with the previous studies, encourage that CEO duality has an effective leadership unit that simplifies decision-making and improves a firm's risk in a dynamic environment Nguyen et al.
(2018), using a sample of 2702 observations for Australian firms over the period 2001–2011, state that CEO duality minimizing conflicts of interest on boards allows them to react promptly to high-growth possibilities in challenging circumstances Similarly, according to Peni, (2014), CEO duality and business risk behavior are positively correlated Furthermore, there are conflicting results on the CEO or chair's age, but their qualifications and experience seem to be positively correlated with the success of the company It's interesting to note that a CEO or chairperson with multiple board seats is bad for corporate risk decisions, while CEO duality positively impacts Tobin's Q and the company's return on assets (ROA) (Peni, 2014) Hence, we come up with the hypothesis:
Hypothesis H5: C.E.O duality has a negative relationship with firm risk-taking.
Foreign Ownership and firm risk-taking
Most people believe that foreign investors have similar effects to institutional investors on taking risks On the one hand, they can persuade managers to take risks that are almost at optimal levels because they are among the most independent holders with fiduciary responsibilities However, to increase short-term profits, they may push corporate investment to become unduly conservative The unique collection of 381 NPFs from 57 countries serves as the basis for this analysis, which looks for connections between business risk-taking and foreign ownership X U Peng (2017) demonstrates how foreign investment encourages risk- taking, which is then favorably correlated with company success and sales growth Moreover, during the subprime crisis, higher-risk businesses saw fewer sales and cash flow shortages.
This implies that the only way foreign ownership raises a company's worth is by promoting risk-taking that adds value In their reviews of the literature on the consequences of privatization in transition economies, Estrin et al (2009) note that selling out to foreigners results in more restructuring It is anticipated that this reorganization by riskier investors—who are also more likely to embrace creative projects—will heighten the unpredictability of the companies' revenue streams and, consequently, the volatility of their earnings Furthermore, foreign owners advocate for improved firm-level governance more actively than local investors, which may impact corporate investment policy (Ferreira & Matos, 2008; Gillan &
Starks, 2003) Similarly, Stulz (1999) contends that foreign investors' access to capital markets can enhance company governance and, consequently, managerial risk-taking (JOHN et al., 2008) Similarly, Denis & McConnell (2003) draw the conclusion that ownership by foreign investors, whether states or not, is typically linked to higher or lower business value, perhaps as a result of a more or less hazardous investment policy as suggested by JOHN et al (2008).
DOIDGE et al (2009) and Leuz et al (2009) add to this data by finding that international investors steer clear of badly run enterprises, unlike government owners, due to severe asymmetrical information difficulties that impede management risk-taking Thus, relative to government owners, foreign owners should be associated with greater managerial risk-taking, according to the findings of (DOIDGE et al., 2009 and Leuz et al., 2009) Drawing on this conversation, we posit that:
Hypothesis H6: Foreign ownership is positively related to firm risk-taking.
DATA AND RESEARCH METHODOLOGY
Data sample
Our sample concludes 356 listed firms on the Ho Chi Minh Stock Exchange (HOSE) from the time 2010-2022 In this study, we focus on all the joint stock companies from ten different industries In addition, we focus on collecting data from two main sources: companies’ financial statements and annual reports, which were sites from their company’s websites.
Moreover, we also collect several CEO’s information (name, birth, income, …) and the firm’s ownership data from annual corporation reports Other financial statistics, including, total assets, liability, short-term debt, equity, fixed assets, net income, and sales all obtained from the company’s annual reports and financial statements.
Research models
The paper collaborates with previous research (Yung & Chen, 2018) to come up with the research model to examine the influence of CEO characteristics, including other financial statistics on the firm’s risk-taking of listed companies in Vietnam A summary of the research aspect is shown in Table 3.1
Dependent variable Firm Risk-taking LEVERAGE Liability/Total Assets
CAPEX_TA Capital expenditures to total assets Independent Variable
CEO tenure CEOtenure Number of years the same CEO has held the position CEO gender CEOgender The dummy variable takes the value of 1 if the CEO is female and 0 otherwise
CEO age CEOage CEO age measured by years
CEO income CEOincome CEO total current compensation (salary + bonus) CEO duality CEOdual The dummy variable takes the value of 1 if the CEO and the Chair are the same person and 0 otherwise
CEO holding CEOown Percentage of shares owned by CEOs
Foreign ownership FOWN The proportion of shares held by foreign shareholders
Board size Bsize The number of board directors reported in the financial statement.
Firm Size Fsize Logarithmic value of total assets
Firm Age Fage Current year – Established year
The research model consists of β1-6 defined as CEO characteristics are control variables consisting of CEO tenure, CEO gender, CEO age, CEO holding, CEO income, and CEO duality affecting firm risk-taking The research employs numerous panel data analyst techniques with the Pooled OLS Model (POLS), fixed effect model (FEM), and random effect model (REM) to test the hypotheses above In conclusion, the research model is defined as:
LEV i ,t = β0 + β1-6CEOchari,t + β7FOWNi,t + β8SIZEi,t + β9AGEi,t + β10BSIZEi,t + εi,t
CAPEX TAi ,t = β0 + β1-6CEOchari,t + β7FOWNi,t + β8SIZEi,t + β9AGEi,t + β10BSIZEi,t + εi,t
Firm risk-taking is measured by the financial leverage ( LEV i ,t ) and the capital expenditures to total assets ( CAPEX TAi ,t ) of firm i at time t.
CEOchari,t: characteristic of CEO work of firm i at time t including: CEO tenure, CEO gender, CEO age, CEO holding, CEO income, and CEO duality.
FOWNi,t: the percentage holding of foreigners of firm i at time t.
SIZEi,t:the size of firm i at time t.
AGEi,t: the age of firm i at time t.
BSIZEi,t: The number of board directors reported in the financial statement of firm i at time t. β0: estimation model constants. Β1-10: predictor influence coefficient. ε it : error term.
Descriptive statistics of the variables
Table 3.2 above shows that the CAPEX_TA and LEVERAGE statistics have an average value of 0.289 and 0.472, respectively Among the variables of CEO characteristics,
Variable Obs Mean Std dev Min Max
Bsize 4,022 6.104 1.518 3 15 the average time that the CEO is in the tenure of a position is around 4 years The average age of the CEO is about 49 years old The percentage stock holding of the CEO is 7.389% on average, and their average income is 1.138, which means the CEO's income is 113,800,000 VND annually The CEO duality mean value is 0.242 showing that most of the CEO is not also holding the Chairman position at the same time In addition, the average proportion of foreign ownership is 11.075%, and the average age of the company is approximately 22.5 years with a FIRMAGE mean value of 22.566 Lastly, the mean value of Bsize is 6.104 showing that the corporation has 6 individuals on average for the company’s Boardsize.
4 CEOholding 0.078 -0.072 0.031 1 5 CEOincome 0.112 -0.043 0.281 0.017 1 6 CEOdual -0.087 0.071 0.060 0.052 0.033 1 7 FOWN -0.039 0.052 0.098 0.021 0.141 -0.048 1 8 Fsize -0.153 0.051 -0.024 0.121 0.148 0.373 -0.011 1 9 Fage 0.055 -0.172 0.098 0.14 0.092 -0.072 0.269 0.042 1 10 Bsize -0.220 0.401 0.086 -0.001 0.025 0.018 0.276 -0.081 0.214 1 11 LEVERAGE 0.038 0.004 0.136 0.056 0.205 -0.074 0.056 -0.040 0.026 0.008 1 12 CEOtenure 0.068 0.004 0.063 0.045 0.043 -0.046 0.191 -0.017 0.288 0.204 0.035 1
Table 3.3: The matrix correlation coefficient among the variables
Source: Author’s calculationThe correlation coefficient matrix in the three models demonstrates that the correlation coefficient is relatively small, the comparison is 0.7 in the absence of serious multi-collinear coefficient between the independent variables in the research model So the choice of these independent variables to investigate is entirely appropriate.
Research methodology
FEM (Fixed Effects Model) and REM (Random Effects Model) are important tools in panel data analysis Nevertheless, each unique situation determines when to apply FEM and REM.
FEM and REM are required in the following typical situations FEM should be used for determining the influence of variables that are not regarded as random variables and are stable throughout time or space REM should be used when adjusting for random variables that impact the variations between the observed units in the panel data Furthermore, there are three different approaches to using the panel data analysis method: FEM, REM, and Pooled OLS.
Consequently, to determine which model is better suited for the first model, we performed the Hausman test and the F-test to determine if the random effects model (REM), the fixed effects model (FEM), or the ordinary least squares model (OLS) The Wald test was used to check whether our model is related to the Variance Change Generalized Least Squares (GLS) will address this issue if such a case occurs The FEM and REM estimation techniques are compared using the Hausman test, a statistical hypothesis test in econometrics In essence, the Hausman test is employed to ascertain whether a connection exists between the independent variables and the error εi.i.
Our research process is as follows:
Step 1: Performing a regression analysis to the Pool OLS modelStep 2: Performing a regression analysis to Fixed Effect Model (FEM)Step 3: Performing a regression analysis to Random Effect Model (REM)Step 4: Comparing and choosing between Pool OLS, FEM, and REM by using F-Test andHausman test respectively.
Step 5: Testing for Heteroskedasticity Step 6: Correcting for heteroskedasticity by Generalized Least Squares (GLS)
F-Test is a common method to choose the suitable regression between Pooled OLS and FEM.
The null hypothesis (H0) is Fixed effect = 0
From the test result, the p-value = 0.000 < α=0.05 Reject H0 FEM is more suitable than OLS.
Hausman test is to choose a suitable model between FEM and REM The null hypothesis (H0) is rejected that the preferred model is fixed effects
The Wald test is used to verify heteroskedasticity in the model The null hypothesis (H0) is that this model is heteroskedasticity.
EMPIRICAL RESULT
Table 4.1: Result of regression model
Source: Author’s calculation Note: *, **, *** is defined as significance at 10%, 5%, and 1% level, respectively.
Using the GLS Model, the results are shown in the table above as follows:
We found the relationship between CEO tenure and Leverage in Model (1) Show the coefficient of CEO tenure is negatively significant with firm risk-taking at 1% level The results indicate that CEO with longer tenure tend to use less debt financing for their corporate decision We found that CEOs with longer tenures may encourage relationship-building and informal risk-taking but make it difficult for them to abuse leverage for risk decisions due to routines and rigid habits CEOs with longer tenures can gain influence, knowledge, and social capital They can also use internal and external company data to strengthen their decision- making skills instead of using financial leverage Previous studies (Zahra, 2018) also show that CEO tenure is found to be detrimental to entrepreneurial risk-taking A company that has a longer CEO tenure would exhibit less innovative behavior This is because inertia makes it more difficult for a company to adapt to change and remain competitive (Hambrick and Finkelstein 1987) Hence, H4 is supported as it is consistent with our result, CEO tenure is negatively related to a firm’s risk-taking
CEO gender has a negative association with Leverage proxy Tabassum et al (2023) give proof that, when leverage is considered a major risk factor, the female CEO has a negative effect on the corporate risk profile The table also shows CEO gender with a coefficient of -0.032 and a significant with Leverage proxy at 1% level This means that a female CEO will be less likely to use financial leverage for the company’s risk decision Therefore, the presence of a femaleCEO tends to decrease the risk of corporate decisions Female CEOs tend to be more risk- averse than their opposite gender, especially when it comes to financial decisions This may cause female CEOs to invest in financial leverage more cautiously, as it can be a risky approach if handled improperly Reducing their financial leverage investments could be an attempt to reduce possible losses and preserve their companies' financial viability Similar results are found in Tabassum et al (2023), Graham et al (2013), and Faccio et al (2016) Based on the research result, H2 is supported Model (2) suggests that CEO gender is positively significant with CAPEX_TA at 1% level Hence, when the volatility of returns in terms of
CAPEX_TA is taken as a measure of corporate risk, female CEOs tend to have a positive impact Concerning CEO gender, psychology, and cognitive management studies show that men and women have different leadership styles, corporate efficiency, communication skills, conservatism, boldness, and risk aversion (Eagly & Johnson, 1990; Eagly & Steffen, 1986).
These gender characteristics can lead to variances in financial decisions made by male and female CEOs Female CEOs choose to favor Capital Expenditures to total Assets in a company’s capital structure In summary, H2 is rejected when CAPEX_TA is taken as a measure of corporate risk.
CEO age and Leverage have a negative coefficient with a statistical significance of 10% The negative coefficient indicates that older CEOs are less likely to use financial leverage for the company’s risk decision Younger CEOs typically lead businesses experiencing rapid growth and are higher risk-takers As a result, they might take on greater risk than CEOs who are older.
Similar results are found by Chowdhury & Fink (2017), Orens & Reheul (2013), and Graham et al (2013) Therefore, H1 is supported On the other side, CEO age and CAPEX_TA have a positive relationship with an estimated coefficient of 0.0045 and a statistical significance at 1% level Shows that older CEOs tend to pay more for Capital Expenditure Older CEOs do influence the capital expenditures to total assets of divisions Due to their advanced age and nearing retirement, older CEOs could have a lower risk tolerance Instead of taking on high- risk ventures that could result in large losses, they might be more concerned in protecting their cash and earning a consistent income (Fahlenbrach, 2009) researched the effect of older CEOs on investment decisions and stock market performance He found that firms with older CEOs invest more in research and development and have a higher ratio for CAPEX_TA In brief, H1 is rejected.
CEO holding is positively significant with Leverage at a 1% level Accordingly, CEOs with higher stock holdings tend to use more financial leverage for the company’s risk decision The company's willingness to take risks For example, a CEO's ability to take risks and be powerful depends on the ownership structure of the company The legal possession and control of any kind of asset, whether tangible or intangible, is known as ownership (Brisley et al., 2021).
Haider & Fang (2018) also discovered that CEO ownership increases CEO authority, and CEO ownership has a favorable impact on financial leverage Daily & Dalton (1994) found that businesses where the CEO also retains a big stake make judgments that are far more extreme and abuse financial leverage heavily, and as a result, are more likely to go bankrupt According to the research result, H3 is accepted.
CEO income has a negative relationship with leverage at 1% level The theory regarding the relationship between CEO compensation and company risk-taking is positive Accordingly, CEOs who earn more money typically employ a lower financial leverage ratio when making risky decisions for their companies High CEO compensation may lead to increased pressure on the management to maintain or grow this compensation This could result in the corporation taking on more debt or increasing its financial leverage If a CEO is primarily focused on maintaining or increasing their income, they might prioritize short-term gains over long-term growth strategies This could lead to an increase in financial leverage to meet short-term performance targets, which could negatively impact the financial leverage ratio How a CEO would affect the company's risk appetite is also influenced by other factors This is new research that our study contains.
The effect of CEO duality on financial leverage is positive and significant at 1% level It shows that a CEO who is also the Chairman tend to use leverage ratio for making decisions about business operations, investments, and strategies When the CEO also holds the position ofChairman, there is a higher likelihood of better alignment between the CEO's interests and those of the shareholders This could lead to better decision-making, which might positively impact financial leverage A CEO, who is also the Chairman, may have a longer-term leverage by focusing on long-term strategies that benefit the company in the long run It is crucial to consider the specific context and circumstances of each company to determine the overall impact of CEO duality on financial leverage K.-H Kim, (2008) has yielded findings that are quite similar to the ones we have observed Hypothesis 5 suggests a negative effect in the relationship between CEO duality and firm risk-taking behavior However, upon reaching our result, we found ourselves reconsidering that CEO duality has a positive impact on the leverage ratio On the other hand, CEO duality also impact negatively on CAPEX_TA at 1% level which means the CEO who holds the Chairman position tends to invest less in fixed assets One reason might be that CEOs with dual roles (e.g., CEO and chairman) may have divided attention, leading to less focus on long-term strategic decisions like investing in fixed assets Additionally, the presence of dual roles might result in a skewed focus on intangible assets like reputation, brand, or relationships, which could lead to neglecting tangible investments Furthermore, potential conflicts of interest or over-confidence in their management capabilities could also contribute to reduced investment in tangible assets.
There is a negative and significant relationship between foreign ownership and leverage ratio at 1% level The result explains that the more foreign investment, the more capital the company will have, and the company's operations will develop and expand Therefore, debt decreases, and a lower leverage ratio is used When a company has foreign investors, its financial statements are exposed to currency fluctuations If the local currency depreciates against the investor's home currency, the company's debt may appear larger, increasing the leverage ratio.
Foreign investors may have different investment strategies and risk tolerance than domestic investors International investors may follow different accounting and reporting standards than those used by the company This can lead to inconsistencies in financial reporting, making it harder to compare the company's leverage ratio with other companies in the same industry or country On the other hand, the impact of foreign ownership on CAPEX_TA is positive and significant at the level of 1% As foreign investments in companies continue to increase, it will help improve the company's operations, and the company can use the capital for fixed asset investments This can be explained by several reasons: Foreign investors bring in capital from different parts of the world, which can help in funding large-scale projects and infrastructure development The presence of foreign investors can signal to other investors that the country or region is a stable and attractive place to do business Foreign investors often bring advanced technology and know-how to the host country This can lead to the development of new industries, improved productivity, and better-quality products Our finding also has similar points regarding (B Kim, 2011)’s paper Accordingly, the impacts of foreign investors on risk- taking are often considered to be similar to those of institutional investors However, after this result, we reject part of Hypothesis 6 mentioned above.
It can be seen that firm size and financial leverage is positively related at the level of 1% As a company grows larger, it tends to rely more on financial leverage As a company grows, it may require more funds to expand its operations, enter new markets, or invest in research and development In larger markets, competition can be fierce, and companies need to invest more in marketing, innovation, and infrastructure to stay ahead Leverage can provide the necessary funds for these investments Moreover, larger firms often have higher expectations for returns on their investments They may use financial leverage to boost their potential returns if the interest costs are lower than the additional profits generated Utilizing financial leverage can help companies diversify their sources of funding, reducing their reliance on equity financing alone Larger firms may have more expertise and resources in managing debt, allowing them to efficiently allocate capital between debt and equity financing This can lead to better overall financial performance However, a negative and adverse impact on the relationship between company size and capital expenditure to total assets (CAPEX_TA) at 1% level is observed As a firm grows larger, it may reach a point where additional investments do not yield proportional increases in returns This is known as the law of diminishing returns Larger firms often have more complex capital structures and a higher level of financial obligations, such as debt and preferred stock These financial constraints can limit the amount of funds available for tangible investments Agency costs refer to the expenses incurred due to the information asymmetry and conflicts of interest between the managers and shareholders of a firm In larger firms, these agency costs can be higher due to the increased complexity of decision-making and monitoring processes As a result, managers might be more cautious in making tangible investments, as they need to balance the potential benefits against the increased agency costs We have found a common point between our results and the study of (Bhagat et al., 2015).
This is a positive relationship between firm age and financial leverage at the level of 5% The result shows that long-established companies usually have a tendency to use leverage ratio more often Over time, companies have built a strong financial foundation, which allows them to take on more debt or use leverage to fund their operations or investments Long-established companies may want to expand their operations, enter new markets, or invest in research and development Using leverage can help them access capital for these opportunities without significantly diluting their ownership or control Leverage can offer tax advantages to companies Interest payments on debt are tax-deductible, which can reduce the effective cost of borrowing and increase net income In some cases, the use of leverage can signal financial strength and stability to the market Investors may perceive that a company with a higher debt- to-equity ratio is aggressively investing in its growth, which can lead to a positive market reaction Long-established companies may use leverage ratios as a benchmark to compare themselves with competitors or industry peers This can help them identify opportunities to optimize their capital structure and potentially gain a competitive edge Besides that, firm age impact negatively on CAPEX_TA at 1% level Long-established firms tend to have a high investment in tangible As a company grows older, it may face challenges such as reduced innovation, increased bureaucracy, and a decreased ability to adapt to new market trends These factors might lead to less attractive investment opportunities and a lower return on investment,causing a negative effect on tangible investments Following the previous study of (J Fink, G
Grullon, K Fink, J Weston 2004) shows that the connection between firm risk-taking and company age arises due to a business's evolving investment prospects throughout its development stages.
In addition, board size has a positive effect on CAPEX_TA at 1% level It can be explained that the board size of an enterprise represents the scale of the enterprise, the larger the enterprise, the greater the board size to increase the company's ability to control investment activities A large-sized board will have advantages in enhancing functions within the board of directors such as consulting support and reducing the autocracy of managers in investment When a board size is larger, the tangible investment tends to increase to some extent Essentially, the growth and development of a company will influence its investment decisions With a larger board of directors, there will be more diverse opinions and directions regarding business strategies and investments As a result, the members of the board of directors may reach a consensus on investing more in fixed assets However, fixed assets also have unique characteristics compared to current assets Fixed assets often generate profit over a longer period, helping companies avoid risks and strengthen their stability In a large board, directors may be more inclined towards investing in fixed assets to create a more diverse and secure asset base According to this reasoning, small boards are more likely to favor low CAPEX_TA to mitigate the negative effects of debt on riskier investments Following to Wang (2012), it is observed that bigger companies usually have more extensive boards, and these larger corporations tend to utilize a significant portion of their investment opportunities.
Consequently, these businesses are perceived as less risky.
CONCLUSION
In Vietnam, there is a dearth of research employing the POLS, REM, or FEM models to measure company risk-taking Using this method, we looked at the influence of ownership structure and CEO traits on the risk-taking of the company We employ data from 356 listed companies overall and from different specializations on the Vietnam Stock Exchange, along with our analysis of the CEO's attributes and ownership structure's capacity to take on risks in the business Our research affects the risk-taking of the CEO characteristics in the Vietnamese Exchange Stock from 2010 to 2022 We focus on the traits of the CEO and the ownership structure in relation to the firm's willingness to take risks, considering the impact of the leverage ratio and CAPEX_TA in Vietnam.
Our findings show a significant generational gap in CEO business risk-taking Our findings imply that the risk tolerance of CEOs varies with generation The findings indicate that CEO risk tolerance is substantial when risk-taking is gauged by leverage and CAPEX_TA It is evident that the Leverage ratio is inversely correlated with CEO attributes including tenure, gender, age, and income: the higher the number, the lower the Leverage ratio However, they positively impact CAPEX_TA For example, when risk-taking is quantified by CAPEX_TA, senior CEOs are more inclined to take chances than junior CEOs However, when risk-taking is justified, younger CEOs are more willing to take chances than older CEOs Because leverage is used to determine which capital structure is best for the current stage of business operations and to analyze financial risks, which leads to investment decisions, we find that younger CEOs are more likely to invest in leverage Our computations show that CEO ownership influences company risk-taking favorably There is a positive correlation between foreign ownership and CAPEX_TA and a negative correlation between it and leverage.
Additionally, the control variable's results show that board characteristics (board size) and business size (Fsize) have a positive and negative impact on CAPEX_TA, respectively.
Financial leverage and firm size generally have a favorable association Leverage benefits from firm age because an older company can more easily show its financial stability and receive a better loan According to our findings, there is a negative correlation between CEO dualism and corporate risk tolerance and CAPEX_TA, but a positive correlation with financial leverage.
Our findings also corroborate hypotheses 1, 2, 3, and 4 Specifically, we discovered that senior female CEOs who hold fewer stocks and have held their positions longer will reduce the amount of risk taken by the company On the other hand, our results refute the theories of CEO duality (Hypothesis 5) and foreign ownership (Hypothesis 6), as determined by the leverage ratio.
The findings of our investigation have theoretical and real-world applications Firstly, this research adds to the body of knowledge already available on risk-taking by organizations In particular, in response to calls made by (Gomez‐Mejia et al., 2010), we have expanded the knowledge about the potential factors that influence firms' risk-taking, since the literature primarily focused on the company's risk-taking We have done this by examining the characteristics of CEOs and the influences of ownership structures While a great deal of study has been done on the impact of CEO demographics on the performance of organizations,relatively less has been done to examine the personal traits of CEOs and the effects that ownership structure has on the risk-taking of businesses There are also applications for this study First, since we present evidence of characteristics that strongly influence enterprises' risk-taking, companies stand to benefit from our research findings To support their assessments, internal and external stakeholders who are curious about a company's risk-taking may find our study useful in assessing the various elements that could impact the company's risk decision Since it helps to identify specific personal attributes that should be taken into consideration when recruiting or promoting someone into the CEO role, our study's findings may also be utilized to support CEO selection processes When recruiting a CEO or promoting someone to the CEO role, should consider appointing an older female CEO to promote entrepreneurial activities The more important part is the appeal for foreign investment to develop and reduce risks.
Moreover, any generalization of the results should be done cautiously because our study is restricted to one nation (Vietnam) and has a rather small sample size It provides additional data that is useful for field research in addition to helping identify the best models If our results can be applied to other nations, that is a topic for future investigation.
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