research proposal effects of ownership structure on bank performance evidence from vietnamese commercial bank

FOREIGN TRADE UNIVERSITY FACULTY OF FINANCE AND BANKING ***** RESEARCH PROPOSAL: EFFECTS OF OWNERSHIP STRUCTURE ON BANK PERFORMANCE: EVIDENCE FROM VIETNAMESE COMMERCIAL BANK... Studying

FOREIGN TRADE UNIVERSITY FACULTY OF FINANCE AND BANKING

*****

RESEARCH PROPOSAL:

EFFECTS OF OWNERSHIP STRUCTURE ON BANK PERFORMANCE: EVIDENCE FROM VIETNAMESE COMMERCIAL BANK

Table of Contents

TITLE OF RESEARCH: 3

1 BACKGROUND AND RATIONALE: 3

1.1 Reason and urgency to implement the topic 3

1.2 Aim and objectives: 3

1.3 Scope of the study: 4

2 LITERATURE REVIEW: 5

2.1 Prior research: 5

2.2 Research gap: 6

3 RESEARCH DESIGN AND METHODS: 7

3.1 Theoretical framework: 7

3.2 Research methods: 7

3.3 Method of collecting data: 10

3.4 Hypothesis development: 10

4 DATA ANALYSIS TECHNIQUE: 11

4.1 Research models: 11

4.2 Data analysis process: 12

5 THE STRUCTURE OF THE RESEARCH: 13

6 PLAN OF WORK & SCHEDULE: 13

REFERENCES 15

APPENDIX 16

APPENDIX 1 LIST OF BANKS 16 APPENDIX2 MEASUREMENTS AND DESCRIPTIONS OF VARIABLES .17

TITLE OF RESEARCH:

EFFECTS OF OWNERSHIP STRUCTURE ON BANK PERFORMANCE: EVIDENCE FROM VIETNAMESE COMMERCIAL BANK

1 BACKGROUND AND RATIONALE:

1.1 Reason and urgency to implement the topic

In 2012, the program of restructuring the credit institutions system for 2011-2015 was promulgated by decision No 245 of the Vietnamese Prime Minister, focusing on restructuring the banking system Notably, the program divides banks into two target groups: State commercial banks and joint-stock commercial banks The joint-stock commercial banks are divided into healthy banks, the banking group with temporary liquidity shortage and the weak bank group On that basis, the program has also brought out the orientation and resolution of other restructurings for each bank group

Restructuring the banking system is an issue that has received much attention from market development policymakers, investors and commercial banks Studying the relationship between ownership structure and business performance of commercial banks

in Vietnam has great practical significance for three reasons:

Firstly, Vietnam's economy is based on the banking system instead of the market, so the banking system plays a dominant role in allocating capital to the economy

Second, an outstanding feature of the Vietnamese economy is the dominant role of state ownership in many fields, including banking

Third, the trend of opening up and integrating with the world is inevitable Vietnam must also open up the banking industry to foreign investors

With the above reasons and urgency, the author chose to carry out the topic "Effects of ownership structure on bank performance: evidence from Vietnamese commercial bank."

1.2 Aim and objectives:

 Overall aim

The study's overall objective is to analyse the impact of ownership structure on the business performance of Vietnamese commercial banks Based on the research results, to make policy suggestions and solutions on ownership structure to improve Vietnamese commercial banks' business performance

 Specific objectives

 Analysing the current status of the ownership structure of Vietnamese commercial banks

 Assess the current status of ownership structure and business performance of Vietnamese commercial banks

 Analyse the impact of each type of ownership on the business performance of Vietnamese commercial banks

2 Research question:

In order to achieve the research objective of the topic, the author through find solutions for the following research questions:

Question 1: In addition to factors belonging to the macroeconomics and bank-specifics,

how does the ownership structure of commercial banks affect the business performance?

Question 2: If the ownership structure impacts the business performance of Vietnamese

commercial banks, what is the impact of each type of ownership on the efficiency of the business?

1.3 Scope of the study:



 Research subjects:

The research object is the ownership structure, business performance and the impact of ownership structure on the business performance of commercial banks in Vietnam



 Research scope:

 Time scope: The study studies the factors related to capital ownership structure that

affect the profitability of commercial banks in Vietnam from 2011-2020

 Spatial scope: Operation of Vietnam's commercial banking system, ownership

structure and link with the performance of Vietnamese commercial banks The study

is based on data from 26 Vietnamese commercial banks The banks considered in the sample include banks with 100 per cent state capital, banks with dominant state ownership (above 50 per cent), joint-stock commercial banks and banks with foreign ownership

2.1 Prior research:

Means (1932) first published the theoretical foundation of research on business performance in the relationship between ownership and corporate governance During the next half-century, many studies in the financial sector, especially in the United Kingdom and the United States, have focused on evaluating the relationship between ownership structure and firm performance However, it was not until 1976 that the research of Jensen and Meckiling (1976) and then a series of other studies gave breakthrough views

on the relationship between ownership and performance of enterprises when the concept

of agency costs was developed

In a study on the relationship between manager behaviour, agency costs and ownership structure, Jensen and Meckling (1976) hypothesised that the ownership ratio of corporate management is an exogenous factor and used the method of least squares (OLS) to conduct the study The study's results have provided evidence for a linear relationship between the ownership rate of the board of directors and the performance of the enterprise, precisely the percentage of share ownership of the board members The bigger the management, the more managers' decisions tend to improve the business's performance and follow the ultimate goal of corporate governance, which is to maximise the value of the owner's assets

In the study "Bank Ownership and Performance" by Micco et al (2006), published in November 2006, the authors have built a dataset of approximately 50,000 observations

from 119 countries around the world in the period 1995-2002 to describe the effect of ownership structure on the performance of banks Research has shown that, in developing countries, there is a strong relationship between ownership structure and bank performance, while in developed countries, there is no such relationship, or yes but not significantly The impact on developing countries is negative; state-owned banks have lower profits and higher costs, mainly due to more employees than private and foreign banks A study by Micco et al (2007) analysed the relationship between ownership structure and performance of banks worldwide, supporting this conclusion

Lin and Zhang (2009) studied the Chinese market and focused on the four largest state-owned commercial banks The results show that this group of commercial banks has less profit, lower efficiency and poor asset quality than other private or foreign commercial banks

Research topic "Relationship between ownership structure and performance of state-owned commercial banks and commercial banks in which the state holds dominant shares (status, trend and orientation)" by Kieu Huu Thien and a research team from Banking Academy (2014) conducted a fairly comprehensive study on the impact of state ownership on the performance of state-owned commercial banks with dominant shares

By qualitative and quantitative methods, the study has demonstrated the relationship between ownership form and performance of commercial banks in which the state holds dominant shares

Nguyen Hong Son (2013) studied the impact of ownership structure on the profitability

of Vietnamese commercial banks in the context of restructuring The research results show that the level of equity concentration and the rate of private ownership positively impact the profitability of commercial banks

2.2 Research gap:

In the face of the urgent need to study the ownership structure concerning bank performance, domestic and international studies, as analysed above, still have some primary research gaps such as:

Firstly, the peculiarity of banks in other countries is that the ownership structure is

dispersed or dominated by a low amount of State capital involved, which is different from the Vietnamese banking system, where the role of the State is still significant

Second, the application of empirical studies in Vietnam on this topic is still limited.

Specifically, several studies in Vietnam have applied previous studies in the world, such

as using a simple quantitative method that is the use of least squares (OLS) method, to measure the influence of the ownership structure

3.1 Theoretical framework:

 Asymmetry Information Theory

This notion was initially stated by Akerlof (1970) and later supplemented by Spence (1973) Asymmetric information happens when one party has less or inadequate information relative to the other; this will lead the less informed party to make wrong judgments while executing a deal, and the better-informed party will also participate in behaviours damaging to the other party when fulfilling the transaction responsibilities The theory of asymmetric information is often used in studies to verify the influence of financial indicators on the financial statements in general and capital ownership structure

in particular, in which relevant factors such as foreign ownership, state ownership, and ownership of organisations



 Agency theory

Jensen and Meckling (1976), in work "Theory of the firm: Managers' behaviour, agency costs and ownership structure," introduced their views on agency theory This theory has been studied before and has a basis in psychology: people are inherently inclined to individual, opportunistic, and self-interest; However, the problem here is how individuals can harmonise their interests for mutual benefit and development

3.2 Research methods:

 Document review method: this method reviews domestic and foreign documents

and studies related to capital structure

 Systematic method, theoretical synthesis: The study exploits documents on

topics on the relationship between ownership structure and operational efficiency

of commercial banks Based on thematic analysis, the collected information arranges to discover the research perspectives of different authors, thereby forming

a critical theoretical system for the research objectives and objects This method is used to answer Question 1, to synthesise previous studies on the ownership structure as well as the type of ownership structure, thereby assessing the impact

of the ownership structures on the performance of commercial banks

 Methods of statistics, analysis, and synthesis: After having the results of

secondary data collected on the indicators of ownership structure, performance results, and quality of corporate governance, the data is entered into Excel spreadsheets for statistics and synthesis, using analytical methods, cross-bank comparisons and longitudinal comparisons to assess the current status of the relationship between ownership and efficiency of banking operations

 Methods of data analysis and processing: When analysing the factors of

ownership structure affecting bank performance, many theories have been applied, including the Agency theory proposed by Jensen and Meckling (1976),

Asymmetry Information Theory is introduced by Akerlof (1970), and later

supplemented by Spence (1973) From the research of Lin and Zhang (2009), many studies have been developed to analyse the effects of ownership on the efficiency of banking operations

Synthesising previous studies and the actual context of Vietnam, the paper examines the restructuring of commercial banks and uses regression models for panel data proposed by previous studies of countries around the world as well as Vietnam, such as Jensen and Meckling (1976), Mico et al (2007), Lin and Zhang (2009), Nguyen Hong Son (2013) This method examines the impact of different types of ownership on the bank's performance, answering Question 2 and making recommendations for businesses and decision-makers

Figure 1: Research model of the study

In this research paper, the author inherits the studies of Mico et al (2007), Lin and Zhang (2009), Lensink and Naaborg (2007) and proposes to use multiple linear regression models to estimate the number of factors affecting the business performance of Vietnamese commercial banks based on collected panel data The study will make hypotheses corresponding to the impact of factors affecting the performance of commercial banks in Vietnam, along with using Pool OLS models, choosing between Fixed-Effects and Random-Effects models to test the consistency between the effects of factors and profitability factors of commercial banks Pooled OLS is a panel data approach by superimposing all observations, ignoring the spatial and temporal planes and only estimating using the standard OLS model so that the regression coefficients are assumed to be the same for all observations Meanwhile, FEM and REM help separate the effects of the individual characteristics from the independent variables by estimating the actual effects of the independent variable on the dependent variable The author performs the models and tests on STATA 15 software in this research

Bank perfomance

Ownership structure

Macroeconimics factors

Bank-specific

factors

3.3 Method of collecting data:

The data will be divided into three main categories: Data relating to ownership structures, macroeconomics-related data, and bank-specific variables-related data Data will be collected from the Bankscope data source and some databases of the General Statistics Office, the State Bank, and the World Bank Bankscope is a reputable database source worldwide, storing data of more than 10000 Financial intermediaries globally The data banks collect from Bankscope sources include income statements, balance sheet items and financial ratios

However, some information, especially information on ownership ratio and corporate governance of Vietnamese commercial banks, was not aggregated enough on Bankscope,

so the author searched for this information based on the annual reports, audited financial statements of banks and paid data aggregation services in Vietnam This data source will supplement the information missing from the Bankscope source The banks selected for data collection are listed in the table in the appendix

3.4 Hypothesis development:

According to Asymmetry Information Theory, there are three main types of ownership

structure: State, foreign, and private/individual ownership Therefore, the author has based on previous studies of Jensen and Meckling (1976) and Mico et al (2007) to propose hypotheses to answer research Question 2:

 Hypothesis H1: There exists a statistical and significant relationship between the state ownership ratio and bank performance in Vietnam.

 Hypothesis H2: There exists a statistical and significant relationship between the foreign ownership ratio and bank performance in Vietnam.

 Hypothesis H3: There exists a statistical and significant relationship between the individual ownership ratio and bank performance in Vietnam.