ceos generation firms ownership and firm risk taking evidence from vietnamese listed firms on ho chi minh stock exchange 1

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY FACULTY OF FINANCE AND BANKING CEOS' GENERATION, FIRM'S OWNERSHIP AND FIRM RISK-TAKING: EVIDENCE FROM VIETNAMESE LISTED

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY

FACULTY OF FINANCE AND BANKING

CEOS' GENERATION, FIRM'S OWNERSHIP AND FIRM RISK-TAKING: EVIDENCE FROM VIETNAMESE LISTED FIRMS ON HO CHI MINH

STOCK EXCHANGE

Submittedby Bui Lam Bao Tram Duong Huynh Huyen Nhi

Under the supervision of Ph.D Le Bao Thy

A thesis submitted in partial fulfillment of

the requirements for the degree of

Bachelor of Science

in Finance and Banking

HO CHI MINH CITY, OCTOBER 2022

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY

FACULTY OF FINANCE AND BANKING

CEOS' GENERATION, FIRM'S OWNERSHIP AND FIRM RISK-TAKING: EVIDENCE FROM VIETNAMESE LISTED FIRMS ON HO CHI MINH

STOCK EXCHANGE

Submittedby Bui Lam Bao Tram Duong Huynh Huyen Nhi

Under the supervision of Ph.D Le Bao Thy

A thesis submitted in partial fulfillment of

the requirements for the degree of

Bachelor of Science

in Finance and Banking

HO CHI MINH CITY, OCTOBER 2022

ACKNOWLEDGEMENT

We would like to express our sincere thanks to my instructor, Ph.D Le Bao Thy, who helped us to complete this report Her enthusiastic guidance and valuable advice helped me through the stages of writing this report We would like to thank you for taking so much precious time and correcting many of our mistakes

We would like to thank Ton Duc Thang University for creating conditions for us

to carry out this important thesis

We sincerely thank you!

Ho Chi Minh City, day month year 2022

Author

The thesis was carried out at Ton Duc Thang University

DECLARATION OF AUTHORSHIP

THE THESIS HAS BEEN ACCOMPLISHED

AT TON DUC THANG UNIVERSITY

I hereby declare that this thesis was carried out by myself under the guidance and supervision of Ph.D Le Bao Thy ; and that the work contained and the results in this thesis are true and have not been either submitted anywhere for any previous purpose or published in any other literature The data and figures presented in this thesis are for analysis, comments, and evaluations from various resources by my own work and have been fully acknowledged in the reference

part

In addition, other comments, reviews and data from other authors, and organizations used in this thesis have been acknowledged, and explicitly cited

I will take full responsibility for any fraud detected in my thesis Ton Duc

Thang University is unrelated to any copyright infringement caused on my work

CEOS' GENERATION, FIRM'S OWNERSHIP AND FIRM RISK-TAKING: EVIDENCE FROM VIETNAMESE LISTED FIRMS ON HO CHI MINH STOCK EXCHANGE

ABSTRACT

In this study, we examine the influence of the CEOs’ generation and ownership

on firm risk-taking Using a dataset of companies in the Construction and Real Estate industries in Vietnam (traded on the Ho Chi Minh Stock Exchange) from 2009 to 2021,

we find that the coefficient of SEEKERS is negatively significant with PPE, and the coefficient of BUILDERS 1s positively significant with PPE On the other hand, the coefficient for Seeker CEOs is positively significant with o(ROA), and the coefficient for Builder CEOs is negatively significant with o(ROA) However, we did no significant results are obtained for these CEOs’ generation with Leverage and o(ROE) Finally, the analysis results about ownership show that there is a significant and negative relationship between ownership and firm risk-taking

CONTENTS

KT ai aẢ3ẲẢẢ 17 3.3.1 Multicollinearlfy c2 211 1221121121221 211 1111112112 210121 111111 x re 18 3.3.2 Heteroskedasticlfy seCfIOH 2 2n 22H TH 1 xyHnknHưe 19

LIST OF FIGURES Figure 1.1: Profitability developments of real estate enterprises in Vietnam

Table 3.3: The matrix correlation coefficient among the variables

Heteroskedasticity result of Models (3) and (4)

Heteroskedasticity result of Models (5) and (6)

Heteroskedasticity result of Models (7) and (Ể) « «se s«<< se 21 Seeker, Builder CEOs, and other factors affect firm risk-taking (GLS

23

6 Pooled OLS The Pooled Ordinary Least Squares

CHAPTER 1; INTRODUCTION

The literature provides evidence that a company's risk tolerance is highly correlated with the age of the CEO in the corporation A research study about career perspectives shows that younger CEOs have not developed a solid reputation However, other scientific investigations that take into account professional considerations reveal that younger CEOs are more risk-averse This is due to the fact that they have yet to solidify their reputation and the amazing influence that CEOs play in company growth and business performance (Andreou et al., 2017) On the other hand, younger CEOs are more inclined to implement company practices that are conservative in nature (Sirias et al., 2007) This is because they don't want to face consequences for their company's poor performance On the other side, it has been observed that younger CEOs tend to take risks, be overconfident, and exaggerate their managerial skills For instance, previous research indicates that younger CEOs are linked to riskier corporate strategies and have a higher chance of being involved in crashes (Serfling, 2014)

The company's willingness to take risks is essential to its long-term growth There

is data that suggests many managers view risk-taking as a crucial component of the managing role (March & Shapira, 1987) The study of Nana (2016) also reveals that senior CEOs are more likely to undertake diversified acquisitions and that their companies have more diverse business areas and conditions The risk preferences of other senior executives may also influence the company's overall risk profile because a CEO normally does not establish company policies alone but rather as a team member Executives in the CEO's age group should encourage the CEO's risk-taking behavior if the CEO's age affects his or her risk appetite According to this prediction, as the CEO and the next most powerful executive get older, the volatility of stock returns, operating leverage, and financial leverage decrease Additionally, when the next most important CEO (Chief Executive Officer) is older, a company's activities are more diversified

According to studies, stock gains are rising while the corporate risk is decreasing (French et al Future stock returns for businesses run by senior CEOs will be lower than those for businesses run by younger leaders They contend that a portfolio with the youngest CEOs will perform better than one with CEOs in the oldest age group in terms

of portfolio earnings that are risk-adjusted

In this study, we only focus on the construction and real estate sector for the following reasons:

First, real estate is one of the industries with a significant position and function in the national economy, having a close connection to the construction, building materials, financial, and monetary markets The long history of real estate from the past to the present can be shown to be primarily comprised of official transactions beginning in

1993 At that time, there were relatively few real estate enterprises, primarily land use rights, and real estate was primarily transacted in gold The Vietnamese real estate market formally debuted in 1993 and was dominated by secondary sales until 2003 The foreign sector started to pay attention to investment and development, including housing, rented offices, and industrial parks The Vietnamese real estate market has generated a variety of business products through the stages of formation and development, and it has grown significantly The advancement of socioeconomic development, the ability to attract investment capital, and the promotion of development, industrialization, and modemization will all be significantly aided by the sustainable development and efficient administration of this field In the nation's modemuization In terms of total registered capital, real estate came in second with 3.15 billion USD and 22.5% Vietnamese industrial real estate investors continue to find the country appealing due to

a stable currency, a rise in trade agreements, and free commerce, according to Cushman

& Wakefield, the world's largest provider of real estate services From 2009 to 2021 on the HOSE, 127 real estate businesses listed on the Vietnam stock exchange comprised the sample for our study Our findings can be used as a reference for real estate to have

solutions to improve activities contributing to real estate development, creating a premise for sustainable development

we also found ownerships have a positive or negative on the firm risk-taking Our report is researched with the following objectives: First, we look for factors affecting the risk-taking of companies in the field of Construction and Real Estate in Vietnam Then, we focus on analyzing the impact of CEOs’ generation and ownership

on corporation risk-taking

The remainder of the thesis is structured as follows We review the related literature and present our hypothesis development in Chapter 2 Chapter 3 describes the

data and research methodology Our main results and discussions are displayed in Chapter 4 Finally, we conclude this study by discussing the implication and limitations

of this study in Chapter 5

CHAPTER 2: LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 2.1 Generation theory

The generation theory has two different fields of research: The Sociological perspective and the Cohort perspective The sociological perspective of view is expressed through opinion without consideration of the individual It is produced by the reasons and behaviors of patterned people Sociologists, however, are not concemed with personal traits; they also strive to explain trends in addition to monitoring social perspectives Instead, they discovered widespread attitudes and characteristics among the characteristics and behaviors among millions of people One of the fundamental aims

of the sociological perspective is to identify and comprehend the patterns underlying the recurrent elements of social interaction and to investigate the social repercussions of these patterns According to the social perspective theory of Malmendier & Tate (2005), the thinking, ideas, and management of different generations are interrelated and influenced by historical events and influence each other This idea combines the process

of development with the impact of society, these factors are considered as a process of development through generations because they cannot exist without each other Each generation of people has the same view of life and development at work based on contact, development with the experiences that formed them in the first years of life, and school training In contrast, the sociological approach does not address how generation affects individual characteristics It is more concerned with how the interactions and goals of generations influence social change

Immediately after the second research strand, the theory of viewpoints of groups

or populations born nearly at the same time, composed of three groups: the population's

age group, the population's age groups, and the group of people who are aging and successive in historical epochs The interaction between groups of people playing various roles according to age is its variation, the last group The aging process and intergenerational relationships in society are examined in these social studies According

to Nuthall (2001) perspective theory, generations are groups of people who have shared historical, economic, and social events This definition is used in the second study series They can be identified by their year of birth, age, place of residence, and notable historical occurrences that took place during pivotal times in their life (Hambrick, 1986) These historical occurrences, which may have taken place when they were children, adolescents, or young adults, are significant enough to affect how people of the same generation perceive values, personality, attitudes, beliefs, values, cognitive styles, and proclivities (Jaffee et al., 2007; Strauss and Howe, 1991) The exposure to significant economic and social events throughout a generation's early years affects how that generation responds to social situations

We obtained some important results in this study According to Tee and Pak (2021), in cohort view theory, generations are made up of people who shared several events that are simultaneously significant in history, economics, and society Based on their year of birth, age, location, and significant historical occurrences at pivotal periods

of their lives, it is possible to identify them (Kupperschmidt, 2000) These historical events, which may have occurred during their late childhood, adolescence, or early adulthood, had a significant enough effect to influence how both the younger and older generations see values, personality, attitudes, beliefs, values, cognitive styles, and inclinations (Twenge & Campbell, 2008) Due to their exposure to significant economic, and social events throughout the course of their lifetimes, various generations will respond differently to the environment

Documents describing the impact of generational differences on workplace- related issues may be found in numerous perspectives The results can be summed up as

follows If a person believes that everyone has the capacity and the right to exist, personal traits can have a good impact on how various generations manage Contributing positively to the company, regardless of when they come from in that development However, traits like conservatism and ego may work against the organization if all generations feel that they are entitled to things without having to work for them (Twenge et al., 2010) Second, the following generation has placed more value

on amusement while placing less emphasis on work and morality (Hecht & Allen, 2005; Smola and Sutton, 2002)

2.2 Seekers, Builders and Ownership

The effect of historical events on firm risk-taking among various generational cohorts is explained by the generational theory According to this hypothesis, a generational group is composed of people who have similar knowledge, values, and emotional responses Despite this wealth of empirical data, little research has been done

to determine if behavior varies over generations Therefore, the goal of our study is to examine the variations in risk-taking behaviors among CEOs from various generations We'll refer to this as the between-generation impacts We also explore the so-called

"within-generation impact," which refers to changes in early life experiences between generations

World War II caused the period in which the seeker was born to be challenging Seekers are born into a period of conflict, hardship, struggle, and search for independence (Born 1943 — 1960) A self-sufficient economy is one in which agriculture and employment in the major sector of the economy are the most significant sources of income for this generation This generation was raised in educational institutions devoid

of useful frameworks (Twenge et al., 2010)

For instance in Vietnam, is in the midst of its independence process At that time, the govemment did not fully support the educational system, and every parent wanted to enroll their children in neighborhood schools At the time, only wealthy children could

afford to pursue further education because it required flying overseas and large financial assistance It is evident that the economy has a high level of unemployment, low salaries, and persistent inflation after the war was fully over Social construction and social hypothesis are the two basic tasks used throughout the investigation It is stated in the topic that people retain the characteristics they developed in childhood and adolescence over the course of their developmental lives, and it is also stated that active individuals and groups create social reality and interact with others in social situations According

to Leiter (2010), the main generation is a collection of people who have come together

to share contacts and experiences during different periods of their lives Each generation has a unique experience with life and is exposed to diverse things during their formative years, according to early sociologists like (Malmendier & Tate, 2005) They see a growing significance in the generations that can supply sufficient information to comprehend social change In other universes, cultural identity is preserved while societal reform is implemented according to tradition

In the Builders Generations in the early 1970s, agriculture remained the most important industry in the world economy At the time of independence, the majority of the population participated in agricultural activities The government of the newly independent nation invested heavily in agriculture to improve people's living standards

At this time people have more developments in particular in education, the structure for the new economy for example in Vietnam The generations living at this time witnessed the beginning of developments toward a new era of industrialization, economic self- reliance, educational development, and progress in becoming an independent nation- state develop Following its reunification in 1976, Vietnam experienced many challenges, including domestic persecution, isolation from the rest of the world due to the Cold War, a Vietnamese invasion of Cambodia, and an American economic blockade The Communist Party of Vietnam revised its economic strategy in 1986 and started a series of Doi Moi reforms to the economy and private sector Vietnam scrapped

its planned economy during the country's 6th National Congress of the Communist Party

of Vietnam in favourof a market-based one Since the reforms in the middle of the 1980s, Vietnam has experienced rapid economic expansion People who were born between 1961 and 1981, on the other hand, continue to migrate in search of economic stability This generation is referred to as the "Builder" (Ling et al., 2006) Vietnam's economy expanded quickly, and the population was immediately exposed to the popular culture of Western mass consumerism

Ownership is the state or fact of legal possessionand control over property, which may be any asset, tangible or intangible Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different parties Management ownership is related to risk taking, debt policy, and dividend policy They argue that perceived risk is an important and positive determinant of managers’ ownership level while manager ownership is also a significant and positive determinant

of managers’ ownership with the level of risk (Stephen P Ferris, 2005)

Thus, the following hypotheses are proposed here:

H,: SEEKERS is positively related to firm LEVERAGE

Hi: BUILDERS is negatively related to firm LEVERAGE

H,: SEEKERS is positively related to firm SD (ROA)

H,,: BUILDERS is negatively related to firm SD (ROA)

H3,: SEEKERS is negatively related to firm SD (ROE)

H;;: BUILDERS is positively related to firm SD (ROE)

H,: SEEKERS is negatively related to firm PPE

Hy: BUILDERS is positively related to firm PPE

CHAPTER 3: DATA AND RESEARCH METHODOLOGY

3.1 Data sources and sample

3.1.1 Data

Our sample consists of 127 listed firms on the Ho Chi Minh Stock Exchange (HOSE) from the year of 2009 to 2021 In this study, we only focus on the industries of Construction and Real Estate Additionally, we collected data from two main sources: companies’ financial statements and annual reports, which were cited from the company's websites

From an objective point of view, The Construction and Real Estate business is one of the most significant sectors in the economy, especially in Vietnam This business field always requires special conditions such as strong finance, a good ability to mobilize capital Therefore, the Construction and Real Estate industry is attracting more and more investors to participate, becoming one of the key economic sectors with the highest economic growth rate in the country

Besides, we also hand-collected the number of CEOs’ information (i.e., name, age, income ) and ownership data from annual corporation reports Other financial statistics, including total assets, short-term debt, long-term debt, net income, the book value of equity, fixed assets, cash, and cash equivalents, and short-term financial investments, are obtained from the annual reports and financial statements

Chen, 2018), the standard deviation of return on equity (oGROE), property, plant, and equipment divided by total assets (PPE), based on the study of Yung & Chen (2018) oROA and oROE are determined over 13 years of the thesis In some of the previous studies, GROE was thought to be a measure of a firm's level of risk (Faccio et al., 2011) Moreover, it clearly shows the riskiness of the projects the company creates and other risk factors associated with the usage of leverage in the capital structure Moreover, we also used the company's financial leverage (LEVERAGE) as the proxy for firm risk- taking

Independent variables

Our analysis focuses on the generational disparities between ““Seeker”” (Baby Boomer), and ‘‘Builder’’ (Gen X) The information about the age of the CEOs was obtained from the Shareholder clue section of their businesses’ annual reports The age group classification is based on the arrangement of (Tung & Comeau, 2014) which states that ‘“‘Seeker’’ CEOs have a year of birth between 1943 and 1960, and ‘“Builder’? CEOs

as born between 1961 to 1981 We used a dummy variable to identify the generation of CEOs, specifically as the ““SEEKERS”’ is defined as equal one, and zero otherwise Similarly, the generation known as “BUILDERS” is the number one if confirmed, and zero otherwise

Variable construction

In general, Table 3.1 presents the variable construction including variables name, specific measurements, and some previous related research

Table 3.1: Variable construction

Standard deviation of returns on assets

in the period from 2009 to 2021

Standard deviation of returns on equity

in the period from 2009 to 2021

Property, plant, and equipment scaled

by total assets

(Long-term debt + current

liabilities)/total assets

An indicator variable with a value of

one if the CEO was born between 1943

and 1960 and a value of zero otherwise

An indicator variable with a value of

one if the CEO was born between 1961

and 1981 and a value of zero otherwise

(Faccio et al., 2016) and (Yung

(Tee, Pak, et al., 2021); (Tung & Comeau, 2014)

(Bliss and Gul, Current year - Year of the establishment

of the firm

Chen, 2018)

The proportion of shares held by the C R Chen (1998);

SOWNER

state shareholders is divided by 100 (Mihet, 2013)

The proportion of shares held by the C.R Chen (1998);

FOWNER

foreign shareholders is divided by 100 (Mihet, 2013)

Cash and short-term financial (Tee, Pak, et al., SCASH

investments scaled by total assets 2021)

(Tee, Pak, et al., FIRMSIZE The natural logarithm of total assets 2021),(Fraser et

al., 2006)

The number of years that a company's (Chen & Zheng,

The dummy variable equals one if the

GreenPolicy firm cares about the green environment (Yanetal., 2021)

and zero otherwise

Besides, the descriptive statistics analysis of the variables is displayed in Table 3.2 This table summarizes the descriptive statistics for the primary regression variables used in hypothesis testing: