The impact of institutional ownership on firm performance in listed logistic companies in vietnam from 2010 to 2019

The question of interest is whether different types of institutional investors influence corporate governance and firm performance in a less developed market like Vietnam, where issuing

BANKING ACADEMY OF VIETNAM

Hanoi – 2024

Hanoi, May 15th 2024 Author of the thesis

Tran Le Phuong Linh

ACKNOWLEDGEMENT

My voyage to become a student at the Finance Faculty – Advanced Program

of the Banking Academy of Vietnam has been extraordinary and packed with memorable moments I could not have accomplished that journey or written this graduation thesis without the assistance and encouragement of my family and teachers

To begin with, I would like to express sincere thanks to every lecturer at Banking Academy, with a special mention to the Finance Faculty, for giving me useful knowledge throughout my four-year academic program Their lectures have provided me with invaluable opportunities to expand my knowledge and understanding

Secondly, I am very thankful for my instructor, Dr Tran Thanh Thu who has dedicated a considerable amount of time and effort to instruct me on my graduation thesis The comprehensive guidance and insightful recommendations she provided were crucial in the successful completion of my graduation thesis

Lastly, I wish to express my deepest appreciation to my parents and my boyfriend, whose constant support and encouragement drove me through all that I have undertaken in this life Their support and affection mean everything to me

TABLE OF CONTENTS

DECLARATION

ACKNOWLEDGEMENT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

INTRODUCTION 1

1 Motivation 1

2 Objectives of the thesis 2

3 Contribution of the thesis 3

4 Research scope 4

5 Thesis structure 4

CHAPTER 1: LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 5

1.1 The theoretical basis of corporate governance 5

1.1.1 Definition of corporate governance 5

1.1.2 Importance of corporate governance 7

1.2 The theoretical basis of corporate performance 8

1.2.1 Definition of corporate performance 8

1.2.2 Measurement of corporate performance 10

1.3 The theoretical basis of institutional investors 11

1.3.1 Definition of institutional investors 11

1.3.2 The relationship between institutional ownership and corporate performance 12

1.4 Hypothesis development 15

CHAPTER 2: DATA AND METHODOLOGY 19

2.1 Research process 19

2.2 Data collection 19

2.3 Variables construction 20

2.3.1 Institutional ownership measures 20

2.3.2 Corporate governance 21

2.3.3 Corrporate performance 22

2.4 Empirical model 23

2.4.1 Tobit model 23

2.4.2 Pooled ordinary least square model 24

2.4.3 Three-stage least square model 25

CHAPTER 3: EMPERICAL RESULTS AND DISCUSSION 27

3.1 Qualitative analysis 27

3.2 Descriptive statistics 30

3.3 Regression results 31

3.3.1 Institutional investors preference 31

3.3.2 Institutional ownership and firm performance 34

3.3.3 Endogeneity and treatment 36

CHAPTER 4: MANAGERIAL IMPLICATIONS AND CONCLUSION41 4.1 Conclusion 41

4.2 Recommendation 42

REFERENCES 45

APPENDIX 1 49

APPENDIX 2 50

LIST OF TABLES Table 1: Variable summary 16

Table 2: Descriptive statistics 30

Table 3: Determinants of institutional ownership - Tobit model 32

Table 4: The effect of institutional ownership on firm value - Pooled OLS model 34

Table 5: Grey and independent institutions and firm value - Tobin’s

Q, 3SLS model 37

Table 6: Privately-owned and state-owned institutions’ ownership and firm value - Tobin’s Q, 3SLS model 39

LIST OF FIGURES Figure 1.1.1a Corporate governance and enterprise asset balance model according to Ross et al (2005)……… 5

Figure 1.1.1b Corporate governance and the extended balance sheet model according to Gillan (2006) ……… 6

Figure 3.1 1 Average ROA of Vietnamese listed logistic companies from

2010 to 2019 27

Figure 3.1 2 Capital structure and average growth rate over the years28 Figure 3.1 3 Ownership structure of businesses according to sensitivity

to management over the years 29

Figure 3.1 4 Ownership structure of businesses according to the nature

of investors over the years 30

INTRODUCTION

1 Motivation

Corporate governance generally refers to the set of mechanisms that influence the decisions made by managers when there is a separation of ownership and control Some of these monitoring mechanisms are the board of directors, institutional shareholders, and the operation of the market for corporate control The importance

of this topic is obvious from an examination of the considerable growth in the empirical literature on corporate governance across accounting, economics, finance, management, and corporate strategy literature Typical research studies examine whether different corporate governance structures impact organizational performance Examples of these types of studies are Morck, Shleifer, and Vishny (1988), Brickley, Coles and Terry (1994), Yermack (1996), Core, Holthausen, and Larcker (1999), Klein (2002), Gompers, Ishii, and Metrick (2003) Among the different factors, the ownership structure is a critical variable in corporate governance studies because it significantly influences important decisions in companies (Zattoni, 2011) The linkage between corporate governance, ownership structure, and firm performance has attracted much attention from researchers (Kumar & Zattoni, 2015; Lemmon & Lins, 2003; Utama et al., 2017; Zheka, 2005) Previous studies conclude that corporate governance quality and firm performance depend on different ownership structures Shleifer and Vishny (1997) mentioned that the role of major shareholders is undeniable in corporations Among them are institutional shareholders operating in financial sectors such as commercial banks, investment banks, securities companies, and insurance companies Other investors can run their businesses in the fields of production or manufacturing Various studies have examined the determinants of firms’ institutional ownership (Dahlquist & Robersson, 2001; Ferreira & Matos, 2008; Gompers & Metrick, 2001) and the effect

of institutional investors on firm valuation and performance The findings of Mallorquí and Santana-Martín (2011) on Spanish firms and Muniandy et al (2016)

Ruiz-on Australian firms are also cRuiz-onsistent with Guo and Platikanov (2019) employed publicly traded Chinese firms from 1999 to 2010 to examine the determinants of

various large institutional investors and listed companies’ corporate governance characteristics Konijn, Kräussl, and Lucas (2011) conducted a study on the relationship between ownership structure and firm value and found that the results are different from data from the U.S., Europe, and Asia Nam, and Thao (2013) examine the effect of corporate ownership on firm performance but within the nature

of institutional investors and find that foreign ownership enhances firm performance Their research is also consistent with Phung and Le (2013) by showing that when foreign ownership becomes concentrated, foreign investors would activate their monitoring role in firms Besides, corporate ownership in emerging markets has become an interesting issue in recent years (Borisova et al 2012) They find that institutional ownership is positively associated with firm value The question of interest is whether different types of institutional investors influence corporate governance and firm performance in a less developed market like Vietnam, where issuing corporate governance reports has recently become mandatory for listed companies

Institutional investors are an important component of the stock market and are even more important in developing countries, whose stock markets have not yet reached the same high standards as in countries with long-standing stock markets Typically, institutional investors often have experience in the stock market because they have a long history of existence and are often associated with large financial institutions in the market Furthermore, institutional investors often have advantages

in scale, financial potential, and a team of superior financial experts, so they often have an advantage over other investors in accessing, collecting and processing information Because they have many advantages compared to other individual investors, institutional investors often dominate and have superior results in all aspects compared to other investors in the stock market In addition, because the scale of regular institutional investors is very large in relation to small stock markets like Vietnam, the level of influence of institutional investors on the stock market in emerging countries which is often much higher than their level of influence on stock markets in developed countries

2 Objectives of the thesis

This study examines the relationship between institutional investors, corporate governance, and firm performance in Vietnam’s logistics sector during ten years starting from 2010, thereby providing a number of recommendations for companies in the industry as well as the government promoting the development of the industry in particular and Vietnam's economy in general Thus, the research has three objectives:

First, systematize the theories of institutional investors, corporate governance, and firm performance as well as the relationship between institutional ownership and firm performance

Second, identify and test the relationship between institutional ownership and firm performance of listed logistics companies in Vietnam in the period 2010-2019 through regression models

Third, make suggestions or recommendations for listed logistics companies and government in Vietnam in the period 2010-2019

To answer the research objective, the author poses detailed research questions for this issue as follows:

First, how do Vietnamese institutional investors tend to invest in businesses with their characteristics, structure, and corporate governance?

Second, how do different types of institutional ownership affect firm performance?

3 Contribution of the thesis

This study contributes to the literature on institutions’ preferences for business structure and characteristics and how institutional ownership affects firm value in the context of Vietnam as an emerging market First, it provides more evidence on the choice of institutional investors for listed logistics firms based on corporate governance characteristics and business structure, especially in countries

in emerging markets such as Vietnam Second, some studies have examined the influence of ownership structure on firm performance in the Vietnamese logistics sector Finally, this study has implications for managers of listed logistics companies

and regulators Listed logistics companies can determine suitable percentages and types of institutional ownership that enhance firm performance, and investors can have a broad knowledge of corporate governance to make decisions Other stakeholders, such as stock market entities and the government, can offer more suggestions for improving the stock market

4 Research scope

The scope of research is listed as logistics enterprises in the period 2010-2019 After the outbreak of the COVID-19 pandemic, the operations of logistics companies were strongly affected, affecting the impact of ownership structure Therefore, to avoid confounding factors as well as large errors in the indexes, the topic takes the period from 2010 to 2019

Two methods used in the research thesis are qualitative methods and quantitative methods The author uses qualitative methods on data that is information about the ownership structure, profile and performance of the business for the purpose of evaluating and explaining the research topic

On the other hand, to go deeper and clarify the topic, the author uses quantitative methods with Tobit, Pooled OLS, and 3SLS research models on a sample of panel data including statistical data collected from published financial statements announced and from reputable sources From there, the author measures and evaluates the impact of financial indicators on profit margins

5 Thesis structure

Besides the Introduction, Conclusion, and Reference, this thesis consists of the four following chapters:

Chapter 1: Literature review and hypothesis development

Chapter 2: Data and Methodology

Chapter 3: Empirical Results and Discussion

Chapter 4: Managerial Implications and Conclusion

CHAPTER 1: LITERATURE REVIEW AND HYPOTHESIS

DEVELOPMENT

1.1 The theoretical basis of corporate governance

1.1.1 Definition of corporate governance

There are various definitions of corporate governance in both practice and academic research (Bebchuk & Hamdani, 2009; Shleifer & Vishny, 1997) In particular, the collapse of many large companies around the world, such as WorldCom, Enron, and Arthur Andersen, has been affirmed to be related to corporate governance issues (Erkens et al., 2012) Therefore, many scholars have reconsidered the definition as well as various aspects of corporate governance and argued that cultural differences, legal systems, and historical developments from one country to another make it difficult to establish a universally accepted definition of corporate governance (Ararat et al., 2016; Black, 2001; Claessens & Yurtoglu, 2013)

A comprehensive understanding of corporate governance mechanisms is illustrated by Ross et al (2005) and Gillan (2006):

Figure 1.1.1a Corporate governance and enterprise asset balance model according to Ross et al (2005)

Figure 1.1.1b Corporate governance and the extended balance sheet model according to Gillan (2006)

From a narrow perspective, Shleifer and Vishny (1997) defined corporate governance as the way in which the financiers of a company ensure they get a return

on their investment This definition is narrow in that it emphasizes the financiers and does not recognize the relationship between stakeholders and the managers of the company Similarly, the Cadbury Commission defined a governance system as "the system by which companies are directed and controlled" (Cadbury, 1992a) According to the Australian standard (2003), corporate governance is defined as the process by which organizations are directed, controlled, and held accountable Sheikh & Chatterjee (1995) defined corporate governance as "a system in which board members are entrusted with responsibilities and obligations related to directing the company's affairs"

The OECD (2004) defines it as: "Corporate governance involves a set of relationships between a company's management, its board, its shareholders, and other stakeholders A structure through which the company's objectives are set A means for determining how to achieve those objectives and monitor performance It should provide incentives for the board and management to pursue objectives that are in the interests of the company It should facilitate monitoring (e.g., by shareholders, stakeholders, and regulators)."

It is also defined as the process of "directing and controlling business activities to enhance the prosperity of the company and the accountability of the company with the ultimate goal of realizing the organization's objectives and the long-term value of stakeholders" (Mensah & Adams, 2014, p 33) There are many governance mechanisms or variables, but the mechanisms commonly considered are board composition, board committees, CEO duality/separation, board meetings, and shareholder concentration

According to Dr Duong Duc Lam (2021), corporate governance is a process

of carrying out activities and coordinating the activities of many people in an organization to achieve set goals and effectiveness The corporate governance structure determines the authority and responsibilities among different members of the enterprise, including shareholders, the board of directors, management board, supervisory board, and other related parties of the enterprise

With the above concepts, it can be affirmed that: Corporate governance plays

an extremely important and significant role in ensuring the survival and normal operation of enterprises A company that does not clearly recognize the role of governance in all its activities will easily fail in its business operations To help businesses achieve their business goals, which are: the costs incurred are the lowest, but the quality of products, services, and profits achieved are the highest; then corporate governance must be a concern for all management levels and considered

an effective management tool in their governance system Thus, governance helps companies clearly see their goals and direction, deal with challenges brought by the environment, take advantage of opportunities and strengths to exploit efficiently and generate significant returns for the company

1.1.2 Importance of corporate governance

According to Cohen et al (2002) "one of the most important functions that corporate governance can perform is to ensure the quality of the financial reporting process" The board of directors is an important internal corporate governance mechanism for monitoring the quality and integrity of financial reports

Corporate governance is created and implemented with the purpose of helping companies build a mechanism that clearly defines the rights and responsibilities of each member associated with the company, such as managers, stakeholders, creditors, legislators, and including board members When understanding and clearly identifying responsibilities, obligations, and benefits, it will help the company and related parties make the right and appropriate decisions for the common interest If a company operates inefficiently and has no policies or mechanisms to clearly define responsibilities for mistakes in that operating process, then that is a mistake of the board of directors, because the board did not properly perform their role and responsibility to limit such mistakes from occurring Therefore, if corporate governance is implemented well, the company will have enough information to make decisions on dismissing inappropriate or irresponsible positions, or can accurately evaluate the work performance of each employee for rewards, encouragement, transfer, or promotion to higher positions

Another important meaning of corporate governance is helping companies reduce risks related to scandals, fraud, or criminal liability that the company can prevent or completely avoid Here, corporate governance can be seen as a form of self-control And, when implementing corporate governance, each member of the company will link their responsibilities to each activity, so any mistakes or intentional violations will be liable not only to the company's regulations but also the law In addition, good corporate governance practices will help the company be recognized by the market and investors This is achieved thanks to implementing the principles of corporate governance on disclosure and transparency of company information during operations In other words, good corporate governance practices can increase a company's value by improving operational efficiency through effective management, better asset allocation, better labor policies, and other performance improvements Poor corporate governance can affect the operation of a country's financial markets and the volume of foreign investment For example, poor corporate governance can increase financial instability

1.2 The theoretical basis of corporate performance

1.2.1 Definition of corporate performance

Corporate performance is a multifaceted economic concept that reflects the benefits gained from a company's production and business activities At its core, it involves comparing the outputs or results achieved against the inputs or resources expended in pursuit of those results (Carcello & Nagy, 2004; Samerelson et al., 1995) Higher corporate performance is indicative of more efficient utilization of resources to achieve business goals

The fundamental purpose of maximizing corporate performance is to improve labor productivity and resource utilization (Siminica et al., 2011) For companies, maintaining high performance is critical for ensuring sustained existence, promoting competitiveness, driving progress, and maximizing profitability - the overarching goal for most firms (Babalola, 2013)

A more holistic view posits that corporate performance reflects the degree to which available resources are allocated efficiently to achieve defined objectives (Habib, 2016) From this standpoint, performance encapsulates both absolute levels

of outputs and the relative cost-effectiveness with which those outputs were attained

Synthesizing these perspectives, corporate performance can be defined as an economic metric that captures the level of resource utilization in achieving targeted goals It establishes a correlation between results obtained and costs incurred, with higher performance indicated by a greater surplus of outputs over inputs Performance can be evaluated in both absolute and relative terms

Drawing from the various viewpoints on corporate performance, we can define the concept of corporate performance in production and business activities as follows: Corporate performance is an economic measure reflecting the degree to which resources are utilized to accomplish specified goals It captures the relationship between the results or outputs attained and the costs or inputs expended

to achieve those results The greater the surplus of outputs over inputs, the higher the level of corporate performance According to this definition provided by the author, corporate performance can be assessed in both relative terms, by comparing outputs

to inputs, as well as in absolute terms by considering the total magnitude of outputs achieved or resources consumed

1.2.2 Measurement of corporate performance

Assessing a company's performance is a critical aspect of evaluating its operations and management effectiveness Numerous empirical studies have explored the factors influencing corporate performance across various markets and industries globally For instance, Zeitun and Tian (2007) conducted research on the determinants of firm performance for 167 companies listed on the Amman Stock Exchange in Jordan, examining data from 1989 to 2003 Similarly, Siminica et al (2011) investigated 40 companies on the Bucharest Stock Exchange in Romania between 2007 and 2010, while Memon et al (2012) analyzed factors affecting the performance of 141 textile and garment companies in Pakistan from 2004 to 2009

Empirical research in corporate governance employs either market-based or accounting-based measures to assess firm performance Accounting-based indicators, such as Return on Assets (ROA) and Return on Equity (ROE), are commonly used as proxies for operating performance Klein (1998) utilized ROA, while Lo (2003) and Brown and Caylor (2005) used ROE and ROA as their operating performance indicators

ROA reflects the amount of earnings generated from invested capital assets (Epps & Cereola, 2008) As managers are directly responsible for the operations and asset utilization of the business, ROA allows stakeholders to evaluate the effectiveness of a firm's corporate governance mechanisms in securing and motivating efficient management In this study, ROA is defined as net income before interest expense for the fiscal period divided by total assets for the same period ROE,

on the other hand, measures the profit a company generates from shareholders' investments It is calculated as the income before interest expense for the fiscal period divided by total shareholders' equity for the same period One of the primary reasons for operating a corporation is to generate income for the benefit of common stockholders (Epps & Cereola, 2008)

However, accounting-based measures are susceptible to manipulation by managers through changes in accounting methods or accruals, and they are difficult

to compare across industries These metrics are historical and report past successes

with a time lag, primarily focusing on past achievements and disregarding risk, investment requirements, and the time value of money (Kiel & Nicholson, 2003; Rappaport, 1986)

Tobin's Q, a widely used market-based measure of profitability, serves as a proxy for firm performance in numerous corporate governance studies (Agrawal & Knoeber, 1996; Gompers et al., 2003; Hermalin & Weisbach, 1991) It is determined

as the ratio of a firm's market value of assets to the replacement value of assets (Bhagat & Jefferis, 2002), thereby reflecting its financial strength Tobin's Q has been employed in both developed and developing financial markets

Furthermore, research suggests that higher Q values indicate better market perceptions of a firm's efficiency due to more effective governance mechanisms A high value signifies a closer alignment of interests between shareholders and managers, while a lower value suggests greater managerial discretion (Weir et al., 2002) Based on this rationale, this study employs Tobin's Q as a market-based performance measure, defined as the sum of short-term debt, long-term debt, and market capitalization divided by the book value of total assets (Cheung et al., 2010)

From the above analyses, a positive correlation is expected between corporate governance variables and both ROE and Tobin's Q when estimating the model The study anticipates a positive relationship between corporate governance index variables and ROE, as well as Tobin's Q, when regressing the model

1.3 The theoretical basis of institutional investors

1.3.1 Definition of institutional investors

Institutional investors are not natural persons but rather legal entities organized in various forms The exact legal structure, however, varies widely among institutional investors, ranging from profit-maximizing joint-stock companies (e.g., closed-end investment companies) to limited liability partnerships (such as private equity firms) and corporations established by special statutes (e.g., some sovereign wealth funds) Institutional investors may operate independently or be part of a larger corporate group or conglomerate, as is often the case with mutual funds, which are frequently subsidiaries of banks and insurance companies

Furthermore, there has been an increase in the number and diversity of institutional investors, with new categories and subcategories of institutions emerging In this thesis, we refer to two broad categories of institutional investors, which, to some extent, reflects this development Partly due to a lack of reliable data and partly to maintain simplicity in presentation, we have not sought to include all possible types of institutional investors in this study This exclusion does not affect the analysis and conclusions

The diversity of institutional investors' legal forms and organizational structures makes it challenging to provide a simple, all-encompassing definition However, the common thread is that they are legal entities rather than individual persons, with varying degrees of independence and affiliation with larger corporate groups or conglomerates

1.3.2 The relationship between institutional ownership and corporate

performance

According to shareholder theory, shareholders typically have voting rights in

a corporation to influence important business decisions, such as who serves on the board of directors or corporate policies This theory is important because it helps companies determine their role in relation to shareholders and how they can maximize corporate profits Therefore, the ownership ratio of investors, especially institutional investors because they will often hold a large percentage of the business's ownership structure, will impact the company's profits or firm performance

According to ownership structure theory, the characteristics of ownership structure in corporate governance are measured by institutional ownership The existence of shareholders from institutional ownership has an important meaning in monitoring management The existence of institutional ownership will encourage more optimal supervision and finally reduce agency costs Mataoussi & Chakroun (2008) stated that companies with large institutional ownership will be able to monitor management performance Institutional investors have strength and

experience to implement the principles of corporate governance to protect the rights and interests of shareholders

Giannetti and Simonov's (2006) research reveals that domestic and foreign institutional investors, as well as small individual investors who solely seek security benefits, are reluctant to invest in Swedish companies with weak corporate governance practices In contrast, investors who may extract private benefits (i.e., large domestic individual investors) do not avoid companies with poor corporate governance

Li et al (2006) investigated the relationship between institutional ownership and corporate governance in China Their findings indicate a significant linkage between institutional ownership, CEO duality (when the CEO also serves as the board chair), and board composition These factors are classified as components of corporate governance in the studied companies Correspondingly, Duc and Thuy (2013) argue that board size, the presence of female board members, CEO duality, board members' education level, board directors' work experience, the presence of independent (outside) directors, board compensation, board ownership, and the existence of blockholders are generally considered elements of corporate governance based on a sample of 77 listed companies in Vietnam

Furthermore, the state retains ultimate control over many listed companies in Vietnam Guo and Platikanov (2019) contend that privately-owned companies can achieve superior performance compared to state-owned enterprises because the privileges granted to internal state shareholders drive managers to expropriate wealth from other stakeholders The above discussion motivates the investigation of the first hypothesis regarding institutional investors' preferences for specific corporate governance characteristics

Additionally, studies in China and Vietnam have identified various factors, such as board composition, CEO duality, and ownership structures, as components

of corporate governance The state's control over listed companies in Vietnam and the potential for expropriation by managers in state-owned enterprises further

motivate the examination of institutional investors' preferences for specific corporate governance characteristics

Nam, and Thao (2013) reveals that when ownership is concentrated, while state ownership lowers firm performance, foreign ownership enhances firm performance The empirical findings shows that while the relationship between state ownership and firm performance is an inverted U-shaped, the relationship between foreign ownership an\d firm performance forms a U-shaped This result means that state ownership may help firms to increase performance by its advantages (Borisova

et al 2012)

Morck et al (1988) theoretical and empirically research the influence of ownership structure on company performance and found the similar research as Stulz (1988) They found that an increase in ownership structure and control authority will increase company value, however when this ownership proportion excessively increases, company value will decrease due to the impact of conservative management

Shleifer and Vishny (1986), Bhojraj and Sengupta (2003) tested the hypothesis that institutional investors would be motivated to monitor company performance Since institutional shareholders have more benefits than individual shareholders based on their voting rights, they can maintain some interventions to counter the board executive authority Monks and Minow (2001) argue that this action is evidence that institutional shareholders take actions to protect their asset value

Oanh et al (2021) reveals that the negative effect of Vietnamese institutional ownership on firm performance might be explained that high proportion of the state ownership could lead to low performance of company Institutional ownership can

be detrimental to company when small shareholders are not protected or when institutions have relationship with company managers (Djankov 1999)

1.4 Hypothesis development

First, we use Giannetti and Simonov’s (2006) and Gompers and Metrick’s (2001) theories to determine the different types of institutional ownership Giannetti and Simonov (2006) conclude that major shareholders greatly influence voting in managerial decisions, but not all shareholders have an incentive to do this actively Although security benefits accumulate for all shareholders, most shareholders involved in company management are interested in personal benefits Therefore, the quality of corporate governance leads to different investor preferences Giannetti and Simonov’s (2006) research shows that domestic and foreign, institutional, and small individuals who enjoy only security benefits are reluctant to invest in companies with weak corporate governance in Sweden By contrast, investors who may extract private benefits (i.e., large domestic individual investors) do not avoid companies with weak corporate governance

Li et al (2006) investigated the relationship between institutional ownership and corporate governance in China The findings of this study indicate a significant linkage between institutional ownership, CEO duality, and board composition These features are classified as components of corporate governance in the companies Accordingly, Duc and Thuy (2013) argue that board size, female board members’ presence, CEO duality, board members’ education level, board directors’ working experience, independent (outside) directors’ presence, board compensation, board ownership, and blockholders are generally the elements of corporate governance from a sample of 77 listed companies in Vietnam

Additionally, the state retains its ultimate control over many listed companies

in Vietnam Guo and Platikanov (2019) argue that privately owned companies can achieve superior performance to state-owned companies because the privileges given

to internal state shareholders drive managers to expropriate wealth from other stakeholders Therefore, the discussion above motivates us to investigate the first hypothesis on institutional investors’ preferences for corporate governance characteristics

Hypothesis 1 Institutional investors in Vietnam are less likely to hold shares

of firms with larger board sizes, CEO duality, and, ultimately, control by the state

Being prudent is essential for institutions worldwide, particularly in Vietnam,

as Gompers and Metrick (2001) mention They point out that institutional investors must be cautious when dealing with the legal environment Therefore, firms with good liquidity, a long-established history, and a reputation in the market are more attractive to institutional investors This study expects institutional ownership to be positively related to firm size, and firm age Consequently, except for corporate governance features, we develop a second hypothesis on institutions’ preferences for firm characteristics:

Hypothesis 2 Institutional investors in Vietnam are more likely to invest in firms with a larger size and older age

After “Doi Moi” in 1986, Vietnam’s economy underwent significant restructuring However, state ownership still plays an essential role in the ownership structure of Vietnamese listed companies, and the state retains ultimate control over many partially privatized companies, especially in leading industries that significantly impact the country’s economic and national security foundation Before

2012, there were still listed companies in Vietnam, state ownership rate of which was over 90% Given the importance of major institutional shareholders, it is necessary

to investigate whether state-owned or privately owned institutional investors have different effects on firm performance We expect both privately owned and state-owned institutions to affect firm performance positively; however, the effect of privately owned institutions could be greater than that of state-owned institutions Therefore, we propose the fourth hypothesis as follows:

Hypothesis 3 The positive effect of institutional ownership on firm performance is more significant for privately owned than state-owned institutional ownership

Table 1: Variable summary

institutional ownership (rate)

ownership (rate) Independent variables

(+)

CHAPTER 2: DATA AND METHODOLOGY

2.1 Research process

The research is conducted following the steps:

Step 1: Develop indicators that reflect institutional ownership, company performance and corporate governance factors that affect the performance of Vietnamese logistics companies listed on HOSE and HNX

Step 2: Check the data before analysis

Step 3: Set up the theoretical model

Step 4: Conduct single regression analysis

Step 5: Conduct multivariate regression analysis to determine the impact

of independent variables on institutional ownership and company performance of companies used in the study

Step 6: Eliminate potential endogeneity in the model

Step 7: Presenting research results and then making some recommendations

to improve company performance of Vietnamese logistics companies listed on HOSE and HNX

2.2 Data collection

Data used in this study are secondary data, including theoretical basis related

to the topic, research results of other authors, guidelines and policies of the State; and data collected from Fiingroup and Vietstock, two reliable organizations providing data related to Vietnamese listed logistics companies Observations without sufficient information to test the hypotheses are excluded from the sample

In addition, all data were winsorized at the 1% level to control for outliers As a result, 300 observations were adopted as the final sample of this study, equivalent to

30 listed companies

2.3 Variables construction

2.3.1 Institutional ownership measures

This study uses the information provided in the annual reports of Vietnamese logistics listed companies to determine institutional ownership for the tests Under Article 6, Sub article 9 of the Vietnam Securities Law (2006), the majority shareholder (or significant shareholder) means a shareholder directly or indirectly owning at least five percent or more of the voting stocks of an issuing organization The percentage of institutional ownership of Vietnamese public logistics firms in the research data is extracted from the list of large institutional shareholders, as only organizations and individuals that become the majority shareholders of a public company shall report their stock ownership to the authorities (Article 29, Sub article

1, Vietnam Securities Law 2006) Therefore, in this study, we only use large institutions as institutional investors extracted from the Vietstock organization’s report Institutional ownership represents the ratio of the number of shares held by institutions to the number of outstanding shares held by the company

Following Guo and Platikanov (2019), we manually identify the financial institutions among large institutional shareholders and classify them into the following groups:

- State-owned institutions (Starate) include financial institutions owned by the state or state legal entity

- Privately owned institutions (Pirate) are identified as financial institutions not owned by the state or state legal entity “Privately owned institutions” term used within the thesis refers to a group of institutional investors that is mutually exclusive with a group of state-owned enterprises Although this definition is quite different from the usual definition of only businesses that do not publicly trade on the market, the thesis still classifies the above institutional ownership groups according to previous studies

- Grey or pressure-sensitive financial institutions (Greyrate) comprise banks and insurance companies

- Independent or pressure-insensitive financial institutions (Indrate) consist of securities companies and venture capital firms

Under Articles 114, Sub article 1.a, Vietnam Securities Law 2006, each ordinary share of a listed company should carry one vote Therefore, it can be assumed that the ownership percentage closely reflects the voting rights held by investors in Vietnamese logistics listed companies

2.3.2 Corporate governance

Previous studies have examined the structure and efficiency of corporate governance systems Many studies have pointed out the critical role of the board of directors and have recognized this role as a mechanism that enhances corporate and economic performance These arguments are addressed empirically using a sample

of US firms and find that having a small board enhances a company’s performance and positively influences investors’ behavior and company value (Yermack, 1996)

In addition, Horváth and Spirollari (2012) prove that board size influences CEO compensation incentives, as compensation programs represent an essential responsibility of the board of directors, and companies with oversized boards tend to become less effective The Administrative Council indicates the board of directors

in Vietnam Therefore, this study includes the number of members of the Administrative Council (Adnum) to control institutional investors’ preferences regarding the size of the board of directors

CEO duality is also considered to be a measure of corporate governance quality CEO duality refers to a situation in which one person can simultaneously hold the CEO and chairperson of the board of directors Findings from previous studies of CEO duality are also controversial Bhagat and Bolton (2008) proved that corporations with CEO duality could reduce business performance On the other hand, some researchers have argued that the role separation between the CEO and chairman could split strategic decision-making and policy implementation, thereby increasing agency problems between senior management and directors Therefore,

to control institutional investors’ preferences on the role separation of CEO and

Chairman, this study includes a dummy variable (COB) equal to one if the same person holds the CEO and the Chairman positions and zero otherwise

Bai et al (2004) find that the presence of large shareholders is positively associated with the firm’s Tobin’s Q Institutional investors might gain better protection in companies where the top largest shareholders closely monitor each other This study includes the number of large institutional shareholders (Insnum) as

a measure of internal corporate governance to control company ownership structure

The state still plays a vital role in listed companies in logistics industries in Vietnam Shleifer and Vishny (1997) argued that a state-owned company’s managers might seek internal benefits that lead to inefficiencies in the firm’s operations Additionally, property rights theory argues that fully-privatized firms would perform better than government-controlled firms, as the power of control and decisions allows private shareholders to act towards maximizing shareholder wealth (Alchian & Demsetz, 1972) Accordingly, whether the state has ultimate control over a listed company might be a vital characteristic for performance-driven institutional investors This study constructs an indicator variable (STATE), taking a value of one

if the ultimate controlling shareholder is the state and zero otherwise

to become the best representative variable for financial performance Coleman and

Biekpe (2006) define ROA as total net income divided by the book value of assets Thus, when the value of ROA is high, it will indicate the effective use of the company's assets and equity in increasing shareholder values Although this index still has some shortcomings, it is still an important ratio because it will focus on the profits of shareholders and the value of profits that assets bring Tobin's Q (TobinsQ) index does not reflect past results like ROA but it is used to reflect the future expectations of a company's shareholders This is also a widely used and popular index in the research articles of Agrawal and Knoeber (1996); Gomper, Ishii, and Metrick (2003); Hermalin and Weisbach (1991) Accordingly, Tobin's Q is calculated by the market value of equity and the market value of liabilities divided

by the book value of total assets This index aims to evaluate the value of a company that is overvalued or undervalued in the financial market Therefore, it is used by both developed and developing financial markets Furthermore, we can see that when this index is high, it reflects the value of the company according to investors' assessments, thereby also indicating that the company has a very good governance mechanism Research by Weir, Laing and McKnight (2002) also affirms that high Tobin's Q shows that there is a close relationship between managers and investors

On the contrary, if the index is low, it reflects that managers tend to make their own decisions, deviating from the wishes of shareholders

2.4 Empirical model

2.4.1 Tobit model

Institutional ownership, as the dependent variable, is censored Petersen (2008) argued that this data type must be modified explicitly Therefore, institutional investors’ preferences for corporate governance features of listed logistics companies

in Vietnam are estimated by applying the Tobit model

The dependent variables—institutional investors–include different categories

of institutions (grey, independent, privately owned, and state-owned institutions), while the explanatory variables to measure a firm’s corporate governance quality are Adnum, COB, and Insnum Accordingly, firm size (SIZE) and firm age (AGE) are included to identify institutional investors’ prudence in holding stocks with lower

risk and higher liquidity Regarding other firm characteristics, equation (1) consists

of TobinsQ, STATE, return on assets (ROA), firm leverage (LEV), annual sales growth (Sgrowth), and firm’s market share (Mkshare) as control variables All estimations consist of time-fixed effects (𝛴𝜑t) Consequently, Tobit estimations are

as follows:

Institutional Ownership it = ß 0 + ß 1 Adnum it + ß 2 COB it + ß 3 Insnum it + ß 4 SIZE it

+ ß 5 AGE it + ß 6 TobinsQ it + ß 7 STATE it + ß 8 ROA it + ß 9 LEV it + ß 10 Sgrowth it +

ß 11 Mkshare it + 𝛴𝜑t + 𝜀it (1)

2.4.2 Pooled ordinary least square model

To test the effect of institutional ownership on firm performance, we apply the pooled ordinary least squares model with Tobin’s Q as the dependent variable

We include the number of members on the board of directors (Adnum), a dummy variable for CEO-Chairman duality (COB), and the number of large institutional investors (Insnum) as internal corporate governance measures According to Alghifari et al (2013), this study consists of return on assets (ROA), as it significantly affects Tobin’s Q Moreover, following Guo and Platikanov (2019), specific firm characteristics are investigated, such as firm size (SIZE), leverage (LEV), and sales growth rate (Sgrowth), which are consistently related to firm performance Market share (Mkshare) is also included as a control variable for performance (Graves & Waddock, 1994) Finally, the research adds up the control variables STATE since there is still an unusually high percentage of companies ultimately owned by the state in Vietnam

In Model (2), we have two groups representing institutional ownership according to two classifications: the pressure sensitivity to management, and the nature of institutional investors Group1 indicates independent (Indrate) and grey (Greyrate) institutional investors, while Group2 indicates privately owned (Prirate) and state-owned (Starate) institutional investors All estimations contain time-fixed effects (𝛴δt) The pooled OLS estimations are as follows:

Tobin’s Q it = 𝛼0 + 𝛼1GROUP1 it + 𝛼2GROUP2 it + 𝛼3Adnum it + 𝛼4COB it +

𝛼5Insnum it + 𝛼6ROA it + 𝛼7SIZE it + 𝛼8LEV it + 𝛼9Sgrowth it + 𝛼10Mkshare it +

𝛼11STATE it + 𝛴𝛿t + 𝜀it (2)

2.4.3 Three-stage least square model

Following previous studies, the relationship between institutional ownership and firm performance is likely to be mutually interdependent Therefore, the three-stage least-squares (3SLS) method was used to eliminate potential endogeneity because it allows for cross-correlation between the equations

Besides the simultaneity and endogeneity between institutional ownership and firm performance, these equations directly compare the marginal effects on firm performance for each mutually exclusive investor group Sets of excluded variables were used to identify the parameters Moreover, since each equation in the 3SLS model requires at least one specific exogenous variable, total institutional ownership

is included only in Tobin’s Q equation Accordingly, each type of institutional ownership (Insnum1 and Insnum2) is included only in the institutional ownership equations Tobin’s Q regression is the primary test of interest in these systems of equations The other two regressions on Group1 and Group2 were adopted to overcome the endogeneity issue

Group1 and Group2 in models (3), (4), and (5) have the same classifications

as in Model (2) The parameters were estimated using the three-stage least-squares

estimations were constructed as follows:

Tobin’s Q it = 𝛼0 + 𝛼1GROUP1 it + 𝛼2GROUP2 it + 𝛼3Adnum it + 𝛼4COB it +

𝛼5Insnum it + 𝛼6ROA it + 𝛼7SIZE it + 𝛼8LEV it + 𝛼9Sgrowth it + 𝛼10Mkshare it +

𝛼11STATE it + 𝛴𝛿t + 𝜀1,it (3)

GROUP1 it = ß 0 + ß 1 Adnum it + ß 2 COB it + ß 3 Insnum1 it + ß 4 SIZE it + ß 5 AGE it +

ß 6 TobinsQ it + ß 7 STATE it + ß 8 ROA it + ß 9 LEV it + ß 10 Sgrowth it + ß 11 Mkshare it + 𝛴𝜃t +

𝜀2,it (4)

GROUP2 it = 𝛾0 + 𝛾1Adnum it + 𝛾2COB it + 𝛾3Insnum2 it + 𝛾4SIZE it + 𝛾5AGE it

+ 𝛾6TobinsQ it + 𝛾7STATE it + 𝛾8ROA it + 𝛾9LEV it + 𝛾10Sgrowth it + 𝛾11Mkshare it + 𝛴𝜇t

+ 𝜀3,it (5)

CHAPTER 3: EMPIRICAL RESULTS AND DISCUSSION

3.1 Qualitative analysis

The logistics industry is a highly cyclical industry, relatively dependent on the economic cycle In the period from 2010 to 2019, the return on assets of listed logistics enterprises ranged from 5,2% to 12,2% In 2019, due to the impact of the COVID-19 pandemic, it affected most economic sectors, reducing consumption, social distancing, shrinking production activities, and some goods becoming scarce However, in general, Vietnam's logistics industry still maintains a profit rate of about 5%

(Source: Author’s summary)

Figure 3.1 1 Average ROA of Vietnamese listed logistic companies from 2010 to

tends to be stable at around 38%, and the average annual sales growth of companies tends to increase gradually, showing that financial health is gradually improving

(Source: Author’s summary)

Figure 3.1 2 Capital structure and average growth rate over the years

In terms of pressure sensitivity to management, the average number of independent institutional investors is 3.5 times the average number of grey institutional investors According to statistics from the newspaper (NQS, 2019), in reality the activities of fund management companies and long-term investment funds are not very outstanding, except for the two largest foreign funds Dragon and VinaCapital growing every year and Vietnam Fund Management Company (VFM) attracts more capital to exchange traded funds (ETF)