Thông tin tài liệu
CORPORATE GOVERNANCE, STATE OWNERSHIP AND
PERFORMANCE: EVIDENCE FROM VIETNAMESE JOINT
STOCK CREDIT INSTITUTIONS
In Partial Fulfillment of the Requirements of the Degree of
MASTER OF BUSINESS ADMINISTRATION
In Finance Major
By
Trần Mạnh Tín
ID: MBA03032
International University - Vietnam National University HCMC
February 2013
0
CORPORATE GOVERNANCE, STATE OWNERSHIP AND
PERFORMANCE: EVIDENCE FROM VIETNAMESE JOINT
STOCK CREDIT INSTITUTIONS
In Partial Fulfillment of the Requirements of the Degree of
MASTER OF BUSINESS ADMINISTRATION
In Finance Major
by
Trần Mạnh Tín
ID: MBA03032
International University - Vietnam National University HCMC
February 2013
Under the guidance and approval of the committee, and approved by all its members, this
thesis has been accepted in partial fulfillment of the requirements for the degree.
Approved:
---------------------------------------------Chairperson
--------------------------------------------Committee member
---------------------------------------------Committee member
--------------------------------------------Committee member
---------------------------------------------Committee member
--------------------------------------------Committee member
1
List of abbreviations
FI
Financial Institution
CI
Credit Institution
CB
Commercial Bank
FC
Financial Company
SO
State Ownership
CGI
Corporate Governance Index
GSO
General Statistics Office
HNX
Hanoi Stock Exchange
HOSE
Ho Chi Minh Stock Exchange
MOF
The Ministry of Finance
IMF
International Monetary Fund
ROA
Return on Assets
ROE
Return on Equity
SBV
The State Bank of Vietnam
STAT
Status (Dummy variable list or unlisted)
JSFI
Joint-Stock Financial Institution
JSCI
Joint-Stock Credit Institution
JSCB
Joint-Stock Commercial bank
JSFC
Joint-Stock Financial Company
VCGI
Vietnam Corporate Governance Index
OECD
Organization for Economic Co-operation and Development
2
Acknowledge
I would like to thank to my friend, Mr. Nguyen Duc Thinh. He gave advices and
helped me a great deal in collecting secondary data for the research. I wish to give my special
thank to Assoc. Prof. Le Nguyen Hau, my Lecturer of Business Research Method Course, for
his great support, constructive feedback and thorough understanding to teach me how to
conduct a business research. I wish to give my deep gratitude to Dr. Le Vinh Trien, Lecturer
of Financial Markets and Institutions Course and my thesis advisor for his valuable
instruction for written version of this thesis proposal. And finally, I am very grateful of my
classmate and my friends for their mental encouragement and practical suggestions during the
draft research process.
3
4
5
Plagiarism Statements
I would like to declare that, apart from the acknowledged references, this thesis either
does not use language, ideas, or other original material from anyone; or has not been
previously submitted to any other educational and research programs or institutions. I fully
understand that any writings in this thesis contradicted to the above statement will
automatically lead to the rejection from the MBA program at the International University –
Vietnam National University Hochiminh City.
6
Copyright Statement
This copy of the thesis has been supplied on condition that anyone who consults it is
understood to recognize that its copyright rests with its author and that no quotation from the
thesis and no information derived from it may be published without the author’s prior consent.
© Trần Mạnh Tín / MBA03032 / 2013
7
Table of Contents
Page
ABSTRACT
10
1. INTRODUCTION
11
1.1. Background of the Study
11
1.2. Defining the management problem / dilemma
12
1.3. Research Objectives
12
1.4. Research Questions
12
1.5. Importance / significance of the research
12
1.6. Scope / presumption of the research
12
1.7. Research approach
12
1.8. Structure of the Study
13
2. INSTITUTIONAL BACKGROUND OF VIETNAM CIs
14
3. LITERATURE REVIEW
18
3.1. Corporate Governance
18
3.1.1. General International Corporate Governance
18
3.1.2. International Corporate Governance for Banking `
20
3.1.3. General Corporate Governance in Vietnam
22
3.1.4. Corporate Governance for Vietnamese Financial Institutions
23
3.2. Ownership
24
3.2.1. Block Ownership
24
3.2.2. State Ownership
24
3.3. State Ownership and Corporate Governance
25
3.4. Hypotheses development
26
3.4.1. State Ownership and Performance
26
3.4.2. State Ownership, Corporate Governance and Performance
28
4. RESEARCH METHOD
30
4.1. Quantitative Method
30
4.2. Data collection
30
4.3. Data Variable
31
4.4. Model
34
5. RESULTS AND FINDING ANALYSIS
35
6. DISCUSSION, CONCULSION AND RECOMMENDATIONS
41
6.1. Discussion and Conclusions
41
6. 2. Recommendations
44
8
REFERENCES
47
APPENDIXES
53
Appendix 1: The CGI Questionnaire
53
Appendix 2: List of JSCIs
55
Appendix 3: Collected data for 2009
56
Appendix 4: Collected data for 2010
57
Appendix 5: Collected data for 2011
58
Appendix 6: Output from SPSS
59
LIST OF FIGURES
63
Figure 1: ROE and SO
63
Figure 2: CGI and SO
64
Figure 3: ROE and CGI
65
Figure 4: ROE and Size
56
Figure 5: Size and CGI
67
9
ABSTRACT
It is generally agreed that in a joint stock credit institution, beside financial indicators;
Corporate Governance and ownership play fundamental roles in JSCI operation and overall
performance. In Vietnam, there are several surveys about Corporate Governance in general
and Corporate Governance and Firm Performance in particular. However; the relationships
among Corporate Governance, Ownership and Performance have not yet been explored.
This research attempts to find out whether there is any relationship between Corporate
State Ownership and Performance. In addition, the research would investigate if Corporate
Governance can mediate the relationship. The research will be conducted on Vietnam joint
stock credit institutions.
It is revealed from the analysis of 42 JSCIs for specific period of time from 2009 to
2011 that there is a positive association between State Ownership and Performance.
Arguably, if State Ownership ‘‘causes’’ Performance, it should be through the channel of
Corporate Governance. For this reason, the study checks the robustness of this positive
SO/performance finding by analyzing the role of Corporate Governance as a Mediator. It can
be emerged that State Ownership in the specific context of Vietnam joint stock credit
institutions may represent a strategic asset.
Key works: Joint Stock Credit Institution, Corporate Governance, State Ownership,
Performance, Mediator.
10
1. INTRODUCTION
At this moment, the financial sector still generates a lot of controversy both at the
regulator and the banker level. The regulators have been discussing on tightening banking
rules. At the same time, the banks have also been strengthening their own health with very
strict supervision, one of which is to reinforce management practices such as corporate
governance. The results of this research can be of useful reference for the credit institutions
for procedure review and improvement.
In this beginning chapter, readers will understand the reasons behind the choice of this
research problem. A brief explanation of the objectives of the study as well as research
questions will then be presented. Then an overview of the research approach and the structure
will be discussed to conclude the chapter.
1.1.
Background of the Study
In a developing country like Vietnam, the financial sector is still in the development
phase and many local JSCIs have not been able to establish a workable management
framework in order to prevent unfavorable events. This is critical when Vietnam JSCIs
customer services are still in their infancy and JSCIs revenue depends heavily on lending
activities and credit growth is important to any banking organization profit. In addition, the
controlling and monitoring action from the central bank – State Bank of Vietnam (SBV) have
not yet been supportive and effective enough for JSCIs Management and Operation.
This is where concern about this research topic began. Instead of analyzing foreignowned CIs that have quite comprehensive management framework built by their parent
corporations, the author pays more attention to the practices in joint-stock credit institutions
(JSCIs) which are always under competitive and profit pressure in an unfair banking market.
Sales and profit targets make them sometimes ignore what should be carefully done and this
poses an extreme threat to the overall performance. But it is believed that the JSCIs can
compete against their big rivalries by understanding and embracing sound management
policies in which strong corporate governance play fundamental roles. The point is they are
not strong yet in this area despite the fact that JSCIs are actively joining hands with the
central bank to improve their management. There are several facts of the JSCIs management
framework, such as:
+ Limited experience in modern banking techniques, products, management models.
+ Lack of accurate, reliable and complete data for decision making.
+ Poorly developed accounting, reporting and bank supervision guidelines to deliver on time
the useful information on the performance of JSCIs.
11
+ Non-transparent legal and regulatory environment, e.g. legal security over assets, recovery
of bad debts, and profitable banking activities.
1.2. Defining the management problem / dilemma
It is clear that organizations operate in an ever-changing climate. To be able to cope
with this changing industrial world, organizations need instituted corporate governance,
control. This leads to the following question:
Why is strong corporate governance important for Vietnamese JSCIs?
1.3. Research Objectives
+To find out whether there is any co-relationship between Corporate Governance, State
Ownership and Performance in Vietnam JSCIs
+To suggest recommendations to management to improve Corporate Governance and
Performance; and to eliminate shortcomings.
+To enable readers to possess information about the current situation of the Vietnam JSCIs.
1.4. Research Questions
In order to further understand how the objectives of this study will be achieved, four
following research questions are introduced Vietnamese JSCIs case:
+ How strong is Corporate Governance of Vietnamese JSCIs?
+ Is relationship between state ownership and performance is significantly positive?
+ Is relationship between state ownership and corporate governance is significantly positive?
+ Can corporate governance function as a mediator of the relationship between state
ownership and performance?
1.5. Importance / significance of the research
The evaluation of corporate governance, state ownership and performance evaluation
is quite new in Vietnam. There is no research on combination of corporate governance, state
ownership and performance in Vietnam Firms in general and in JSCIs in particular.
1.6. Scope / presumption of the research:
+To focus on Corporate Governance, State Ownership and Performance of Vietnam JSCIs.
+To get the secondary data from JSCIs Annual Reports from 2009 to 2011, the JSCIs internal
documents, the State Bank of Vietnam’ s regulation database, published literature.
+The performance statistics are limited. Vietnamese banking sector data base is still very
simple and non-transparent.
1.7. Research approach
For this thesis, only secondary data are used. The information collected is based
predominantly on desk research. Secondary data are collected from the literature (books,
12
journals, previous research papers, websites, etc.), the State Bank of Vietnam regulation
database, the annual reports and published internal policies. As an explorative and
empirically oriented case research project, a quantitative approach is applied. The SPSS is
used as a tool to analyze the collected data.
1.8. Structure of the Study
There are six chapters in the study. The 1st chapter is dedicated to background
information on the research problem, the motivations behind it, the study objectives and
research approach.
The 2nd Chapter is Institutional background of Vietnam Credit
Institutions. The 3rd Chapter follows with an emphasis on the theories supporting this thesis.
The 4th Chapter will deal with quantitative research methods employed in the study. The
methodology is built to serve the main section: empirical study in chapter 5. The 5th chapter
answers four research questions mentioned in 1.4 at a practical level of Vietnamese JSCIs.
Finally, the discussion, conclusions and recommendations will conclude thesis in the 6th
chapter.
13
2. INSTITUTIONAL BACKGROUND OF VIETNAM CREDIT INSTITUTIONS
CIs play a vital role in the financial industry of a country. They are among the most
heavily regulated of all industries due to their key roles in attracting and protecting the
public’ s savings, providing credit to a wide range of borrowers, and creating money to serve
as the principal medium of exchange in a modern economy. The banking sector are rapidly
globalizing and experiencing intense competition in marketplace after marketplace around the
world, not just only between CIs, but also involving security dealers, insurance companies,
credit unions, and many other financial services competitors.
From 2000, Vietnam Government launched the financial and organizational
restructure of the state-owned commercial banks and joint - stock commercial banks. Then on
2003, Vietnam Government started to implement the comprehensive operational restructure
of commercial banks toward in line with international standards. After Vietnam joined the
WTO in January 2007, to reform the banking sector and facilitate the liberalization of the
commercial process, the government of Vietnam has announced the “Internationally
Integrated Programme” of the Banking Industry. Vietcombank (VCB) is the very first stateowned commercial banks selected by the Government to pilot equitization, the Bank for
Foreign Trade of Vietnam officially has operated as a Joint Stock Commercial Bank since
02/6/2008 after successful equitization plan through the issuance of shares for the first time to
the public. On 30/6/2009, VCB stock was officially listed on the HCM City Stock Exchange.
However; until now, Vietnam has still maintained a variety of restrictions on its financial
markets. In addition to imposing capital controls and regulating interest rates, the government
controls both the set of firms that can sell equity on the domestic or foreign stock markets,
and the amount they can sell.
By June 2012 according to State bank of Vietnam data, Vietnam has 35 Joint-stock
credit institutions, 5 majority State-owned credit institutions (in which Vietcombank and
Vietinbank are listed in Stock; BIDV is going to be listed), 5 Wholly Foreign-owned Banks
and 4 Joint – Venture Banks. The minimum charter capital for a bank is 3,000 billion VND.
Beside Commercial banks, there are also 18 Financial Companies and 8 of them are Joint
stock Financial Companies in which only one JSFC (PVF) is listed. The minimum charter
capital for a Financial Company is 500 billion VND.
Vietnam banking market is highly concentrated at the top and fragmented at the
bottom. The four largest CIs (VCB, CTG, BIDV, and Agribank) are majority state-owned
and gain the major market share. The current ceiling for a foreign shareholder and a strategic
shareholder in local JSCIs are set, respectively, at 30% and 15% of the total charter capital.
14
In Vietnam, the legal framework for corporate governance is in the initial stages of
development. The very first version of Law on Credit Institutions was Law No.
02/1997/QH10. This Law is passed by the Xth Legislature of the National Assembly of the
Socialist Republic of Vietnam in its second session on 12 December 1997. This law came
into effect as of 01 October 1998. The Ordinance on Banks, Credit Cooperatives and Finance
Companies dated 23 May 1990 was ceased to be effective as of the effective date of this Law.
It was amended by Law No. 20/2004/QH11 which was passed by the XIth Legislature of the
National Assembly of the Socialist Republic of Vietnam in its fifth session on 15 June, 2004
and become effective from 1 October, 2004.
On International Corporate Governance Meeting: Why Corporate Governance Matters
for Vietnam; OECD/ World Bank Asia Roundtable on Corporate Governance, 2004; Mr.
Phung Khac Ke, Deputy Governor, State Bank of Vietnam addressed statements as below
listed:
“The importance of good corporate governance for Vietnam credit institutions:
In any single economy, banks play an important and sensitive role. Its performance
directly affects the growth, efficiency and the stability of the economy. Therefore, corporate
governance is of special importance and considered the key for corporation to successfully
achieve its strategy and ensure the stable development of the sector.
In banking sector, international integration has brought opportunity to international
exchange and co-operation, allowing Vietnam banks to have access to global funding sources
and technical assistances, therefore permitting them to better meet capital need (in particular
long-term capital) of the economy and serving as a stimulus for reform and modernization of
Vietnam banking sector and for the enhancement of banking management capability in
accordance with international standards.
Effectively defining objectives and implementing corporate governance in Vietnam
banks have been reducing potential obstacles with which Vietnam banking and financial
sector is facing, which include:
- Our banking and financial system is underdeveloped as compare with regional and
international one. It is obvious that the system is expanding, but it still fails to meet the
increasing and high demand of the economy for a wider range of financial products offered.
Offer of key financial products for private sector, especially for SOEs still remains limited.
15
- Banks’ weak capability to protect itself against potential exposures that may be caused by
customer intention or economic regime is the inevitable outcome of low infrastructure and
weak human resource competence.
- Vietnam accounting and auditing system still fails to become a real component of the
economy’s information infrastructure and still lags behind international standards.
Information transparency, which is one of important factors to satisfy the need of a sound
development of the market, should be considered the first priority.
- Current regulation and legal framework still create barriers leading to inefficient allocation
of financial resources. Financial institutions suffering high cost of operation therefore have
disadvantages in terms of market competition and apply high charge on services provided to
customers.
- In particular, good corporate governance in Vietnam banks will bring a sound financial
situation to banking sector; create chance for capital accumulation to reinvest more efficiently
into the economy.”
Since Vietnam has transformed toward a market oriented economy and especially
since Vietnam has became a member of the WTO in 2007, corporate governance has been set
as an urgent and essential issue in the overall development of the economy. For CIs with
specific business organizations related to "money" with high-risk and the high level of impact
to the emerging economy, the issue of corporate governance is even more meaningful and
much more important. A CI with weak corporate governance will not only damage itself, but
also creates certain systematic risks to other businesses.
In 2007, the Ministry of Finance has issued mandatory corporate governance
regulations Decision No. 12/2007/QĐ-BTC applicable to listed companies and commercial
banks, encouraged to apply in unlisted companies. On July 16, 2009, the Prime Minister
signed Decree 59/2009/ND-CP, on the organization and operation of commercial banks.
Decree consists of six chapters, effective from the date of 15/09/2009.
The latest Law on Credit Institutions No. 47/2010/QH12 (2010) is specific foundation
document about corporate governance in banking sector. There are key articles about
principle of corporate governance of credit institutions. The Chapter III is about
“Organization, Governance and Administration of Credit Institutions. The section 2 of
Chapter III states about “General provisions applicable to Credit Institutions being Jointstock companies and Limited Liability companies. This section includes 9 articles from 43 to
51. The Section 3 of Chapter III has only specific principles about Credit Institutions being
Joint-stock companies. There are 13 articles being numbered from 53 to 65.
16
There are three important principles for corporate governance for joint stock credit
institutions in this Law. The first principle is about the structures of Board of Directors,
Members' Council, and Control Board. It is stated in Articles 43, 44 and 48. The second
principle is about Rights and Obligations of Board of Directors, Members' Council, and
Control Board. It is stated in Articles 45, 46, 47, 49. The third principle is about business
ethics. The Article 50 gives out the “Criteria and conditions for mangers, executives and
holders of some other posts of a credit institution”
However, corporate governance in Vietnam is still a relatively new topic. For the
Vietnamese banking system, the fundamental problem of corporate governance (such as the
relationship between the Board and the Executive Committee, the real role of the Supervisory
Board, transparency, publicity, etc.) have not been fully studied. Recently, the government
has been beginning to implement the policy of restructuring the economy. The restructuring
of the banking system is one of the three pillars in the spirit of the Resolution of the 3rd the
XIth Party Central Committee. Observably, corporate governance in the Vietnamese CIs is
very significant and important in the present time.
17
3. LITERATURE REVIEW
3.1. Corporate Governance
3.1.1. General International Corporate Governance
The OECD Principles of Corporate Governance were originally developed in
response to a call by the OECD Council Meeting at Ministerial level on 27-28 April 1998, to
develop, in conjunction with national States, other relevant international organizations and
the private, a set of corporate governance standards and guidelines. Since the Principles were
agreed in 1999, they have formed the basis for corporate governance initiatives in both
OECD and non-OECD countries alike.
According to The OECD’S (1999) original definition, “Corporate governance
specifies the distribution of rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and other stakeholders, and spells out
the rules and procedures for making decisions on corporate affairs. By doing this, it also
provides the structure through which the company objectives are set, and the means of
attaining those objectives and monitoring performance.”
On the OECD’S Principles of Corporate Governance (2004) version, the OECD
principles define corporate governance as involving “a set of relationships between a
company’s management, its board, its shareholders, and other stakeholders. Corporate
governance also provides the structure through which the objectives of the company are set,
and the means of attaining those objectives and monitoring performance are determined.
Good corporate governance should provide proper incentives for the board and management
to pursue objectives that are in the interests of the company and its shareholders and should
facilitate effective monitoring. The presence of an effective corporate governance system,
within an individual company or group and across an economy as a whole, helps to provide a
degree of confidence that is necessary for the proper functioning of a market economy.”
The Principles of Corporate Governance are:
+ Ensuring the Basis for an Effective Corporate Governance Framework
+ The Rights of Shareholders and Key Ownership Functions
+ The Equitable Treatment of Shareholders
+ The Role of Stakeholders in Corporate Governance
+ Disclosure and Transparency
+ The Responsibilities of the Board
Many definitions of corporate governance stress the potential conflicts of interest
between insiders (managers, boards of directors, and majority shareholders) and outsiders
18
(minority shareholders and creditors) of the company. The set of internal and external
mechanisms to balance these conflicts of interest is what it is usually known as corporate
governance (Urbi Garay and Maximiliano González, 2008.)
La Porta et al. (1997) study a sample of 49 countries and conclude that countries with
legal systems based on Civil Law, especially the French legal system, provide less protection
to investors and have less developed capital markets, particularly when compared with
countries from the Common Law origin. These authors also conclude that dividend policy
constitutes an essential tool to reduce agency conflicts to minority investors.
These findings are consistent with the theoretical model presented in La Porta, Lópezde-Silanes, Shleifer and Vishny, (2002), where the positive effects of good corporate
governance practices on firm valuation are explained by higher investor confidence. This
situation lowers the cost of capital and, ultimately, increases firm value. Also, these results
are consistent with the agency model of dividend payout in the corporate governance
framework developed in La Porta, López-de-Silanes, Shleifer and Vishny (2000b).
Since the seminal empirical papers of La Porta et al. (1997, 1998, 1999, 2000a)
showing that laws that protect investors differ significantly across countries, in part because
of differences in legal origin, the academic focus has shifted to study corporate governance in
the international setting. Klapper and Love (2004) was among the first and more
comprehensive papers focusing on corporate governance in emerging markets. Using firmlevel evidence on corporate governance practices for 495 companies from 25 emerging
markets, they show that better corporate governance is highly correlated with better operating
performance and market valuation.
Many country-studies have used a methodology that is very similar to that of Klapper
and Love (2004). For example, Black, Jang and Kim (2006a) constructed a CGI for South
Korea; and Black (2001) and Black, Love and Rachinsky (2006b) both studied how their CGI
affects firm value in Russia. The empirical evidence for Latin America has also grown
rapidly in recent years. Leal and Carvalhal-da-Silva (2005) studied Brazil, Chong and Lópezde-Silanes (2006) studied Mexico, Lefort and Walker (2005) studied Chile, and Garay and
González (2005) studied Venezuela. All these papers show that, on average, a good set of
corporate governance practices and policies is positively related to firm value.
Corporate governance usually represents strategic orientation throw set of processes,
customs, polices, laws and institutions affecting the way any corporation is directed,
administered and controlled. Corporate governance is reliant on external factors (law,
institutions, market, global situation, etc.), but internal factors (employees, strategies,
19
knowledge, etc.) can give opportunity to differentiate from competitor on global market
(Golja, Nizic and Paulišić; 2011). Also, corporate governance help businesses to meet global
challenges while improving organizational competitiveness and safeguarding the interests of
all stakeholders (Crowther and Aras, 2009)
Corporate governance is very important because of its influence on: reputation; rights
and treatments of shareholders, relations with stakeholders; transparency and openness of
company, etc. Corporate governance is nowadays used as managerial tool. Good corporate
governance should contribute to better company performance by helping a board discharge its
duties in the best interests of shareholders; if it is ignored; the consequence may well be
vulnerability or poor performance (FRC, Financial reporting Council, 2008). Governance
needs to assure expected behavior, ethical standards, culture, and to monitor institutional
changes, community and media environments. But crisis has opened the old debate about the
costs and benefits of regulation as opposed to market mechanisms (OECD Steering Group on
Corporate Governance, 2010, 6).
Good corporate governance requires appropriate and effective legal, regulatory and
institutional foundations (Basel Committee on Banking Supervision, 2006). Furthermore we
can recognize eight principles of governance which underpin every system of governance
(Crowther and Aras, 2009): (1) transparency; (2) rule of law; (3) participation; (4)
responsiveness; (5) equity; (6) efficiency and effectiveness; (7) sustainability and (8)
accountability.
3.1.2. International Corporate Governance for Banking
On September 1999, Basel Committee on Banking Supervision also set up
“Enhancing Corporate Governance for Banking Organizations”. After that on February 2006,
Basel Committee on Banking Supervision issued “Principle for enhancing Corporate
Governance”. Then on October 2010, Basel Committee on Banking Supervision issued
revised “Principle for enhancing Corporate Governance”. With 14 principles are divided into
5 categories: (1) Board Practices, (2) Senior Management, (3) Risk management and internal
controls, (4) The compensation system, (5) special guidelines for banks.
In financial markets, there are various areas in which problems related to corporate
governance arise like agency problems and the subsequent ethical problems that may lead to;
the problems concerning insider trading; manipulation; reporting for general public; and
providing information to investors (Crowther and Aras, 2009). The banking sector is not
necessarily totally corporate. Some part of it is, of course, but a segment of banks is mostly
State owned as statutory corporations or run as cooperatives (Addressed by Mr. V Leeladhar,
20
Deputy Governor of the Reserve Bank of India, 2008). Although State ownership of a bank
has the potential to alter the strategies and objectives of the bank, a state-owned bank may
face many of the same risks associated with weak corporate governance that are faced by
banks that are not state owned (Basel Committee on Banking Supervision , 2006).
A good banking system is the backbone of a sustainable economy (Maharjan, 2011).
Since the market control is not sufficient to ensure proper governance in banks, the State does
see reason in regulating and controlling the nature of activities, the structure of bonds, the
ownership pattern, capital adequacy norms, liquidity ratios, etc. (Leeladhar, 2009). But it is
important for jurisdictions to regularly review whether their supervisory, regulatory and
enforcement authorities are sufficiently resourced, independent and empowered to deal with
corporate governance weaknesses that have become apparent (OECD Steering Group on
Corporate Governance, 2010, 6). From banking industry perspective, corporate governance
involves the manner in which the business and affairs of banks are governed by their boards
of directors and senior management, which affects how, they (Basel Committee on Banking
Supervision, 2006):
+ set corporate objectives;
+ operate the bank’s business on a day – to – day basis;
+ meet the obligation of accountability to their shareholders and take into account the
interests of other recognized stakeholders;
+ align corporate activities and behavior with the expectation that banks will operate in a safe
and sound manner, and in compliance with applicable laws and regulations, and
+ protect the interests of depositors.
Banking as a sector has been unique and the interests of other stakeholders appear
more important to it than in the case of non-banking and non-finance organizations the
involvement of State is discernibly higher in banks due to importance of stability of financial
system and the larger interests of the public (Leeladhar, 2009). So, effective corporate
governance practices are essential to achieving and maintaining public trust and confidence in
the banking system, which are critical to the proper functioning of the banking sector and
economy as a whole (Basel Committee on Banking Supervision, 2006). On other side, poor
corporate governance may contribute to bank failures, which can pose significant public costs
and consequence due to their potential impact on any applicable deposit insurance systems
and the possibility of broader macroeconomic implications, such as contagion risk and impact
on payment systems consequently all market can lose confidence (Basel Committee on
Banking Supervision, 2006). A variety of factors, including the system of business laws and
21
accounting standards, can affect market integrity and overall economic performance but such
factors are often outside the scope of banking supervision (Basel Committee on Banking
Supervision, 2006).
There are four important forms of oversight that should be included in the
organizational structure of any bank in order to ensure appropriate checks and balances
(Basel Committee on Banking Supervision, 2006): (1) oversight by the board of directors or
supervisory board; (2) oversight by individuals not involved in the day – to-day running of
the various business areas; (3) direct line supervision of different business area and (4)
independent risk management, compliance and audit functions. In addition, it is important
that key personnel are fit and proper for their jobs.
At the end, we should highlight that the corporate governance of banks in developing
economies is important because (Arun and Turner, 2003): (1) banks have dominant position
in financial system and they are important engine of economic growth; (2) financial market is
usually undeveloped and banks represent main source of finance for the majority of firms; (3)
banks in developing country are usually the main depository for the economies saving’s; (4)
developing
economies
have
recently
“liberalized”
banking
system
through
privatization/disinvestments and reducing the role of economic regulation.
3.1.3. General Corporate Governance in Vietnam
The Law on enterprises No. 60/2005/QH12 (2005) is the in foundation document
about corporate governance in Vietnam. The law created a unique corporate governance
framework for enterprises regardless of their capital ownership or economic sector. In other
word, the law on enterprise provided a corporate governance framework that every enterprise
has to comply with. However, corporate governance framework that is stipulated by the law
is not so clear, comprehensive. It needs many additional documents (Degree, Decision,
Order…) to make it applicable.
On 2011, Dr. Nguyen Thu Hien and Research Team conducted a corporate
governance scorecard report.
This Corporate Governance Scorecard report was
commissioned by IFC and the Global Corporate Governance Forum (GCGF) in collaboration
with the State Securities Commission of Vietnam. The Corporate Governance Scorecard is a
review and report on the corporate governance practices of the 100 largest listed companies
in Vietnam for 2010 and 2011. “It is clear that some advances have been made in CG
practices in Vietnam between the Baseline Review and Report last year and this review. The
large number of companies with weak CG has reduced. However, it is clear that CG
continues to be practised more as a compliance exercise with companies appearing to address
22
CG from a minimalist perspective. This approach will hold Vietnamese companies back from
reaching best CG practices as more effort than the minimum required by law and regulation
is needed.” “Financial information is basic and most important for investors’ decisions.
Financial information, however, was observed as often being incomplete, late and unreliable.
Companies and regulators should insist on fully complete financial statements and interim
information that is timely and reliable. To accomplish this, development of the accounting
and audit profession, plus accounting and auditing standards in line with international best
practices is an important matter”. “Companies have yet to receive the message that sound CG
is good for business and it can positively affect the profitability and market performance of
Vietnamese companies”. “It was also evident that the government and regulators are
committed to improving CG practices in Vietnam. The state, as a major shareholder, is in a
powerful position to be a ‘champion’ of good CG and it could demand best practices in CG
from its directors and boards. Furthermore, regulators and government bodies can provide
resources to ensure CG development, monitoring and enforcement. In particular, the
regulatory agencies need to demonstrate commitment to monitoring and enforcement of the
application of the laws and regulations and apply skilled resources to these activities.
Enforcement measures need to be sufficiently strong to act as a deterrent”. “Based on
company financial information, firms with better-observed CG practices or scores seemed to
demonstrate better profitability. The study also found out that “that the larger the company,
the better CG scores overall”.
3.1.4. Corporate Governance in Vietnamese Financial Institutions
On 2008, Dr. Tran Bao Toan did a qualitative research “Analysis of the Vietnamese
Banking Sector with special reference to Corporate Governance” and found out that the
corporate governance in banking sector can be significantly improved. The board members
and members of top management understand the important role of Corporate Governance in
Banking. If the country’s corporate sector wants to avoid the repetition of scandals in the
future, and wants to create efficient and competitive business entities which can compete
successfully with their overseas peers, both, in international markets as well as in an
increasingly liberalized domestic market, then they have to create a more robust, sustainable,
larger business. In order to achieve these goals, it is important to introduce and implement a
modern approach to corporate governance practices.
There is clear evidence that the enactment of good corporate governance can have a
tangible positive impact on the following issues: (1) Company’s efficiency and operational
performance; (2) Ability to access finance, particularly from investors and capital markets;
23
(3) The reduction of risk related to its day-to-day operations; (4) The compliance with laws
and regulations; and (5) Ability to protect itself from corrupt practices (Tran 2008).
A very first study on “Governance and Firm Performance of Financial Institutions in
Vietnam” (Le and Nguyen 2012) was published on Banking Technology Review No. 78
(September 2012). “This study is to analyze and evaluate the corporate governance practices
in financial institutions (FI’s) in Vietnam, including 37 Commercial Joint Stock Banks, 16
Insurance Corporations and 7 Finance Joint Stock companies. The empirical results show that
the CGI is positively associated with ROE and ROA and the correlation is statistically
significant at the 0.01 level. This suggests that in Vietnam, FI’s with higher corporate
governance scores have higher performance in term of ROE and ROA.”
3.2 Ownership
3.2.1. Block Ownership
There is presumption in the literature that block shareholders have power and stronger
incentive to ensure shareholder value maximization (Jensen and Meckling, 1976; Waseem
Anwar, 2011). The empirical evidence on corporate governance suggests that large owners
have stronger incentive and better opportunities to exercise control over manager than small
shareholders. Claessen, 2002 finds evidence of a positive relation between shareholding
concentration and firm performance.
An ownership structure in which one or more shareholders own a large block of stock
has the potential for disproving managers from engaging in moral hazard behaviour. A block
holder may also propose a person to represent him or her in the board of directors in order to
ensure that the management is acting in the interests of shareholders. Block-holder ownership
above a certain level may lead to entrenchment of owner-mangers that expropriate the wealth
of minority shareholders (Morck et al., 1988).
La Porta et al (1997, 1998, 1999 and 2000) have shown that the countries with weak
legal environment, the original owners tries to maintain large positions in their corporations
which results in concentration of ownership. Equity ownership by insiders can align insider
interest with those of shareholders, thereby leading to greater firm value (Klapper and Love,
2002).
3.2.2. State Ownership
State ownership of banks is a common feature in many developing economies (La
Porta et al. 2002). The reasons for such ownership may include solving the severe
24
informational problems intrinsic in developing financial systems and aiding the development
process. The State is more fitted to allocate capital to certain investment.
There are two additional theories which have been advanced for State participation in
the financial market, namely the development view and political view. The development view
suggests that in some countries where the economic institutions are not well developed, State
ownership of strategic economic sectors such as banks is needed to jump start both financial
and economic development and foster growth. In political view, States acquire control of
banks in order to provide employment and benefit to supporters in return for votes,
contributions and bribes. Such approach is greater in countries with underdeveloped financial
system and poorly developed property rights. Under development view, State finance projects
are socially desirable. Therefore, States finance projects that would not be privately financed
in both views (La Porta et al. 2002). Greater State ownership of banks tends to be associated
with lower bank efficiency, less saving and borrowing, lower productivity and slower growth
(Barth et al. 2000).
3.3. State Ownership and Corporate Governance
State ownership of publicly-traded corporations remains pervasive around the world,
and has been increasing in recent years. The conflict of interest stemming from the state’s
dual role as both shareholder, and regulator can influence the content of corporate laws.
On 2005, OECD published “OECD Guidelines on State-Owned Enterprises”. The
OECD Guidelines on Corporate Governance of State-Owned Enterprises define and
demonstrate ways of balancing between the State's responsibility to actively implement its
ownership functions (such as selection and nomination onto supervisory boards) while at the
same time resisting inappropriate political interference in the governance of these enterprises.
The Guidelines explain that in markets where private companies compete with state-owned
companies there are equal opportunities; and also, that by the method in which the States
apply their legislative and supervisory powers, they do not distort the competition. The
Guidelines suggest that the State should exercise its ownership function through a centralised
ownership unit which needs to operate independently and in compliance with its publicly
disclosed ownership policy. An important element is a strict separation of ownership and
legislative functions of the State. In this way the State’s ownership is exercised in a
professional and responsible manner, and the State holds a positive role in improving
corporate governance in all sectors of the economy.
The Guidelines also propose that the policy-making in regard to the State’s ownership
steering should be publicly disclosed and that the State should prepare annual reports on
25
policy implementation as well as aggregated reports on the SOEs’ performance in order to
ensure better transparency of corporate governance of SOEs. An important element of good
corporate governance, as emphasised in the guidelines, is the responsible conduct of SOEs’
supervisory and management bodies; the same applies to the relation between the State as the
shareholder and these bodies.
The Guidelines are specifically dedicated to issues characteristic of the corporate
governance of SOEs, and discuss these questions from the point of view of the State as an
owner while also focusing on policies that would provide good corporate governance of
SOEs. At the same time, the OECD Guidelines do not oppose various policies or privatisation
programs carried out by the OECD countries.
3.4. Hypotheses development
3.4.1. State Ownership and Performance:
Recently,
transitional
economies
in
Eastern
Europe,
China,
Venezuela,
Vietnam….have been reforming governance in the orientation to market liberalization,
moving toward market-based systems. Consequently, ownership structures and firm
performance have been changing with transition (Djankov and Murrell 2002).
From a
traditional agency perspective, SO has been associated with the imposition of political
objectives on firms and the exploitation of the firm’s assets through what has been called the
‘‘grabbing hand’’ of the state (Shleifer and Vishny 1998).
A large body of global evidence reports a negative impact of SO on firm performance
(see surveys by Djankov and Murrell 2002; Megginson and Netter 2001). Various descriptive
and analytical studies have established that private and privatised firms are generally more
efficient than wholly state-owned enterprises (SOEs), particularly through corporate
governance, quality-related innovation (Shleifer 1998), cost reduction and competition
(Shirley and Walsh 2000). SO is also found to be negatively related to firm performance (Xu
and Wang 1999).
In contrary, high SO should bring some benefits at least, and it is this balance of costs
and benefits in different institutional circumstances that concerns us here. Certainly, studies
from China have raised the possibility of the state providing a ‘‘helping hand’’ (Shleifer and
Vishny 1998), or net ‘‘beneficial effects’’ (Tian and Estrin 2005). In addition, the State very
possibly uses administrative instruments for example preferential market entry regulations,
favorable taxation and loans decisions to assist firms with high state ownership (Le and
Chizema 2011). That is a good reason why SO may produce a net positive association with
firm performance.
26
Thus, the advantages of the ‘state factor’ which were manifested in state ownership
have also been examined in strategic management literature and empirically realized at firm
level (Le and Chizema 2011). For example, the state can provide firms with competitive
advantages improving firm performance in partner selection for joint ventures in China (Luo,
1997; Hitt et al., 2000; Hoskisson et al., 2000). In business group studies, state is also proved
to be a strategic asset employed by firms to advance their competitive advantage for better
firm performance (Guthrie, 1997; Nolan, 2001; Peng, 2002).
Thank to the positive impact of the support from State, firm performance may very
possibly be attributable to the state’s administrative “push” (Le and Chizema 2011). In
particular, profitable privatized firms may be used as a demonstration of the efficiency of
economic reforms that enable the state to sell firms’ stock at higher prices (Green & Liu,
2005), and higher level of state ownership has also been found to be related to the
manipulation of reported accounting information (Lin, 2004).
It has been suggested that this ‘‘helping hand’’ is likely to be prevalent in Chinese
privatised firms (Li 1998), and SO has been found to have a positive association with firm
accounting returns (Chen et al. 2006; Tian and Estrin 2005). In addition, Sun et al. (2002)
find that SO is positively associated with firm performance 1994–1997, but the relationship
has an inverted U shape. Le and Buck (2009) analysis of more than 1,000 Chinese listed
firms, 2003–2005, reveals a positive association between state ownership (SO) and firm
performance. In addition, Le and O’Brien (2010) also found that state ownership has a
positive impact on firm performance in a context of high debt and equity ratio.
Vietnam is similar to China in one aspect that Vietnam has transformed its economy
without political change, and the state still dominates the majority of privatised firms in key
industries such as banking, post office, mining, heath care, transportation, electric power, oil
& gas, national defense, major infrastructure….. For year of 2011; there are 6/42 JSCIs that
have SO to be equal or bigger than 60%; there are 13/42 JSCIs that have SO to be equal or
bigger than 35%; the mean of SO is 23.72%. It seems that such levels give the state effective
control of JSCIs.
In a relatively unique institutional context of Vietnam Commercial Banking sector in
which the state may subjectively affect firm performance, the author therefore proposes the
first hypothesis as follows:
H1: SO has a positive association with performance, i.e. higher SO is associated with
enhanced performance for Vietnamese JSCIs.
27
3.4.2. State Ownership, Corporate Governance and Performance
Agency problems arise from the tendency for managers to have both the discretion
and incentives to pursue strategies and practices that benefit themselves (and other
employees) at the expense of shareholder value (Jensen and Meckling 1976). Indeed, the
senior managers of firm with State Ownership typically acquire little or no stock ownership,
but have significant controlling powers assigned by the dominant (state) shareholder. In the
SOEs, governance stands out to be more important than in the private sector as the board is
the trustee of “public assets” and the institutions have a dual economic and social objective.
Effective governance in the SOEs is essential for the optimum use of resources, for
improving management and service delivery, and for strengthening accountability.
SOEs now face much higher pressure to improve performance. Many forces have led
to a more demanding environment such as greater competition, financial sector liberalization,
restructuring and privatization of state-owned banks, technological changes, international
agreements, and budgetary reforms. Many countries are now embarking on wide-ranging
corporate governance reforms of their state-owned sector. Improvements to SOE governance
allow the State to better protect its assets and enhance the performance of SOEs through: (1)
improved board practices, (2) a robust control environment (3) better disclosure practices
(Sunita Kikeri 2012). Conscious of the importance and benefits of good governance, the State
in its wisdom may adopt some Code of Corporate Governance, which state-owned enterprises
including parastatal bodies and statutory corporations are required to follow and practice. In
addition, to set up specific guidelines for State-Owned FIs, Financial Systems Department The World Bank published “Policy Research Working Paper 4321: Strengthening the
Governance and Performance of State-Owned Financial Institutions”. (David H. Scott 2007)
It would appear that continuing high levels of SO, and certainly effective state control
through share ownership and other channels of influence, may have to be accepted as a stable
feature of corporate governance in the Vietnamese banking industry context. Indeed,
corporate governance is not a static structure but a process (Clarke 2007) determined by
many political and institutional factors (Shleifer and Vishny 1997), and the state is inevitably
involved in the corporate governance process. Therefore, researcher should keep an open
mind on its actual role in this process, rather than asserting a static, universal relation
between SO and firm performance (Le and Buck 2009).
On the theoretical strategic asset perspective, the state may give ‘‘helping hand’’ to
firms, based on notions of either efficiency or state power. In efficiency terms it is wellknown that widely dispersed share ownership may generate free-rider and control problems
28
as a result of the divorce of ownership and control. It is implied that the State may potentially
act as a strategic block holder then protect its investments by strictly monitoring managers
(Le and Buck 2009). Indeed, if the state is concerned with extracting tax revenues, based on a
proportion of profit, or maximising the value of its stake for subsequent asset sales, it may
press managers, just like a private block holder, to make efficient decisions that raise firm
value (Buck et al. 2008). In these circumstances, managers may even be recruited by the state
for their ability to improve firm performance, rather than to fulfil social welfare
responsibilities (Barberis et al. 1996). In power terms, the state may reinforce its strategic
influence with its power and the provision of financial and political resources (e.g. subsidies)
that may enhance reported firm performance (Shleifer and Vishny 1998). This strategic
influence is well documented in Chinese SOEs and privatised firms (Gordon and Li 2003;
Nolan 2001). Enterprise managers are found to exploit the strategic asset represented by their
relationships with the government in order to improve competitive advantage and firm
performance (Peng and Luo 2000; Park and Luo 2001).
In Vietnam, CGI also is positively associated with firm performance (Le and Nguyen
2012; Nguyen Thu Hien and IFC Research Team 2011) as other emerging economies around
world. In a relatively unique context of the Vietnam banking industry, where the state
maintains high levels of SO in JSCIs, the author also reports a positive SO/performance
association, 2009–2011, so the author delve deeper behind this relationship to check its
robustness. Most of governance studies are essentially ownership study, and ownership itself
has no way to cause firm performance (Le and Buck 2009). Therefore, the author attempts to
determine the extent to which CGI may provide the ‘‘missing link’’ in any association
between Vietnamese JSCIs’ SO and performance, and whether CGI in is consistent with a
positive SO/performance association. It is proposed that there are causal relations between
SO, CGI and performance, hypothesising that CGI mediates the relationship between SO and
performance.
This study therefore examines CGI as a variable in its own right, and tests the value of
this distinction. It hypothesises and empirically tests the associations between SO and CGI,
between CGI and performance, and examines the possibility of a mediating relationship
between the three variables. If there is such a relationship, it must meet the requirements for a
mediation effect model (Baron and Kenny 1986). If a strategic asset perspective on the
positive role of SO is correct, CGI will again be found to mediate a positive (H1) relationship
between SO and performance.
The study therefore also proposes second hypothesis:
29
H2: CGI mediate the (positive) relationship between SO and performance, i.e. SO is
positively associated with CGI, and higher CGI is associated with an improvement in
performance.
4. RESEARCH METHOD
4.1. Quantitative Method
The data set is obtained from the financial statements, annual reports, published
article of Vietnam JSCIs for the year 2009 to 2011. The Ownership information is also
collected from newspaper, internet.
4.2. Data collection
By the end of 2011, there are 45 JSCIs including 37 Joint Stock Commercial Banks
(JSCBs) and 8 Joint Stock Financial Company (JSFCs). There were listed CI’s and unlisted
CI’s in Vietnam. To mitigate the potential issue given small sample size in the limited time,
the author increase observations by sampling in three years from 2009 to 2011.
+ There are 3 observations (Bac A Commercial Joint Stock Bank, Viet Nam Thuong Tin
Commercial Joint Stock Bank, Handico Finance Joint Stock Company) which lack of
necessary information for 3 years.
+ There are 2 observations (Global Petro Commercial Joint Stock Bank and Tienphong Bank)
which lack of necessary information for 2011. They are under restructuring progress now.
+ There is one more observation (Sai Gon Joint Stock Commercial Bank) which lack of
necessary information for 2011 because it was merged with the Ficombank and
TinNghiaBank.
+ There is one observation (Vietnam Textile and Garment Finance Joint Stock Company)
which lack of necessary information for 2009 and 2010 because it just become Joint Stock
Financial Company by end of 2010.
30
4.3. Data variable
4.3.1. Dependent Variables: Financial Performance Variable
It is generally agreed that firm performance is measured based on two aspects:
accounting and market performance. ROE is widely used to measure firm accounting
performance i.e. Baysinger and Butler (1985) and Kiel and Nicholson (2003). In addition,
ROE is included as dependent variables in the study of Le and Nguyen (2012) to measure
operating performance of Financial Institutions in Vietnam”. In this study ROE is Return On
Equity: Annual profit to total average equity assets ratio.
Another ratio for evaluating performance is return on assets (ROA). Remember that
CIs are highly leveraged because they borrow a lot of capital. However; a potential problem
with using return on assets is that it does not take into consideration borrowed capital. The
success of large CIs will often depend on a combination of debt and equity financing. If
return on assets is decreasing, then either net income is decreasing or average total assets are
increasing. During the period of time 2009-2011, while the SO level of CIs was rather stable
while the ROA of CIs fluctuated a lot because the CIs business boomed and grew very fast.
For these reasons, this study does not use ROA to test relationship with SO.
Price to book value (PBV) and Tobin’s Q are commonly included in many empirical
studies to measure market performance of firms, i.e. Barnhart, Marr and Rosenstein (1994),
Garay and González (2008), Black, Jang and Kim (2006) etc. However; many Vietnamese JSCIs
are unlisted so that market performance in term of price to book ratio and Tobin’s Q can not be
measured; and then consequently are excluded in the study.
31
4.3.2. Mediation Variable: Corporate Governance Index
Recently, different studies, trying to measure quantitatively the quality of corporate
governance, have created indexes based on legal, accounting, and firm-level financial
information.
On 2008, to measure the Corporate Governance Index (CGI), Urbi Garay and
Maximiliano González based on Leal and Carvalhal-da-Silva (2005)’s 24 questions to ended
up with 17 questions that are applicable to the Venezuelan setting. They answered the
questions themselves. Each one of these 17 questions was answered using publicly available
information. They then grouped the questions into four sub-indexes. (1)
Structure,
components of the Board of Directors; (2) The rights of shareholder; (3) Transparency in
operations of the company; (4) The responsibility of the Board of Directors.
From this questionnaire for Venezuelan setting, Le and Nguyen (2012) created the
Vietnam CGI checklist consisting of 17 questions constructed on the basic of regulations and
international standards on corporate governance to evaluate corporate governance practices of
these FI’s. Financial banking industry is the specific sector and for this reason, the government
specially pays more attention to its operations to ensure a safe and stable growth of financial
system as a whole, contributing to a sustainable economic growth in the country. As a result, the
operations of financial banking sector are stringently supervised and regulated by the government
not only in Vietnam but also in many countries around the world. Therefore, to set up the
contents of questions regarding corporate governance in the checklist, the authors of VCGI
checklist based on the main principles of Law on credit institutions in 2010, Law on enterprises,
and Law on securities and Law on amendments 2010 of Law on securities, principles of OECD
and Decision No. 12/QĐ-BTC of the Ministry of Finance as well as other current relevant
regulations of the Vietnamese government.
This study uses VCGI checklist to measure quantitatively the quality of corporate
governance of JSCIs. The author carefully checks and gives points to either “yes” or “no” for
each of JSCI’s in Vietnam on the basic of public information disclosed by JSCI’s or other public
sources in the market (i.e. websites of security companies, the SBV, MOF, and GSO etc.). The
main documents collected for the study include financial statements, annual reports, the meeting
minutes, the resolutions of the General Assembly of Shareholders, JSCI charters, etc.
The collected CGI for Vietnam JSCIs is shown in Appendix 1
32
4.3.3. Independent Variable: State Ownership (SO)
State ownership of publicly-traded corporations remains pervasive around the world,
and has been increasing in recent years. State Ownership is defined as the percentage of
shares owned by the state at a national, provincial level and institutions. SO is included as
independent variables in the study of Le and Buck (2009) to understand how SO impacts on
performance of 1,000 listed firm in China for 2003-2005. In addition Yin Yeqin (2005) use
also use SO on his study to surveys and analyses current status of China’s listed firms’
ownership structure and corporate governance, and study the relationship between ownership,
corporate governance mechanisms and firm performance using data from 652 sample firms
listed in Shanghai Stock Exchange. In addition, there are also specific studies about affect of
SO on Banks. The interesting results come out. First of all; state ownership affect positively
bank’s performance in term ROE (Sarra Ben Slama Zouari and Neila Boulila Taktak, 2012).
Sencondly; the state-owned banks have higher interest margins and higher profit before taxes
than commercial stock banks after adjusting for risk. Whereas the higher profit before taxes
of state-owned banks is based on their lower risk-taking (Ana et al. 2000); (Study on 146
banks in eight OECD countries 1990-1997).
4.3.4. Control variables
The author selects several additional variables that may capture the differences in governance
and performance.
(1) SIZE: Firm size may represent the potential economies of scale and scope which may be
associated with firm profitability (Gedajlovic & Shapiro, 2002; Ang, Cole & Lin, 2000).
Bank size may be an important element of performance as banks may enjoy economies of
scale in both – adoption of corporate governance norms and financial operations. Size
variable is measured with the (logarithm) of total average assets.
(2) DEBT: The debt-to-total asset ratio: debt is considered to be associated with agency
problems in emerging markets (Dharwadkar et al. 2000) and agency problems is related to
corporate governance. Debt is assumed to have a positive association with state ownership
(Lu et al., 2005) and thus affects firm performance (Sun et al., 2002).
(3) STAT: The author adds a dummy variable (STAT) indicating the status of which FI’s are
listed or unlisted in both HOSE and HNX. If FI is listed, dummy value will be 1. Otherwise,
dummy value is 0.
33
4.4. Model
Mediation model: State Ownership (SO) / Corporate Governance Index (CGI) / Performances
Indicator (ROE)
2
SO
3
CGI
ROE
4
1
Relationships to be tested
1 . Predictor and outcome (SO and ROE)
2 . Predictor and mediator (SO and CGI)
3 . Mediator and outcome (CGI and ROE)
4 . Predictor and outcome with the influence of mediator (SO and ROE and CGI)
To test for mediation, one should estimate the three following regression equations step:
(1) Regressing the outcome variable (ROE) on the predictor variable (SO).
(2) Regressing the mediator variable (CGI) on the predictor variable (SO).
(3) Regressing the outcome variable (ROE) simultaneously on the predictor variable (SO)
and mediator variable (CGI)
Prior to empirical analysis, OLS Equations should be tested as follows:
Y = β0 + βnXn+ e
Where:
Y: denotes the dependent variable
X: denotes the independent variable
e: denotes the random error
β0: denotes constant
βn: denotes the coefficient of the explanatory variable.
Baron and Kenny (1986) propose that mediation is demonstrated when the following
conditions are met:
1. There is a significant relationship between the predictor and the outcome variable at step 1.
2. There is a significant relationship between the mediator and the predictor variable at step 2.
3. The mediator is significantly related to the outcome variable at step 3.
4. The effect of the predictor on the outcome variable is less in step 3 than in step 1.
34
5. RESULTS AND FINDING ANALYSIS
Tables 1, 2, 3 show that the mean of CGI has increased from 38.88% on 2009 to 43.04%
on 2010 and up to 49.17% on 2011. The minimum value of CGIs each year are 17.65% for 2009
then increasing to 23.53% for 2010 then up to 29.41% for 2011. The mean of SOs are rather
stable for period of time: 23.91% for 2009; 22.60% for 2010 and 23.72% for 2011. The maximum
values of SOs were kept unchanged for 3 year and were 90.72%. All JSCIs have profit on this
period of time. The minimum ROE is 2.23%. The maximum ROE is 29.12%.
Table 1: Descriptive Statistics for 2009
N
41
Minimum
2.38%
Maximum
28.48%
Mean
12.59%
Std. Deviation
6.47%
Debt-to-total asset
41
57.46%
94.79%
86.11%
8.56%
State Ownership
41
0.00%
90.72%
23.91%
25.51%
Corporate Governance Index
41
17.65%
64.71%
38.88%
13.66%
Size (logasset)
41
6.36
8.38
7.22
0.54
Average Total Asset
41
2,282,853 238,723,166
35,177,482
52,271,350
Valid N (listwise)
41
Return On average Equity
Table 2: Descriptive Statistics for 2010
N
41
Minimum
3.17%
Maximum
29.12%
Mean
13.01%
Std. Deviation
6.08%
Debt-to-total asset
41
66.04%
95.00%
86.68%
7.04%
State Ownership
41
0.00%
90.72%
22.60%
26.24%
Corporate Governance Index
41
23.53%
70.59%
43.04%
13.57%
Size (logasset)
41
6.44
8.49
7.43
0.51
Average Total Asset
41
2,784,104 305,748,700
51,751,236
68,354,721
Valid N (listwise)
41
Return On average Equity
Table 3: Descriptive Statistics 2011
N
39
Minimum
2.23%
Maximum
28.79%
Mean
12.17%
Std. Deviation
6.51%
Debt-to-total asset
39
58.74%
95.74%
85.67%
9.30%
State Ownership
39
0.00%
90.72%
23.72%
26.36%
Corporate Governance Index
39
29.41%
76.47%
49.17%
14.63%
Size (logasset)
39
6.16
8.62
7.52
0.58
Average Total Asset
39
1,452,968 414,158,058
69,234,576
90,704,582
Valid N (listwise)
39
Return On average Equity
Note: Average Total Asset: (million VND)
35
As table 4 shows that there is no high correlation among independent (SO) and control
variables (Debt-to-total asset, Size) is found. In addition, Appendix 6A shows that the Variance
Inflation Factor (VIF) for the control variables are all under 3.5 which is much smaller than the
maximum limit of 10 specified by Neter et al. (1996). As a result, multicollinearity does not
appear to be a problem.
The Appendix 6A shows that Debt-to-total asset has positive associations with ROE
(model 1A, 2A, 3A) and CGI (model 4A, 5A). However; the P value are all bigger than
significant level of 0.05. For this reason, the Debt-to-total asset is removed out from OLS
equation and multi regression will be done again. The SPPS output tables are in Appendix 6B.
Appendix 6B shows that the P values are all smaller than significant level of 0.05. As a
result, the OLS equations are written as follows:
ROE =
-0.351 + 0.063*Size + 0.052*SO
ROE=
-0.231 + 0.040*Size + 0.039*SO + 0.014*CGI
CGI=
-1.058 + 0.198*Size + 0.121*SO
36
Table 4: Descriptive Statistics and Correlations for 3 years (2009, 2010, 2011)
Variable
Mean
Std. Deviation
Return On average Equity
Debt-to-total asset
Size (logasset)
State Ownership
Corporate Governance Index
*
**
Note: p[...]... between state ownership and performance? 1.5 Importance / significance of the research The evaluation of corporate governance, state ownership and performance evaluation is quite new in Vietnam There is no research on combination of corporate governance, state ownership and performance in Vietnam Firms in general and in JSCIs in particular 1.6 Scope / presumption of the research: +To focus on Corporate Governance,. .. Corporate State Ownership and Performance In addition, the research would investigate if Corporate Governance can mediate the relationship The research will be conducted on Vietnam joint stock credit institutions It is revealed from the analysis of 42 JSCIs for specific period of time from 2009 to 2011 that there is a positive association between State Ownership and Performance Arguably, if State Ownership. .. agreed that in a joint stock credit institution, beside financial indicators; Corporate Governance and ownership play fundamental roles in JSCI operation and overall performance In Vietnam, there are several surveys about Corporate Governance in general and Corporate Governance and Firm Performance in particular However; the relationships among Corporate Governance, Ownership and Performance have not... Performance, it should be through the channel of Corporate Governance For this reason, the study checks the robustness of this positive SO /performance finding by analyzing the role of Corporate Governance as a Mediator It can be emerged that State Ownership in the specific context of Vietnam joint stock credit institutions may represent a strategic asset Key works: Joint Stock Credit Institution, Corporate. .. Administration of Credit Institutions The section 2 of Chapter III states about “General provisions applicable to Credit Institutions being Jointstock companies and Limited Liability companies This section includes 9 articles from 43 to 51 The Section 3 of Chapter III has only specific principles about Credit Institutions being Joint- stock companies There are 13 articles being numbered from 53 to 65 16... listed firms’ ownership structure and corporate governance, and study the relationship between ownership, corporate governance mechanisms and firm performance using data from 652 sample firms listed in Shanghai Stock Exchange In addition, there are also specific studies about affect of SO on Banks The interesting results come out First of all; state ownership affect positively bank’s performance in... further understand how the objectives of this study will be achieved, four following research questions are introduced Vietnamese JSCIs case: + How strong is Corporate Governance of Vietnamese JSCIs? + Is relationship between state ownership and performance is significantly positive? + Is relationship between state ownership and corporate governance is significantly positive? + Can corporate governance... imposing capital controls and regulating interest rates, the government controls both the set of firms that can sell equity on the domestic or foreign stock markets, and the amount they can sell By June 2012 according to State bank of Vietnam data, Vietnam has 35 Joint- stock credit institutions, 5 majority State- owned credit institutions (in which Vietcombank and Vietinbank are listed in Stock; BIDV is going... dummy value is 0 33 4.4 Model Mediation model: State Ownership (SO) / Corporate Governance Index (CGI) / Performances Indicator (ROE) 2 SO 3 CGI ROE 4 1 Relationships to be tested 1 Predictor and outcome (SO and ROE) 2 Predictor and mediator (SO and CGI) 3 Mediator and outcome (CGI and ROE) 4 Predictor and outcome with the influence of mediator (SO and ROE and CGI) To test for mediation, one should... first study on “Governance and Firm Performance of Financial Institutions in Vietnam” (Le and Nguyen 2012) was published on Banking Technology Review No 78 (September 2012) “This study is to analyze and evaluate the corporate governance practices in financial institutions (FI’s) in Vietnam, including 37 Commercial Joint Stock Banks, 16 Insurance Corporations and 7 Finance Joint Stock companies The empirical .. .CORPORATE GOVERNANCE, STATE OWNERSHIP AND PERFORMANCE: EVIDENCE FROM VIETNAMESE JOINT STOCK CREDIT INSTITUTIONS In Partial Fulfillment of the Requirements... for Vietnamese Financial Institutions 23 3.2 Ownership 24 3.2.1 Block Ownership 24 3.2.2 State Ownership 24 3.3 State Ownership and Corporate Governance 25 3.4 Hypotheses development 26 3.4.1 State. .. The State Bank of Vietnam STAT Status (Dummy variable list or unlisted) JSFI Joint- Stock Financial Institution JSCI Joint- Stock Credit Institution JSCB Joint- Stock Commercial bank JSFC Joint- Stock
Ngày đăng: 22/10/2015, 13:28
Xem thêm: Corporate governance, state ownership and performance evidence from vietnamese joint stock credit institutions, Corporate governance, state ownership and performance evidence from vietnamese joint stock credit institutions