Corporate governance and firm value the case of vietnam

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Corporate governance and firm value  the case of vietnam

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MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY -o0o - NGUYỄN ĐỐI NỘI CORPORATE GOVERNANCE AND FIRM VALUE: THE CASE OF VIETNAM MAJOR: BUSINESS ADMINISTRATION MAJOR CODE: 60.34.05 MASTER THESIS SUPERVISOR : Dr VÕ XUÂN VINH HO CHI MINH CITY, 2012 i ACKNOWLEDGEMENT I would like to express my sincere gratitude to my advisor and supervisor Dr Võ Xuân Vinh for his clear guidance, direction, motivation, and especially his enthusiasm and patience extended to me in a ll the time of my research and writing of this thesis Thanks to his profound knowledge, appropriate methodology and timely guidance, I have cleared the pending issues, got over obstacles, finalized and completed my thesis I would like to thank my profes sors at Faculty of Business Administration and Postgraduate Faculty, University of Economics Ho Chi Minh City for their teaching, their guidance and support during my MBA course I wish to thank my family, friends and colleagues for their continuous support, encouragement and comments during my research and preparation of this thesis Last but not least, my special thanks go to my wife for her love, timely encouragement and strong support extended to me in my completion of this thesis ii ABSTRACT Purpose: The thesis aims to investigate the relationship between corporate governance (representing by three variables: Size of Board of Directors, CEO and Chairman Duality and Shareholder/Ownership Concentration) and firm value (measured by Tobin’s Q) on a sample of 271 firms listed on Hochiminh Stock Exchange in 2010 Methodology: This thesis uses the model developed by Rashid and Islam (2008) to investigate the relationship between corporate governance and the value of a firm in Vietnam stock market We use some data analysis methods in conducting the research such as descriptive statistics, correlation matrix, and OLS regression with Eviews for Windows Findings: The result suggests a positive relationship of board size and the value of a firm, but it is not yet significant The result also shows a lack of significant negative relationship of other two independent corporate governance variables (shareholder concentration and CEO duality) and the value of a firm; however, based on their negative co efficients, we can learn that to some extent, too high shareholder concentration and CEO duality have negative impacts to the firm value From result, we also learn that control variables such as price-to-book value ratio and return on total assets have significant and positive impacts on the value of a firm, while the market capitalization has a negative relationship with the value of a firm Key words – corporate governance, firm value, CGVF, shareholder concentration, CEO duality, board size, Tobin’s Q iii CONTENTS ACKNOWLEDGE i ABSTRACT ii CONTENTS iii LIST OF TABLES iv ABBREVIATIONS v CHAPTER 1: INTRODUCTION 1.1 Background 1.2 Research Problem 1.3 Research Objective 1.4 Research Methodology and Scope 1.5 Structure of Research CHAPTER 2: LITERATURE REVIEW 2.1 An Overview of Corporate Governance 2.1.1 Definition of Corporate Governance 2.1.2 Potential Benefits of Good Corporate Governance 2.2 The Corporate Governance Framework in Vietnam 11 2.3 Concepts relating to Corporate Governance and Value of a Firm 13 2.3.1 Concepts relating to Corporate Governance 13 2.3.2 Concepts relating to Value of a Firm (Tobin’s Q) 15 2.3.3 Concept relating to financial variables (control variables) 15 2.4 Literature Review 17 2.4.1 Shareholder Concentration and the Role of Majority Shareholders 17 2.4.2 Board of Directors’ Size 18 2.4.3 CEO Duality 19 iv 2.4.4 Tobin’s Q 20 2.4.5 Control variables 21 2.5 Hypotheses 21 CHAPTER 3: DATA AND RESEARCH METHOD 23 3.1 Corporate Governance Evaluation Model 23 3.2 Explanation of Variables used for the Study 24 3.3 Data Collection and Methodology 25 CHAPTER 4: RESULTS AND DISCUSSION OF RESULTS 27 4.1 Descriptive Statistics and Correlations 27 4.2 Multiple Regression Results and Analysi s 34 4.3 Incremental Regressions 38 CHAPTER 5: CONCLUSIONS 39 5.1 Conclusions 39 5.2 Limitations and suggestions for future researches 41 REFERENCES 42 APPENDIX A: Results of the ordinary least squares multiple regressions for the whole model 47 APPENDIX B: Incremental Regression: remove Board Size 48 APPENDIX C: Incremental Regression: remove CEO Duality 49 APPENDIX D: Incremental Regression: remove Agency Cost (shareholder concentration) 50 v LIST OF TABLES Table 3.1: Variable definition 24 Table 4.1: Summary statistics 27 Table 4.2: Statistics of Board Size 28 Table 4.3: Statistics of Market Capitalisation 31 Table 4.4: Correlation matrix 33 Table 4.5: Multiple Regression Results 35 Table 4.6: Results of Incremental Regression removing corporate governance variables 38 vi ABBREVIATIONS CEO Chief Executive Officer BOD Board of Directors CG Corporate Governance CGFV Corporate Governance and Value of a Firm HOSE Hochiminh Stock Exchange IFC International Finance Corporation OECD Organisation for Economic Cooperation and Development GMS General Meeting of Shareholders SOE State-Owned Enterprises ROA Return On total Assets PB Price-to-Book Value Ratio AC Agency Cost (Ownership Concentration) MC Market Capitalisation TQ Tobin’s Q OLS Ordinary Least Square CHAPTER 1: INTRODUCTION 1.1 Background In the past 15 years or so, the corporate governance area has emerged as one of the most important area of concentrated research endeavor across the fields of finance, economics, and accounting This is all the more in Asia, where following the Asian financial crisis of 1997 – 1998, regulators, academics, policy advisors and others were forced to take a long hard look at the various governance regimes underlying leading corporations in a number of the worst-affected countries Most would contend that the ensuing reform to both the internal and external regulation of such countries, especially within those countries tellingly affected by Asian financial crisis, has helped shape more transparent and resilient economies It is widely believed that good corporate governance is an important factor in improving the value of a firm in both developin g and developed financial markets The relationship between corporate govenance and the value of a firm is important in formulating efficient corporate management and public regulatory policies According to Black (2001), Klapper and Love (2002) and Beiner and Schmid (2005), corporate governance plays an improtant role in improving the performance of a firm and t here is a direct relationship between the two in both developing and developed financial market s During the past decade, the Vietnamese securities market has made large strides and secured a firm position as a channel for mid -term and long-term capital mobilization for national economic development In Vietnam, the legal and regulatory framework has changed considerably in recent years and it is recognized there is still room for improvement Corporate governance is a reasonably new concept to Vietnam, int roduced largely as a result of changes to the Law on Enterprises in 2005 and with the introduction of CG Regulations for listed companies (in 2007) which were developed based on the OECD Principles of Corporate Governance The purpose of the CG Regulations is to implement the best corporate governance practice on corporate mangement suitable to the conditions of Vietnam to ensure a stable development of stock market and a transparent economy in Vietnam Improvement in corporate governance can serve a number of public policy objectives such as enhancing market stability, increasing investor confidence and trust, encouraging investment into Vietnam from foreign sources and reducing the cost of capital for companies There is evidence that Vietnamese companies have tried to implement elements of good corporate govenance However, it seems that corporate govenance in Vietnam is at the rudimentary stage and ripe for improvement The corporate governance developments seem to have been led by investment in regulatory and legislative developments – a rule driven “Top down” approach Besides a lack of awareness, corporate govenance practices in Vietnamese companies have been driven by compliance with regulatory requirement than commitment to higher practice of sound go vernance To incourage companies adopt best international corporate govenance practices and to provide some implications for regulatory improvement, we wish to conduct an empirical investigation of the CGVF relationship in Vietnam stock market 1.2 Research Problem According to Rashid and Islam (2008), good corporate governance is an important factor in improving the value of a firm Many researches have been done in both developed and developing markets to investigate the relationship between corporate governance and the value of a firm (the CGVF relationship) This thesis aims to conduct an empirical investigation of the CGVF relationship in Vietnam stock market which is one of the emerging stock markets in the world and still in the early s tage of its development 1.3 Research Objective The objective of this thesis is to examine the relationship between corporate governance and the value of a firm on Vietnam stock market with the sample of 271 listed firms in Ho Chi Minh Stock Exchange in the year 2010 The above objective of this thesis leads to the research question: RQ1: Does Corporate Governance have effect on the value of a firm? 1.4 Research Methodology and Scope The subject of this research is 271 listed firms in Ho Chi Minh Stock Exchange in the year 2010 This thesis uses the model developed by Rashid and Islam (2008) to investigate the relationship between corporate governance and the value of a firm in Vietnam stock market We use some data analysis 49 APPENDIX C Incremental Regression: remove CEO Duality Dependent Variable: TQ Method: Least Squares Date: 12/09/12 Time: 12:23 Sample: 271 Included observations: 271 Variable Coefficient Std Error t-Statistic Prob C 1.234008 0.308213 4.003749 0.0001 ROA 3.571619 0.329494 10.83972 0.0000 LOGMC -0.069799 0.023624 -2.954607 0.0034 PB 0.408361 0.051483 7.931985 0.0000 AC -0.011588 0.127563 -0.090838 0.9277 LOGSIZE 0.019833 0.136826 0.144949 0.8849 R-squared 0.533430 Mean dependent var 1.152515 Adjusted R-squared 0.524627 S.D dependent var 0.599278 S.E of regression 0.413186 Akaike info criterion 1.092054 Sum squared resid 45.24152 Schwarz criterion 1.171806 Hannan-Quinn criter 1.124075 Durbin-Watson stat 2.086722 Log likelihood -141.9733 F-statistic 60.59502 Prob(F-statistic) 0.000000 50 APPENDIX D Incremental Regression: remove Agency Cost (shareholder concentration) Dependent Variable: TQ Method: Least Squares Date: 12/09/12 Time: 12:30 Sample: 271 Included observations: 271 Variable Coefficient Std Error t-Statistic Prob C 1.232580 0.303490 4.061358 0.0001 ROA 3.575251 0.328141 10.89546 0.0000 LOGMC -0.070336 0.023479 -2.995683 0.0030 PB 0.408017 0.051241 7.962749 0.0000 DUALITY -0.006927 0.052790 -0.131218 0.8957 LOGSIZE 0.022705 0.134774 0.168468 0.8663 R-squared 0.533446 Mean dependent var 1.152515 Adjusted R-squared 0.524643 S.D dependent var 0.599278 S.E of regression 0.413179 Akaike info criterion 1.092020 Sum squared resid 45.23999 Schwarz criterion 1.171772 Hannan-Quinn criter 1.124041 Durbin-Watson stat 2.084324 Log likelihood -141.9687 F-statistic 60.59886 Prob(F-statistic) 0.000000 ... on the OECD Principles of Corporate Governance The purpose of the CG Regulations is to implement the best corporate governance practice on corporate mangement suitable to the conditions of Vietnam. .. Benefits of Good Corporate Governance 2.2 The Corporate Governance Framework in Vietnam 11 2.3 Concepts relating to Corporate Governance and Value of a Firm 13 2.3.1 Concepts relating to Corporate. .. examine the relationship between corporate governance and the value of a firm on Vietnam stock market with the sample of 271 listed firms in Ho Chi Minh Stock Exchange in the year 2010 The above

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Mục lục

  • COVER

  • ACKNOWLEDGEMENT

  • ABSTRACT

  • CONTENTS

  • LIST OF TABLES

  • ABBREVIATIONS

  • CHAPTER 1: INTRODUCTION

    • 1.1 Background

    • 1.2 Research Problem

    • 1.3 Research Objective

    • 1.4 Research Methodology and Scope

    • 1.5 Structure of Research

    • CHAPTER 2: LITERATURE REVIEW

      • 2.1 AN OVERVIEW OF CORPORATE GOVERNANCE

        • 2.1.1 Definition of Corporate Governance

        • 2.1.2 Potential Benefits of Good Corporate Governance

        • 2.2 THE CORPORATE GOVERNANCE FRAMEWORK IN VIETNAM

        • 2.3 CONCEPTS RELATING TO CORPORATE GOVERNANCE ANDVALUE OF A FIRM

          • 2.3.1 Concepts relating to Corporate Governance

          • 2.3.2 Concept relating to Value of a Firm (Tobin’s Q)

          • 2.3.3 Concepts relating to financial variables (control variables)

          • 2.4 LITERATURE REVIEW

            • 2.4.1 Shareholder Concentration and the Role of Majority Shareholders

            • 2.4.2 Board of Directors’ Size

            • 2.4.3 CEO Duality

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