Corporate governance and ownership on voluntary information disclosure, case study for listed firms in ho chi minh stock exchange

VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS CORPORATE GOVERNANCE AND OWNERSHIP ON VOLUNTARY INFORMATION DISCLOSURE: CASE STUDY FOR LISTED FIRMS IN HO CHI MINH STOCK EXCHANGE By PHAN HOA THAO NGUYEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CTITY, October 2017 VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS CORPORATE GOVERNANCE AND OWNERSHIP ON VOLUNTARY INFORMATION DISCLOSURE: CASE STUDY FOR LIESTED FIRMS IN HO CHI MINH STOCK EXCHANGE A thesis submitted in partial fulfillment of the requirement for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By PHAN HOA THAO NGUYEN Academic Supervisor: VU VIET QUANG HO CHI MINH CTITY, October 2017 DECLARATION I certify that this thesis entitled “Impact of corporate governance and ownership on Voluntary Information Disclosure of firms on Ho Chi Minh stock exchange (HOSE)”, which is submitted by me for completing the degree of Master of Art in Development Economics to Vietnam – Netherlands Programme (VNP) I certify this thesis has not been submitted for any degree and all materials and assistance in this dissertation have been acknowledged in the text Phan Hoa Thao Nguyen | Page i ACKNOWLEGDEMENT This thesis would not be completed without any assistance and instruction from many people Sincerely, I would like to give my acknowledgement to my supervisor, friends, family because of their support and motivation for me during the time of performing this research for completing Degree of Master of Art in Development and Economics First of all, I would like to express my endless gratitude and thank to my supervisor, Dr Vu Viet Quang Thank to his instructions and motivation, I had many useful advices for my thesis His great generosity and enthusiasm encouraged me to develop my thesis topic more persuadable and attractive Despite of being busy, he spent a lot of time explaining econometric model and data settling method to me His useful comments supported me improving thesis more qualified and effective Moreover, I am grateful to Dr Truong Dang Thuy for his assistance in constructing research design Next, I would like to express my thank to all friends at VNP Spending a long time together from the first day to the completion of the course, I learned a lot from you about knowledge, spirit, assiduousness in studying Beside that, I also want to thank VNP officers for their support in my learning and studying at here Finally, I would like to express thankfulness to my parents, my brother and his wife for their supporting in my life My special thank comes to most important person in my life, my husband, who has walked by my side, takes care of our baby that is about to be born, and assists unconditionally for me to pursue my dreams Phan Hoa Thao Nguyen | Page ii ABBREVIATIONS CEO: Chief executive officer GMM: Generalized Moment Method HOSE: Ho Chi Minh stock exchange OLS: Ordinary Least Square SEM: Stock exchange market SOE: State-owned enterprises UK: United Kingdom USA: United State of America Phan Hoa Thao Nguyen | Page iii TABLE OF CONTENTS Declaration i Acknowledgement ii Abbreviations iii Table of contents iv List of table v List of figures vi List of appendix vi Abstract vii Chapter 1: Introduction Chapter 2: Literature view and hypothesis development Chapter 3: Sample data and research methodology 16 Chapter 4: Empirical results 25 Chapter 5: Conclusion 47 References 50 Appendix 57 Phan Hoa Thao Nguyen | Page iv LIST OF TABLE Table 1: Definition and measurement of independent variables Table 2: Descriptive statistic Table 3: The regression result by OLS regression method in SOEs in 2010 Table 4: The regression result by OLS regression method in SOEs in 2013 Table 5: The regression result by OLS regression method in SOEs in 2015 Table 6: The regression result by OLS regression method in family-owned companies in 2010 Table 7: The regression result by OLS regression method in family-owned companies in 2013 Table 8: The regression result by OLS regression method in family-owned companies in 2015 Table 9: The regression result by OLS regression method in block shareholders firms in 2010 Table 10: The regression result by OLS regression method in block shareholders firms in 2013 Table 11: The regression result by OLS regression method in block shareholders firms in 2015 Table 12: The regression result by Pooled OLS method in SOEs, family-owned companies, and block shareholders firms from 2010 to 2015 Table 13: The regression result by Fixed effect and Random effect method in SOEs, family-owned companies, and block shareholders firms from 2010 to 2015 Table 14: The regression result by generalized moment method (GMM) in SOEs, family-owned companies, and block shareholders firms from 2010 to 2015 Phan Hoa Thao Nguyen | Page v LIST OF FIGURES Figure 2.1: Conceptual framework Figure 3.1: Allocation of voluntary disclosure items in 2010 Figure 3.2: Allocation of voluntary disclosure items in 2013 Figure 3.3: Allocation of voluntary disclosure items in 2015 LIST OF APPENDIX Appendix A: List of voluntary disclosure items Phan Hoa Thao Nguyen | Page vi ABSTRACT Using final sample data of 237 publicly traded firms on HOSE for the study period from 2010 to 2015, the paper investigates the relationship between corporate governance and ownership to voluntary information disclosure in Vietnam Furthermore, to check significant impact of corporate governance, ownership structure on voluntary information disclosure in Vietnam, the GMM regression is employed to deal with endogeneity problems and the results provide empirical evidences of the strong relationship between board size, family ownership, block share holders ownership and voluntary information disclosure Interestingly, the study finds that the negative relationship between board independence and voluntary disclosure is weakened in the presence of block shareholders, and the positive association of board size and disclosure level is strengthened for firms with family ownership Keywords: voluntary disclosure, corporate governance, board leader structure, board independence, board size, SOEs, family-owned companies, block shareholder firms Phan Hoa Thao Nguyen | Page vii CHAPTER INTRODUCTION 1.1 Problem statement Nowadays, the stock exchange market (SEM) becomes a channel mobilizing capital effectively for firms to invest into interested project, produce and provide goods or services The Vietnamese SEM passes through unstable period It may state that the SEM takes an important role in actuating national economy First, due to having SEM, investing of idle capital becomes easier, accumulating capital is more abundant Second, SEM provides businesses a chance in order to use capital source more effectively Third, SEM is a tool in order to evaluate business and forecast the future Final, SEM provides a good forecast about business cycle in the future The Vietnamese SEM spent unstable periods as stock price fluctuates continuously Evenly, that fluctuation is not sometimes reasonable and not to be complied in accordance with any rules Therefore, many investors lack of exact information about market There are some reality problems existing on SEM for a long time are the swaying price, violating disclosing information, and planting spy transaction… It is the time for government to impose strong methods to disclose market The state owned enterprises dominated in Vietnam in the early 1980s The Vietnam economy has passed two periods of French War and American War influencing on economic property form of enterprises from 1946 – 1975 After Southern liberation in 1975, there is a united combination between two of South and North region, Vietnam had gone to building period for economy and society Following this unifying, the Vietnam economy had operated according to same custom, model of central planning which had been adopted in North region was transferred to South region (Turner and Nguyen, 2005) This development has created the central planning economy which state ownership takes an important role as owning production means, agricultural coPhan Hoa Thao Nguyen | Page interaction terms board independence and block shareholders variables, board size and family ownership The positive sign of Bib coefficient reveals that the negative association between number of independent directors and disclosure level is weaker for firms with block shareholder Similarly, the positive and significant coefficient of boardsize and familyown variable indicate that the positive association of board size and disclosure level is stronger for firms with family ownership Phan Hoa Thao Nguyen | Page 46 CHAPTER CONCLUSION The extent of information disclosure which is disseminated by business managers is likely to be influenced by characteristics of corporate governance and ownership of that company By using data collected from 237 listed firms on HOSE from 2010 to 2015, the paper considers the gap in research about impacts of corporate governance on voluntary disclosure at three Vietnamese popular organization types SOEs, family-owned company, and block share holders firms in comparison with current researches Based on the list of 32 voluntary disclosure items, the findings from this paper reveal the evidences to confirm that characteristics of corporate governance containing board leader structure, independence of board, and size of board influence on voluntary disclosure of information in companies in Vietnam Furthermore, the paper also considers the impact of ownership on voluntary information disclosure Findings from this study provide the empirical evidences to confirm influences of corporate governance and ownership on voluntary disclosure Specifically, with cross-sectional data, the paper’s result shows that in SOEs and block shareholders companies, CEO duality and higher proportion of independent directors are associated with higher voluntary disclosure in 2010 and 2013 By contrast, data in 2015 reveals that a higher number of independent directors may express a lower voluntary disclosure In family-owned companies, the result suggests that board leader structure and board size is directly proportional with voluntary disclosure Furthermore, with panel data, in the state-owned enterprises and block shareholders firms, the GMM regression result reveals that a large size of board indicates that the larger number of members in board are, the higher the voluntary disclosure is The paper also shows that family-owned companies usually have high transparent index Contrary to familyPhan Hoa Thao Nguyen | Page 47 owned companies, the block share holders firms disclose less information A noticeable feature is the interaction association in GMM result The paper finds the negative association of number of independent directors and voluntary information disclosure is weaker for firm with block share holders Similarly, the positive association of board size and voluntary information disclosure is stronger for firms with family-owned companies The result of paper reveals the practical situation and conditions of voluntary disclosure are influenced by internal and external factors of the businesses The external conditions contain Vietnam regulations and laws, especially management and legally biding system of government Moreover, the internal conditions includes internal control system, board of management, control board and independent audit In scope of this paper, factors influencing to information disclosure of the businesses have just considered in internal aspects of companies Nevertheless, the paper fails in providing evidence to support the association between characteristics of corporate governance and voluntary disclosure of listed firms on HOSE First, with the cross-sectional data, the paper could not find the statistical significant result of the board size variable and voluntary information disclosure variable Similarly, with the panel data, the paper also could not find the relationship of board size and voluntary information disclosure However, the result of cross-sectional data and panel data are relative consistency in board leader structure and board independence variable Likewise, with the result of GMM, the research result also does not find the association of board leader structure and independence of board to voluntary disclosure from 2010 to 2015 Moreover, the paper could not find the significant association of state-owed enterprises and voluntary information disclosure Beside that, only the interaction variables bib and bsf have significant result with the voluntary information disclosure The other variables could not provide the significant association with the voluntary information disclosure Phan Hoa Thao Nguyen | Page 48 Based on these findings, some policy implications are suggested for the companies and government Firstly, it is necessary for the owners, shareholders, managers, and administrators to reconsider structure of organization, role of members, characteristics of board in order to select a best sample form for management board Secondly, in developing and integrating period, the SEM in general and listed firms in particular need more capital for investment and extended production of company from foreign investors Thus, in order to attract the investment capital, Vietnamese corporations need to raise disclosure for responding the interesting from outside potential investors in mobilizing capital effectively Thirdly, Vietnamese enterprises should update the new trends about strategy of managing and disclosing information from countries in the region and the world for enhancing competence and firm value Finally, government should promulgate the instructions and circulars for supervising process of corporate information disclosure Although this study has considered a number of corporate factors that are supposed to significantly impact in the firm’s voluntary disclosure, other related variables remain untested Also the empirical results should be taken of care as they could be distorted by outliers, probably More importantly, because of availability of disclosure and family ownership data, the study assumes that disclosure information and number of family members should remain unchanged in short-term or one year Phan Hoa Thao Nguyen | Page 49 REFERENCES Ahmed,K., Nicholls,D (1994) The Effect of Non-financial Company Characteristicson Mandatory Disclosure Compliance in Developing Countries: The Case of Bangladesh.The International Journal of Accounting 29 (1) : 62– 77 Ahmed, S & Siddiqui, J (2011) Audit committee interactions with external auditors: Evidence from an emerging economy, Working paper, University of Manchester, United Kingdom Anderson, R.C and Reeb, D.M (2003), ‘‘Founding-family ownership and firm performance: evidence from the S&P 500’’, The Journal of Finance, Vol LVIII No 3, pp 1301-28 Akerlof, G., 1970 The market for ‘lemons’: quality uncertainty and the market mechanism Quarterly Journal of Economics 90, 629–650 Al-Bassam, W M., Ntim, C G., Opong, K K., & Downs, Y (2015) Corporate boards and ownership structure as antecedents of corporate governance disclosure in Saudi Arabian publicly listed corporations Business & Society, 0007650315610611 Allegrini, M., & Greco, G (2013) Corporate boards, audit committees and voluntary disclosure: Evidence from Italian listed companies Journal of Management & Governance, 17(1), 187-216 Arcay, M R B., & Vazquez, M F M (2005) Corporate characteristics, governance rules and the extent of voluntary disclosure in Spain Advances in Accounting, 21, 299-331 Barac, Z A., Granic, M., & Vuko, T (2014) The determinants of Voluntary disclosure in Croatia World Academy of Science, Engineering and Phan Hoa Thao Nguyen | Page 50 Technology, International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 8(4), 1057-1063 Barako, D G., Hancock, P., & Izan, H Y (2006) Factors influencing voluntary corporate disclosure by Kenyan companies Corporate Governance: An International Review, 14(2), 107-125 Bartholomeusz, S., & Tanewski, G A (2006) The relationship between family firms and corporate governance Journal of small business management, 44(2), 245-267 Berle, A., & Means, G (1932) The modern corporate and private property McMillian, New York, NY Binh, T Q (2012) Voluntary disclosure information in the annual reports of non financial listed companies: the case of Vietnam Journal of Applied Economics and Business Research, 2(2), 69-90 Botosan, C A (1997) Disclosure level and the cost of equity capital.Accounting review, 323-349 Byrd, J., Hickman, K., 1992 Do outside directors monitor managers? Evidence from Tender Offer Bids Journal of Financial Economics 32, 195—221 Cerbioni, F., & Parbonetti, A (2007) Exploring the effects of corporate governance on intellectual capital disclosure: An analysis of European biotechnology companies European Accounting Review, 16(4), 791-826 Chakroun, R., & Matoussi, H (2012) Determinants of the extent of voluntary disclosure in the annual reports of the Tunisian firms Accounting and Management Information Systems, 11(3), 335 Chau, G.K and Gray, S.J (2002), ‘‘Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore’’, The International Journal of Accounting, Vol 37 No 2, pp 247-65 Phan Hoa Thao Nguyen | Page 51 Cheng, E C., & Courtenay, S M (2006) Board composition, regulatory regime and voluntary disclosure The international journal of accounting,41(3), 262289 Claessens, S., & Fan, J P (2002) Corporate governance in Asia: A survey.International Review of finance, 3(2), 71-103 Core, J E., Holthausen, R W., & Larcker, D F (1999) Corporate governance, chief executive officer compensation, and firm performance Journal of financial economics, 51(3), 371-406 Dhaliwal, D S., Li, O Z., Tsang, A., & Yang, Y G (2011) Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting The accounting review, 86(1), 59-100 Eng, L L., & Mak, Y T (2003) Corporate governance and voluntary disclosure Journal of accounting and public policy, 22(4), 325-345 Ferguson, M J., Lam, K C., & Lee, G M (2002) Voluntary disclosure by state ‐owned enterprises listed on the stock exchange of Hong Kong Journal of International Financial Management & Accounting, 13(2), 125152 Firer, C., & Meth, G (1986) Information disclosure in annual reports in South Africa Omega, 14(5), 373-382 Graham, J R 2000 How big are the tax benefits of debt? Journal of Finance 55:1901-1941 Gul, F A., & Leung, S (2004) Board leadership, outside directors’ expertise and voluntary corporate disclosures Journal of Accounting and public Policy,23(5), 351-379 Haniffa, R M., & Cooke, T E (2002) Culture, corporate governance and disclosure in Malaysian corporations Abacus, 38(3), 317-349 Phan Hoa Thao Nguyen | Page 52 Harford, J., Mansi, S A., & Maxwell, W F (2012) Corporate governance and firm cash holdings in the US In Corporate Governance (pp 107-138) Springer Berlin Heidelberg Healy, P M., & Palepu, K G (2001) Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature Journal of accounting and economics, 31(1), 405-440 Heninger, W G 2001 The association between auditor litigation and abnormal accruals The Accounting Review 76 (1):111-126 Ho, S S., & Wong, K S (2001) A study of the relationship between corporate governance structures and the extent of voluntary disclosure.Journal of International Accounting, Auditing and Taxation, 10(2), 139-156 Hossain, M., L M Tan, and M Adams (1994) Voluntary disclosure in an emerging capital market: Some empirical evidence from companies listed on the Kuala Lumpur Stock Exchange International Journal of Accounting, 29, 334-351 Huafang, X., & Jianguo, Y (2007) Ownership structure, board composition and corporate voluntary disclosure: Evidence from listed companies in China.Managerial Auditing Journal, 22(6), 604-619 Jensen, M C., & Meckling, W H (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure Journal of financial economics, 3(4), 305-360 Kelton, A S., & Yang, Y W (2008) The impact of corporate governance on Internet financial reporting Journal of accounting and Public Policy, 27(1), 62-87 Khan, A., Muttakin, M B., & Siddiqui, J (2013) Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy Journal of business ethics, 114(2), 207-223 Phan Hoa Thao Nguyen | Page 53 Klapper, L F., & Love, I (2004) Corporate governance, investor protection, and performance in emerging markets Journal of corporate Finance, 10(5), 703728 Lakhal, F (2005) Voluntary earnings disclosures and corporate governance: Evidence from France Review of Accounting and Finance, 4(3), 64-85 Laksmana, I (2008) Corporate board governance and voluntary disclosure of executive compensation practices Contemporary Accounting Research, 25(4), 1147-1182 Laswad, F., Fisher, R., & Oyelere, P (2005) Determinants of voluntary Internet financial reporting by local government authorities Journal of Accounting and Public Policy, 24(2), 101-121 Li, J., Pike, R., & Haniffa, R (2008) Intellectual capital disclosure and corporate governance structure in UK firms Accounting and Business Research, 38(2), 137-159 Lim,S., Matolcsy, Z., & Chow, D (2007) The association between board composition and different types of voluntary disclosure European Accounting Review, 16(3), 555-583 Luo, S., Courtenay, S M., & Hossain, M (2006) The effect of voluntary disclosure, ownership structure and proprietary cost on the return–future earnings relation Pacific-Basin Finance Journal, 14(5), 501-521 Mak, Y T., & Li, Y (2001) Determinants of corporate ownership and board structure: evidence from Singapore Journal of Corporate Finance, 7(3), 235256 Maury, B (2006) Family ownership and firm performance: Empirical evidence from Western European corporations Journal of Corporate Finance, 12(2), 321-341 Phan Hoa Thao Nguyen | Page 54 Mak, Y T., & Li, Y (2001) Determinants of corporate ownership and board structure: evidence from Singapore Journal of Corporate Finance, 7(3), 235256 Meek, G K., Roberts, C B., & Gray, S J (1995) Factors influencing voluntary annual report disclosures by US, UK and continental European multinational corporations Journal of international business studies, 26(3), 555-572 Painter, M (2003) The politics of economics restructuring in Vietnam: the case of state-owned enterprises “reform” Contemporary South East Asia, Volume 25, number Raffournier, B (1995) The determinants of voluntary financial disclosure by Swiss listed companies European accounting review, 4(2), 261-280 Ronnås, P., & Sjưberg, Ư (1991) Economic reform in Vietnam: dismantling the centrally planned economy Journal of Communist Studies, 7(1), 7-19 Said, R., Hj Zainuddin, Y., & Haron, H (2009) The relationship between corporate social responsibility disclosure and corporate governance characteristics in Malaysian public listed companies Social Responsibility Journal, 5(2), 212226 Samaha, K., Dahawy, K., Hussainey, K., & Stapleton, P (2012) The extent of corporate governance disclosure and its determinants in a developing market: The case of Egypt Advances in Accounting, 28(1), 168-178 Shleifer, A., Vishny, R.W., 1997 A survey of corporate governance Journal of Finance LII Ž2.,737–783 Ta, Q B (2012) Voluntary Disclosure Information in the Annual Reports of Non Financial Listed Companies: The Case of Vietnam Journal of Applied Economics and Business Research JAEBR, 2(2): 69-90 (2012) Tinaikar, S (2014) Voluntary disclosure and ownership structure: An analysis of dual class firms Journal of Management & Governance, 18(2), 373-417 Phan Hoa Thao Nguyen | Page 55 Tsamenyi, M., Enninful-Adu, E., & Onumah, J (2007) Disclosure and corporate governance in developing countries: Evidence from Ghana Managerial Auditing Journal, 22(3), 319-334 Sarah, T., Nguyen, P A., (2005) Young Entrepreneurs, Social Capital and Doi Moi in Hanoi, Vietnam Urban Studies Vol 42, No 10, 1693–1710 Villalonga, B., & Amit, R (2006) How family ownership, control and management affect firm value? Journal of financial Economics, 80(2), 385417 Wan-Hussin, W N (2009) The impact of family-firm structure and board composition on corporate transparency: Evidence based on segment disclosures in Malaysia The International Journal of Accounting, 44(4), 313333 Xie, B., Davidson, W N., & DaDalt, P J (2003) Earnings management and corporate governance: the role of the board and the audit committee Journal of corporate finance, 9(3), 295-316 Yermack, D (1996) Higher market valuation of companies with a small board of directors Journal of financial economics, 40(2), 185-211 Phan Hoa Thao Nguyen | Page 56 APPENDIX A: LIST OF VO DISCLOSU STT D General and strategic informati Annual report in English General background of the econo Company’s mission statement Brief history of the company Organizational structure Description of the goods or servic Description of marketing network Company’s current business strate Market share analysis 10 Discussion about major regional e Financial data 11 Review of current financial result 12 underlying performance Statement concerning wealth crea 13 Return on assets 14 Return on shareholders’ funds 15 Liquidity ratios 16 Gearing ratio Forward-looking information 17 New product/service developmen 18 Planned capital expenditure 19 Planned research and developmen 20 Planned advertising and publicity 21 Earnings per share forecast 22 Sales revenue forecast 23 Profit forecast Social and Board Disclosure Phan Hoa Thao Nguyen | Page 57 24 Number of employees for the last 25 Information about employee work 26 Statement of corporate social resp 27 28 29 30 31 32 Statement of environmental policy Names of directors Age of directors Academic and professional qualification of directors Business experience of directors Directors’ shareholding in the company and other related interests (e.g stock options) Phan Hoa Thao Nguyen | Page 58 ...VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS CORPORATE GOVERNANCE AND OWNERSHIP ON VOLUNTARY INFORMATION DISCLOSURE: CASE STUDY FOR LIESTED FIRMS IN HO CHI MINH STOCK EXCHANGE A... many firms is the information disclosure from financial information to governance information for investors and shareholders to attract investment capital for firms? ?? projects Hence, corporate governance. .. companies Finally, the 32 items usually appear in above researches chosen for list in this paper including general and strategic information, financial information, forward-looking information, and