Corporate governance and firm performance an empirical study in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI INTERNATIONAL SCHOOL GRADUATION PROJECT CORPORATE GOVERNANCE AND FIRM PERFORMANCE: AN EMPIRICAL STUDY IN VIETNAM TRAN HUU MANH Hanoi - Year 2020 VIETNAM NATIONAL UNIVERSITY, HANOI INTERNATIONAL SCHOOL GRADUATION PROJECT CORPORATE GOVERNANCE AND FIRM PERFORMANCE: AN EMPIRICAL STUDY IN VIETNAM SUPERVISOR: Dr DO PHUONG HUYEN STUDENT: TRAN HUU MANH STUDENT ID: 16071077 COHORT: 2016-2020 MAJOR: FINANCE Hanoi - Year 2020 LETTER OF DECLARATION I hereby declare that the Graduation Project “Corporate governance and firm performance - an empirical study in Vietnam” is the results of my own research and has never been published in any work of others During the implementation process of this project, I have seriously taken research ethics; all findings of this projects are results of my own research and surveys; all references in this project are clearly cited according to regulations I take full responsibility for the fidelity of the number and data and other contents of my graduation project Hanoi, 27th May,2020 Tran Huu Manh TABLE OF CONTENT` LETTER OF DECLARATION TABLE OF CONTENT ACKNOWLEDGEMENT TABLE OF NOTATIONS AND ABBREVIATIONS LIST OF TABLES ABSTRACT CHAPTER I INTRODUCTION 10 1.1 Background of the study 10 1.2 Objective of the study 12 1.3 Questions of study 12 1.4 Structure of the study 12 CHAPTER II LITERATURE REVIEW 13 2.1 Previous literature 13 2.2 Foundational theories 14 2.2.1 Agency theory 14 2.2.2 Principal–principal conflict 16 2.2.3 Stewardship theory 16 2.3 Hypothesis development 17 2.3.1 Board Size 18 2.3.2 Board independence 19 2.3.3 CEO duality 20 2.3.4 Ownership of Board of Managers 22 2.3.5 State ownership 23 2.3.6 Board gender diversity 24 2.3.7 Audit quality 24 CHAPTER III DATA AND METHODOLOGY 26 3.1 Data 26 3.2 Variables measurement 26 3.2.1 Dependent variables 26 3.2.2 Independent variables 28 3.2.2.1 Board size (BSZ) 28 3.2.2.2 Board Independence (BIND) 28 3.2.2.3 CEO Duality (DUAL) 29 3.2.2.4 Board gender diversity (BGEN) 29 3.2.2.5 Managerial ownership (MOWN) 29 3.2.2.6 State ownership (SOWN) 30 3.2.2.7 Audit quality (AUD) 30 3.2.3 Control variables 31 3.3 Methodology 33 CHAPTER IV DATA ANALYSIS AND EMPIRICAL RESULT 35 4.1 Data Statistics 35 4.2 Regression result 39 Impact of the Board size on firm performance 41 Impact of the Audit on firm performance 42 Impact of the Board Independence on firm performance 42 Impact of the CEO duality on firm performance 42 Impact of the State Ownership on firm performance 43 Impact of the Managerial Ownership on firm performance 43 Impact of Board female members on firm performance 44 CHAPTER V CONCLUSIONS AND LIMITATIONS 45 5.1 Conclusions 45 5.2 Limitations 47 APPENDIX 48 REFERENCES 61 ACKNOWLEDGEMENT The amount of knowledge I have received over the past school years is truly great and valuable The teachers with their dedication have conveyed useful knowledge in textbooks as well as practical cases Besides, with my continuous efforts I can finally apply what I have learned to complete this thesis From the bottom of my heart, I would like to address my gratitude to the IS faculty members, and the staff of the training and student affairs department In particular, I would like to express my sincere thanks to Dr Do Phuong Huyen who guided me wholeheartedly during the thesis Although I have tried my best, the study will probably have shortcomings due to the lack of knowledge as well as the difficulty in finding sources of information I am looking forward to the feedback from teachers and counselors so that I can recognize my shortcomings and enhance the quality of the thesis Hanoi, May 2020 Yours Sincerely, Tran Huu Manh TABLE OF NOTATIONS AND ABBREVIATIONS Abbreviation Meaning BSZ Board Size BIND Board independence DUAL CEO duality BGEN Board gender diversity MOWN Managerial ownership SOWN State ownership AUD Audit quality PwC PricewaterhouseCoopers EY Ernst & Young KPMG Klynveld Peat Marwick Goerdeler OLS Ordinary least squares FEM Fixed effects model REM Random effects model CEO Chief executive officer FSZ Firm size SSC State Securities Commission of Vietnam IFC International Finance Corporation SECO Swiss State Secretariat for Economic Affairs LIST OF TABLES Table 3.1 Definitions and measurements of variables in the study Table 4.1 Descriptive statistics Table 4.2 Proportion of DUAL and AUD Table 4.3 Pearson correlation matrix among variables Table 4.4 Tests of heteroskedasticity and autocorrelation Table 4.5 Hausman test results Table 4.6 Summary of appropriate models Table 4.7: Summary of hypothesis results ABSTRACT This empirical study investigates the relationship between corporate governance and firm performance for listed companies in Viet Nam In this study, the author characterized corporate governance by the Board of Director's size, CEO duality, Board of Directors independence, managerial ownership, state ownership, and audit quality Also, firm performance is measured by accounting-based measurement (ROA and ROE) The study used STATA to analyze panel data of 144 companies during the period 2016–2019 The results indicated a negative relationship between Board independence and firm performance and the positive relationship between CEO duality and firm performance in the regression model of ROA Besides, ownership of the Board of Manger is found to affect positively ROE Keywords: Corporate governance; Firm performance CHAPTER I INTRODUCTION 1.1 Background of the study Corporate governance focuses on the structures and processes for the management of firms and strategic development Good governance has to follow the attributes of transparency, accountability, fairness, and responsibility in managerial principles Corporate governance is generating considerable interest in seeking ways that boost firm efficiency Corporate governance practice is heavily affected by parties that are active in a company's management structure such as shareholders, investors, creditors, workers, and government The key aim of adopting good corporate governance is long-term value optimization for shareholders and stakeholders A growing number of joint-stock companies are interested in this concept due to the requirements of Vietnamese corporate law as well as the demands of stakeholders of the business Not only companies but policymakers are also interested in corporate governance The long line of collapses of several large well-known corporations in 2001 to 2002 associated with accounting fraud and financial crisis in 2008 raised questions about the effectiveness of corporate governance mechanisms “In the US, the scandals at Enron and Equifax led to the enactment of the Sarbanes–Oxley Act in 2002 and the Dodd-Frank Act of 2010 Comparable failures in Australia (HIH, One.Tel) and Italy (Parmalat) stimulated increased public interest in the regulation of corporate governance In recent years, Vietnam has made many reforms in the legal field Therefore, Corporate “ governance regulations have made important progress Currently, the Enterprise Law of 2005 and the Securities Law of 2006 are the two most basic legal bases in corporate governance in Vietnam However, the application of international practices on Corporate governance (particularly the OECD 2004 Code of Conduct) is only limited to listed companies, and partly to public companies 10 QTP QTP QTP QTP RCD RCD RCD RCD RTB RTB RTB RTB SBT SBT SBT SBT SDD SDD SDD SDD SDI SDI SDI SDI SEA SEA SEA SEA SEB SEB SEB SEB SFG SFG SFG SFG SHB SHB SHB SHB SID SID SID SID SMC SMC SMC SMC SMN SMN SMN SMN 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2.245955 4.804713 2.082397 5.575827 1.103216 17.02016 1.862483 0.326654 3.506079 9.404672 6.534957 4.826899 4.391371 3.408803 1.622363 1.731632 18.05504 10.20583 12.64597 1.628931 6.849323 10.20583 12.64597 1.628931 14.55891 9.393054 7.719061 11.90848 8.678737 20.75162 13.73506 13.16447 7.194988 7.648496 5.36454 0.093372 0.416303 0.59202 0.548944 0.713697 1.711121 2.67219 3.331582 2.833608 9.759159 5.823066 3.245365 2.122192 10.29754 10.17298 10.74748 11.01795 13.9637 21.53201 7.033248 14.44961 10.83097 93.29506 3.981702 0.655794 5.255707 13.49462 9.70948 7.37851 10.96174 8.504627 4.435993 4.486033 55.76819 29.78141 44.3814 5.157339 21.15611 29.78141 44.3814 5.157339 18.1634 11.87397 9.548792 14.522 21.57386 44.2071 24.54977 21.67549 15.81488 15.91749 11.37284 0.191204 7.458336 11.02508 10.78089 14.03102 1.919834 3.007421 3.6701 3.051957 65.60098 28.82223 13.13703 8.205671 15.05671 14.87952 15.29277 14.54543 6 6 5 5 5 5 5 5 4 4 5 5 6 5 5 7 7 3 3 6 5 5 83.33333 83.33333 83.33333 83.33333 60 66.66667 62.5 50 80 60 80 80 80 100 100 100 40 40 40 40 50 25 25 25 100 100 100 80 80 83.33333 83.33333 83.33333 80 60 80 80 85.71429 85.71429 85.71429 85.71429 66.66667 66.66667 66.66667 66.66667 80 83.33333 83.33333 83.33333 60 40 40 40 57 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 1 3 4 4 3 3 0 0 2 1 1 0 0 0 0 2 2 3 42.01 42 42 42 0 0 0.9846 0.9846 0.9846 0.9846 0 0 0 0 0 0 63.4 63.4 63.38 63.38 15 15 15 15 65.05 65.05 65.05 65.05 1.89 1.89 1.89 1.89 96 96.09 96.09 96.09 0 0 53.12 53.12 53.12 53.12 0.00086 0.00086 0.0008 0.0008 2.72 2.86 2.88 2.86 0.0983 0.1283 0.1183 0.1183 0.16 0.0084 0.0084 0.0084 0 0 0.000002 0.000012 0.000012 0.000012 0.00042 0.00042 0.00042 0.0006 0.08 0.08 0.08 0.08 0.0462 0.0662 0.0462 0.0462 0.2388 0.2388 0.3088 0.3088 0.02 0.02 0.02 0.02 1.6038 1.6038 1.6038 1.6038 1.12 1.22 1.22 1.22 1 1 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 0 16.55372 16.45804 16.33198 16.21027 13.71111 12.87433 12.71253 12.42832 14.68269 14.78199 14.86708 14.86218 15.80389 16.69768 16.64298 16.66235 15.5001 16.15167 16.94502 16.93102 15.5001 16.15167 16.94502 16.93102 14.71107 14.75263 14.83864 14.96389 13.7244 13.68289 13.64318 13.62268 13.96958 14.02895 14.03219 13.89836 19.27061 19.47154 19.59402 19.71717 14.69418 14.66301 14.67965 14.65418 15.35253 15.43583 15.44145 15.44009 11.34876 11.40708 11.3996 11.35968 SNC SNC SNC SNC SRC SRC SRC SRC SSC SSC SSC SSC SSI SSI SSI SSI STB STB STB STB SVI SVI SVI SVI TCB TCB TCB TCB TCD TCD TCD TCD TKC TKC TKC TKC TMC TMC TMC TMC TNC TNC TNC TNC TNG TNG TNG TNG TPB TPB TPB TPB 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 1.607502 4.820571 5.832261 6.174968 10.51702 4.329756 1.432219 5.004052 7.980767 16.11839 20.97787 15.53402 6.572636 7.258643 6.118511 3.566352 0.028375 0.337352 0.305112 0.57115 9.89624 7.855635 6.581798 15.45873 1.473638 2.553947 3.145596 3.13163 6.545219 5.190822 7.044764 6.377945 2.939627 3.130394 1.237072 0.107899 6.877919 5.963542 8.303116 5.72009 6.977741 8.099521 8.039711 11.16299 4.692605 5.649187 7.477923 8.18486 0.621101 0.838283 1.387054 2.058322 3.528656 12.10201 15.36621 15.94069 19.59065 9.966369 3.56828 11.45419 10.14814 19.95074 28.58335 21.85076 12.60787 14.7266 14.66288 9.776477 0.395839 5.201876 4.936675 9.556833 23.90178 19.37764 17.65671 35.1486 17.47221 27.71273 21.55023 18.02048 35.48779 22.90828 21.76361 22.23021 12.68086 18.30209 7.391785 0.500511 11.90657 11.84348 14.38829 8.984523 7.393027 8.634122 8.687596 11.89826 17.10494 19.99607 25.32932 24.73268 10.78631 15.59465 20.87173 29.1276 5 5 5 5 5 5 6 6 7 7 7 7 8 8 8 5 5 5 5 5 5 7 8 8 80 80 80 80 40 60 40 40 100 100 100 100 66.66667 66.66667 66.66667 66.66667 100 100 100 100 71.42857 71.42857 71.42857 71.42857 87.5 87.5 87.5 87.5 75 75 75 77.77778 60 40 40 40 80 60 60 60 60 60 60 60 40 57.14286 57.14286 77.77778 100 100 100 100 58 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 1 0 0 2 2 0 0 1 2 1 0 0 0 1 1 0 0 0 0 0 0 2 2 18.98 5.066 18.98 5.26 18.98 5.26 18.98 5.26 0.36 0.0245 0.36 0.0114 0.36 0.02321 0.36 0.02321 96.4 0.0002 96.41 0.0002 96.41 0.0002 96.41 0.0002 1.16 1.21 1.643 1.654 0.3706 0.37062 0.37062 0.37062 0.0922 0.0922 0.0922 0.0922 0.421506 0.42152 0.42152 0.42152 7.69 7.69 7.69 7.6906 19.86 19.88 19.88 19.88 51 1.676 51.01 1.69 51.01 1.69 51.01 1.69 0.00342 0.00242 0.0142 0.0142 19.82 20.21 20.21 20.57 0.52318 0.5724 0.62418 0.62418 0 0 0 0 1 1 1 1 1 1 0 0 1 1 0 0 0 0 0 0 0 0 1 1 1 1 12.18092 12.14681 12.37366 12.24443 13.4929 13.66177 13.64895 13.60084 12.89312 12.91166 13.07465 13.06882 16.39784 16.74747 16.98627 17.11298 19.62071 19.72487 19.82196 19.93268 13.5278 13.7504 13.7353 13.71513 19.27664 19.41168 19.41168 19.76537 14.71133 13.95826 14.34686 14.47573 13.40755 13.91483 13.67 13.42631 12.77914 12.92213 12.59218 12.77029 12.69186 12.72343 12.73956 12.73956 14.42865 14.61558 14.76926 14.92322 18.47689 18.63675 18.72948 18.91805 TQC TQC TQC TQC TRC TRC TRC TRC TVN TVN TVN TVN VCB VCB VCB VCB VCG VCG VCG VCG VCR VCR VCR VCR VGG VGG VGG VGG VHG VHG VHG VHG VHM VHM VHM VHM VIB VIB VIB VIB 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 3.748084 4.722102 4.615391 3.173076 4.091778 8.076774 6.365335 4.269637 6.4045 5.9783 4.394946 3.712251 0.937016 0.999406 1.386424 1.613238 4.248596 8.620179 3.750416 4.515744 0.860112 -1.82102 -1.2647 -0.9369 11.62938 10.24722 11.21063 8.958915 -1.54965 -101.057 -48.4466 -10.5019 8.805234 3.875811 17.8583 16.96958 0.594974 0.987613 1.672672 2.018181 6.841055 9.111219 9.172712 6.354388 4.852373 9.642642 7.770456 5.426207 12.70954 10.96325 7.586053 6.157246 14.73888 18.14377 25.5231 25.92681 12.86413 25.44025 10.08211 11.557 2.42134 -5.17125 -3.77222 -3.61177 36.23484 29.93096 32.14596 24.82821 -1.63262 -108.304 -70.3262 -15.2985 33.17104 17.49972 52.40616 47.65345 6.47396 12.8267 22.55361 27.11012 7 7 5 5 4 4 8 5 7 6 6 5 5 5 5 6 6 7 7 57.14286 57.14286 57.14286 57.14286 40 40 40 40 75 75 75 75 57.14286 62.5 62.5 77.77778 40 40 57.14286 57.14286 83.33333 83.33333 83.33333 83.33333 60 60 40 40 60 80 80 80 83.33333 83.33333 83.33333 83.33333 85.71429 85.71429 85.71429 85.71429 59 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 0 0 4.36 4.94 5.97 5.97 0.6 25.0157 0.6 25.0157 0.6 25.01 0.6 25.01 93.93 6.15E-05 93.93 0.00006 93.93 0.00006 93.93 0.00006 74.8 0.00216 77.11 0.0021 77.11 0.0021 74.8 0.0021 0.0002 0.00022 0.00022 0.00022 53.56 0.0006 53.56 0.0006 53.56 0.0006 53.56 0.0006 0.47 0.47 0.4924 0.4924 0.076 0.07 0.07 0.07 0 0 0 0 0.2106 0.2106 0.242 0.242 0 0 0 0 0 1 1 0 0 0 0 1 1 0 0 1 1 1 1 13.30439 13.37517 13.40359 13.40959 14.37705 14.42121 14.47641 14.49253 16.50686 16.49022 16.51898 16.48367 20.48489 20.75795 20.79468 20.92434 16.94426 16.88956 16.81549 16.77657 13.66171 13.68798 13.67027 13.69649 15.15905 15.26237 15.36329 15.41793 14.35495 13.41515 13.03626 12.70357 17.4404 17.75328 18.60041 19.09994 18.46486 18.62899 18.75118 19.03333 VIC VIC VIC VIC VJC VJC VJC VJC VNB VNB VNB VNB VND VND VND VND VNE VNE VNE VNE VNM VNM VNM VNM VRE VRE VRE VRE VRG VRG VRG VRG VSN VSN VSN VSN 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 2016 2017 2018 2019 3.800437 4.704409 3.990046 2.280005 15.54982 19.62043 15.08286 9.735227 2.184176 3.612398 4.298422 10.91748 3.408205 7.139356 4.015232 3.457762 0.051627 4.409847 5.328414 0.642414 32.98577 32.04162 28.2757 25.65616 6.792658 5.639121 6.735188 7.931802 -1.0738 0.819429 0.460619 4.937 8.013461 7.92377 7.902115 9.711016 12.88298 13.57976 11.405 7.178267 72.55243 66.20415 43.31768 28.75279 2.469289 3.819535 4.413517 11.16107 9.593336 21.19412 13.59394 12.27029 0.089004 7.117185 8.547026 0.965709 43.28345 44.34271 40.61859 40.0721 12.3472 7.987429 8.871498 10.28576 -1.6274 1.269475 0.752334 10.08604 13.49089 14.22949 14.1503 17.2719 9 9 6 5 5 5 5 7 7 6 10 10 7 6 8 5 5 77.77778 77.77778 77.77778 77.77778 100 100 100 71.42857 80 80 80 80 60 60 60 60 57.14286 57.14286 57.14286 57.14286 83.33333 83.33333 80 80 85.71429 85.71429 85.71429 83.33333 100 100 100 100 80 60 60 60 60 0 0 0 0 0 0 0 1 1 1 0 0 0 0 0 0 0 0 3 1 2 2 2 1 1 0 0 2 3 5 0 0 0 0 0 0 0 10 10 10 10 0 0 4.88 4.88 4.88 4.88 36.01 36.01 36.01 36.01 0 0 0 0 67.76 67.76 67.76 67.76 0.07 0.07 0.06012 0.054 0.2062 0.2062 0.2062 0.2062 0.01 0.01 0.01 0.01 0.637 0.637 0.637 0.637 2.02 2.02 2.02 2.02 0.08 0.08 0.13 0.13 0 0 0 0 0.0026 0.0016 0.0016 0.0012 1 1 1 1 0 0 1 1 0 0 1 1 1 1 0 0 1 18.79606 18.79606 19.47891 19.81628 16.81437 17.27051 17.48128 17.67852 13.54525 13.52583 13.56115 13.67261 15.45917 15.90135 16.17018 16.26454 14.242 14.25925 14.22438 14.17409 17.19578 17.36131 17.43627 17.61548 17.39796 17.39796 17.39796 17.39796 12.88475 12.89912 13.00776 13.41872 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