VIETNAM NATIONAL UNIVERSITY OF HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY NGUYỄN TIẾN THÔNG OWNERSHIP STRUCTURE, BOARD CHARACTERISTICS AND FIRM PERFORMANCE IN VIETNAM Subject: Business Administration Code: 62340501 PhD THESIS SUMMARY HO CHI MINH CITY, 2017 The Thesis was completed in University of Te chnology –VNU-HCM Advisor 1: PhD Nguyễn Thu Hiền Advisor 2: Assoc Prof.PhD Piman Limpaphayom Independent examiner 1: Assoc Prof.PhD Vương Đức Hoàng Quân Independent examiner 2: Assoc Prof.PhD Đỗ Bá Khang Examiner 1: Assoc Prof.PhD Võ Thị Quý Examiner 2: Assoc Prof.PhD Nguyễn Minh Hà Examiner 3: Assoc Prof.PhD Nguyễn Minh Kiều The thesis will be defended before thesis committee at on The thesis information can be looked at following libraries: - General Science Library Tp HCM - Library of University of Technology – VNU-HCM LIST OF PUBLICATIONS Nguyen, T T (2014) Factors influencing Voluntary Disclosure of Vietnamese listed companies EBES, Singapore, ISBN: 987-605-64002-7-8 Nguyen, T T (2015) Internal Governance Mechanisms and Firm Performance: The Case of Vietnam ICBMLS, Singapore, ISSN 2454-5899 Nguyen, T T (2015) Internal Governance Mechanisms and Firm Performance: The Case of Vietnam PEOPLE: International Journal of Social Sciences, Special Issue, 254-269 Nguyen, T D., Nguyen, H T and Nguyen, T T (2013) Role of Dividend Policy to Shareholders Value and Risk in Condition of Disclosure & Transparency IFMA, Indonesia, ISBN: 987-602-14716-0-9 Nguyen, H T., Tran, T D., Nguyen, H N H., Vo, N T.T and Nguyen, T T (2016) Quản Trị Cơng Ty Q Trình Điều Chỉnh Động Cấu Trúc Vốn – Quan Sát Từ Các Doanh Nghiệp Niêm Yết Trên Thị Trường Chứng Khốn Việt Nam Tạp Chí Khoa Học Đại học Mở TP.HCM, 50 (5), 25-40 ABSTRACT In recent years, corporate governance research received increasing attention because of scandals involving manipulation of corporate power and even alleged criminal activities Good corporate governance would contribute to the sustainable development of the economy through the promotion of enterprise capacity and increasing access to capital from outside the enterprise Better corporate governance could lead to better corporate performance and impede expropriation of controlling shareholders from minority shareholders Vietnam’s Government recently implies the important role of State Capital Investment Corporation in equitization However, the role of State-Owned Holding Company (SOHC) is not taken into consideration in recent global corporate governance studies, especially in weak regulatory environment like Vietnam Applying quantitative method on panel data of listed companies in Vietnam during 2009-2013, this study found that SOHCs have positive impacts on firm performance which is a contribution to both theory and practice in corporate governance research Furthermore, there was no study related to the role of Board Ownership Deviation over the world and this kind of ownership is found to have positive impact on firm performance in Vietnam This finding consolidates the principal-principal agency theory as well as contributes a new understanding about Board members’ relationships This study, further, found the relationships between State Ownership, Institutional Ownership, Institutional Ownership Deviation, Foreign Ownership, Independent Directors, Non-executive Directors and firm performance which is an effective reference to policy makers, investors and relevant stakeholders to figure an enthusiastic corporate governance for Vietnam CHAPTER INTRODUCTION 1.1 Overview In general, models of corporate governance are diverse across countries These differs are related to the diversity of capitalism in which corporate governance are embedded The Anglo-Saxon countries (US and U.K) emphasize the interests of shareholders while the coordinated or multi-stakeholder model associated with Continental Europe (Germany and France) and Japan recognizes the interests of workers, managers, suppliers, customers, and the community (Allen and Gale, 2002) The corporate governance model of the Anglo-Saxon countries represents the “outsider” system and the model of the Continental Europe, on the other hand, is called “insider” system (Tan and Wang, 2007) The Anglo-Saxon corporate governance model has characterized with the principal–agent issues from the separation of ownership and control in highly dispersed ownership structure To mitigate the conflict of interest associated with the principal–agent problem, appropriate governance structures must be effectively embedded These includes robust external mechanisms (Hu et al., 2009) Continental Europe, on the other hand, is facing with controllingminority shareholders’ issues Emerging markets, especially Asian countries, have the same concentrated ownership structure like Continental Europe model These markets are characterized with a weak legal protection to shareholders and therefore, different corporate governance mechanism approach is required In this circumstance, internal governance mechanisms (IGMs) are expected to play a more prevalent role in these countries in addressing the principal– principal problem (Hu et al., 2009) Better corporate governance could lead to better corporate performance and expropriation of controlling shareholders is supposed to be prevented Moreover, better decision-making proceess is expected in these companies (Nam and Nam, 2004) Good corporate governance increases the market valuation of companies by improving their financial performance, reducing the risk that boards would make self-serving decisions, and generally raising investor confidence (Newell and Wilson, 2002) The rise of sovereign wealth funds (SWFs) and state-owned holding companies (SOHCs) and the dominance of state-owned enterprises (SOEs) in some countries has recently raised concerns related to their governance structures, the transparency of their investment (Chen, 2013) Several studies have been conducted to examine the roles of government-linked companies (GLCs) including Ang and Ding (2006), Wicaksono (2009) and Chen (2013) GLCs are companies that partially owned by the government and proportion of ownership of the government in these firms varies from very low to very high levels SOEs & GLCs have a dominant role in Vietnam’s economy SOEs, besides, are claimed with lacking of transparency (Kamal, 2010) In 2005, State Capital Investment Corporation (SCIC) was established in Vietnam as a state-owned holding company (SHOC) SCIC represent the state capital interests in enterprises and invest in key sectors and essential industries and to become a strategic investor of the government that is responsible for generating maximum generating maximum value and sustainable returns on investments Hochiminh-City Fianance and Investment State-Owned Company (HFIC) was created in 1996 with a purpose to develop a focus and effective mechanism to mobilize capital for Ho Chi Minh City SCIC/HFIC model is expected to follow similar model of Temasek in Singapore which is ascertained as efficiency but its role in Vietnam is not demonstrated Moreover, there was no empirical research to investigate the role of board ownership deviation in which impact of largest shareholder is excluded 1.2 Research Gaps Vietnam is considered as a poor corporate governance standards and there has not been much work published on Vietnamese corporate governance Moreover, state ownership is not a major interest of study in all previous researches in Vietnam Especially, there is lacking of studies on the roles of ownership structure and board characteristics with a focus on different type of state ownership on firm performance Moreover, previous studies examined the relationship between internal corporate governance aspects on single factors of IGMs without consideration the relationship between board characteristics and ownership structure (Denis & Sarin, 1999; Mak & Li, 2001; Desender, 2009) To fill this gap, this study takes into account jointly IGMs in one model to examine for simultaneously effects of board characteristics and ownership strucutre on firm performance in Vietnamese market The lack of corporate governance analysis for Vietnamese SOEs and GLCs is the second gap that need to be fulfilled The difficulty in determining the principal at SOEs impedes the development of an appropriate mechanism for aligning the agent’s interest with the principal’s as explanation of agency theory (Wicaksono, 2009) SOE corporate governance are facing with three main challenges including multiple and conflicting objectives, excessive political interference and opacity (Wong, 2004; Wicaksono, 2009) SOEs and GLCs is regulated to have dominant roles in Vietnamese economy but there has not been an inclusive study being conducted to assess their efficiency in comparison with private sector’s enterprises in Vietnam SOHC is a new model and its role is not demonstrated in many countries Especially for emerging countries with weak regulatory environment, there has not been empirical study on SOHC influence SOHC is a model in which government does not directly manage the enterprises as traditionally model as as the holding structure is also believed to be able to serve as a layer shielding the SOEs from politics and government intervention while transparency can be best improved by opening access of ownership to the public (Wicaksono, 2009) Vietnam is a developing country with strong orientation from government in comparison to developed market orientation SCIC and HFIC are SOHCs in Vietnam The equitization is is accelerated in recent years and the requirement to transfer state ownership to SCIC require a detailed study of the effectiveness of the SOHC model The effectiveness of SOHC model in Vietnam is not demonstrated and it is a research gap A new area that has not been explored in literature by the knowledge of the author is the bargaining power in the boardroom that may be rooted in deviation of roles among board members due to the influence of some dominant members/groups of members, such as a major shareholder, in board discussion and board resolution The deviation of ownership among board members, or the difference of ownership between the major shareholder’s representative and the other shareholders, could be an important factor that hinder the board effectiveness This argument originates from the agency theory (Jensen and Meckling, 1976) Originally, the agency theory explained the conflicts between shareholders and managers Recently, agency theory is developed in global researches and explained for conflicts between controlling shareholders and minority shareholders These relationships provide a glimpse on interest conflicts between directors as in Young et al (2008) and Earle et al (2005) Young et al (2008) argued that board ownership is examined as a unified entity ignoring there would be potential conflicts of interest between shareholder groups and there could be the conflict of interests between these blockholders (Earle et al., 2005) These blockholders decide the board of directors and their potential conflicts could impact on firm performance in which the largest shareholder is the most powerful group and other directors form a counterweight Board ownership deviation, or the deviation of ownership among board members, which is measured by the ownership of board of directors excluding largest ownership, is to reflect the power deviation among board members/groups of board members is not demonstrated in both theoretical and empirical studies The findings of board ownership deviation impacts are expected to be a new contribution to corporate governance literature This study therefore also aims at filling this gap CHAPTER LITERATURE REVIEW 2.1 Agency Theory Agency theory models the relationship between the principal and the agent Jensen and Meckling (1976) defined an agency relationship as “a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent” In the context of the firm, the agent (manager) acts on behalf of the principal (shareholder) (Eisenhardt, 1989; Jensen and Meckling, 1976) The principal has to use agent because he does not have enough ability to maximize value of his own property The owner also use agent when he has resources restrictions As part of this, the principal will delegate some decisionmaking authority to the agent and the welfare of the principal is affected by the choices of the agent Therefore, the major issue is the information asymmetry between managers (agents) and shareholders (owners) In this relationship, insiders (managers) have an information advantage The agent may take unobservability activities to enhance his personal goals (Eisenhardt, 1989; Jensen and Meckling, 1976) 2.2 Corporate Governance Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled (Obi, 2009, cited Kasum and Etudaiye-Muhtar, 2014) The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations (Idowu et al., 2015) Corporate governance is often viewed as both the structure and the relationships which define corporate direction and performance The board of directors is naturally central to corporate governance Its relationship to shareholders and management is critical Other participants include employees, customers, suppliers, and creditors Corporate governance is also a mechanism to reduce or eliminate agency problem (Singh, 2012) 2.3 State-Owned Holding Company Wong (2004) stated that problems of SOEs governance are multiple conflicting objectives, political intervention and lack of transparency The holding structure seems to well serve the purpose of resolving the first two problems at SOEs as the holding structure is also believed to be able to serve as a layer shielding the SOEs from politics and government intervention while transparency can be improved by opening access of ownership to the public (Wicaksono, 2009) Placing SOEs under the control of an SOHC rather than the direct ownership of the state might reduce the conflict inherent in the state’s roles as both shareholder and regulator (Chen, 2013) SOHC acts as a safety valve between a regulator and a regulated firm (Hamdani and Kamar, 2012) This would allow the government the flexibility to deal with a particular target firm or industry, and may help avoid a dilemma in which a heavy regulatory enforcement action harms the government’s interests as a shareholder (Chen, 2013) 2.4 Board Ownership Deviation Board Ownership is main area of ownership structure studies The convergence of interest hypothesis believes managerial ownership has positive effect while managerial entrenchment hypothesis has opposed view (Jensen and Meckling, 1976; Hu and Izumida, 2008) Board ownership is examined as a unified entity ignoring there could be potential conflicts of interest between shareholder groups Young et al (2008) and there could be the conflict of interests between these blockholders (Earle et al., 2005) Ownership deviation in this study is defined as the opposed ownership of board members other than largest shareholder Basing on the assumption of conflicts between blockholders and the dominant role of largest shareholder, the 10 Hypothesis 6: Foreign Ownership has a positive impact on firm performance Although BOD acts as monitor mechanism to protect benefits for all shareholders including minority shareholders, the negative effects of having controlling directors could outweigh the benefits of their presence First, controlling directors actively influence on the strategy and objectives of company in line with their interest not minority shareholders’ (Claessens et al., 2000; Young et al., 2008) Second, the presence of controlling directors could potentially weaken the governance role of other directors, making the board less effective (Hu et al., 2009) Hypothesis 7: The proportion of directors related to largest shareholder on the BOD has a negative impact on firm performance One of the vital roles of BOD is independence The independence is to provide defense against the exploitative behavior by the controlling shareholders and other directors Independent director is a mechanism to enhance the independence of BOD (Hu et al., 2009) Hypothesis 8: The proportion of non-executive directors on the board has a positive impact on firm performance Hypothesis 8a: The proportion of independent directors on the board has a positive impact on firm performance Jensen (1993) argues that the BOD is often ineffective because the role of chairperson is combined with CEO position The separation of two roles has both costs and benefits as there could be an implicit rivalry between two roles as well as it is difficult to isolate responsibility for poor performance (Balabat et al., 2004) Hypothesis 9: The nonduality has a positve impact on firm performance 14 CHAPTER 3.1 DATA AND METHODOLOGY Data Data for variables were collected from firm listed on Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) based on annual reports of listed companies There were 1230 firm-year observations of 246 companies on both exchanges were collected for the period of 2009 to 2013 representing for 64% total market capitalization in 2009 3.2 Model and Variables Firm’s performance = f(Ownership Structure, Board Characteristics, Control Variables) Firm’s performance is dependent variable including groups of stock performance, market valuation and operating performance Table Variables Definitions Variable Name Controlled Type State Controlled SOE20 Family Controlled - FAMILY Measurement Dummy variable: if the state is the controlling shareholder Threshold is 20% Dummy variable: if the company is the family-owned To be considered a family firm an individual or a family must be the largest shareholder and hold at least 20% of ultimate voting rights (La Porta et al., 1999) Ownership Concentration Largest Ownership - LARGEST The percentage of company shares owned by the largest shareholder of the listed company Ownership Structure State Ownership - SOE SOHC Ownership - SCIC BOD Ownership - BOD Board Ownership Deviation DEVIATION Supervisory Ownership - SB - Institutional Ownership - INS Non-State Institutional Ownership NONSOE Foreign Ownership - FOREIGN - The percentage of company shares owned by the State The percentage of company shares owned by SOHC if this ownership is more than 5% The percentage of company shares owned by the BOD and their families (including ownership representatives) The percentage of company shares owned by the BOD and their families other than the ownership of the Largest Owner The percentage of company shares owned by supervisory board and their families The percentage of company shares owned by institutional investors The percentage of company shares owned by institutional investors excluding state ownership The percentage of company shares owned by foreign investors 15 Board Composition Controlling Directors - CONTRDR Non-Executive Directors - NONEXER Independent Directors - INDEPDR Board size - BSIZE Supervisory board size - SBSIZE Duality Non Dual Leadership - DUAL Control Variable Firm size - SIZE Leverage - LEV Industry - ICBCODE Year - YEAR Stock Exchange - HOSE The proportion of controlling directors on the board of directors Directors who are full-time employees of or have relationship with the major shareholder of the listed company The proportion of non-executive directors on the total of board members The proportion of independent directors on the board of directors The total number of directors on a board of directors The total number of supervisors on a supervisory board Dummy variable: if the company has the separation of the roles of Chairman and CEO The natural logarithm of total assets Leverage Industry Classification of ICB Year Dummy variable: if the company is listed on HOSE Table Performance Measurements Measurement Investment performance Stock Return - ANNUALR Market Performance Tobin’s Q - TOBIN Market to Book - MB Operating Performance ROE - ROE ROA - ROA Definitions (Price at end of year - Price at start + Dividends during year) / Price at start of year Market value of equity plus book value of total liabilities divided by Total Assets Market value of equity divide by Book Value of Equity Return on Equity is the ratio of after-tax Income on Book Value of Equity Return on Asset is the ratio of after-tax Income on Book Value of Total Asset 16 CHAPTER RESULTS 4.1 Data Description Table Descriptive statistics of observed variables Stats Mean Median N Sum Max Min Sd Se(mean) Skew largest 0.379117 0.4 1230 466.313 0.8746 0.0053 0.176919 0.005044 soe 0.303260 0.3101 1230 373.010 0.7969 0.224840 0.006410 family 0.122764 0.436041 1230 151 0.47295 1230 536.330 0.890743 0.0032 0.328299 0.188078 0.009360 0.005362 0.089 0.006 2.299 0.077744 0.012345 0.468632 0.04203 1230 0.5481 0.093956 0.002679 0.0013 1230 0.5187 0.51 1230 95.6258 15.1851 576.418 0.9975 0.036347 0.243977 0.001036 0.006956 0.171248 0.114110 0.392113 0.535815 0.0899 1230 210.636 0.9404 0.0393 1230 0.9354 0.4 1230 140.355 482.3 0.571428 1230 659.053 0.201489 0.158641 0.252594 0.209035 0.005745 0.004523 0.007202 0.005960 0.131924 0.628455 1230 1230 0.714285 1 162.266 773 0.168360 0.483414 0.004800 0.013783 bsize 5.621951 1230 6915 11 1.189597 sbsize 3.05935 1230 3763 scicown 0.038795 1230 47.7179 0.5779 hose 0.5 0.5 1230 615 size 26.80647 27.03512 1230 33.26944 11.73784 lev 0.512176 0.542243 1230 32971.9 629.977 0.389725 0.108684 0.500203 2.490726 0.033919 0.011112 0.003099 0.957443 0.005599 bod deviatio n sb ins nsoeins foreign contrdr nonexer indepdr dual 17 0.223285 0.014262 0.071018 0.006366 0.257 1.783 7.259 0.149 1.353 1.994 0.650 0.164 1.038 0.531 1.825 3.678 2.977 3.171 0.282 annualr 0.101488 1230 124.830 3.293478 0.123162 0.013555 0.118265 roe 1230 151.490 0.954198 roa 0.060978 0.046133 1230 75.0040 0.452780 tobin 1.005612 1230 0.977248 1236.90 1202.01 5.150731 mb 0.915205 0.783826 4.2 1230 6.404587 0.910791 1.084482 0.615882 0.017560 1.286 0.132513 0.003778 0.657095 0.261004 0.115099 0.077164 0.002200 0.650 0.302 0.409665 0.727663 0.011680 0.020748 Regression Results Table Tobin’s Q Regressions Regression results for Models on Tobin’s Q performance by RE Estimations OE20 Model 0.0165 (0.102) 0.0702* (0.0400) OE Model Model Model Model 0.0606 (0.0389) -0.0219 (0.0474) 0.0715* (0.0368) 0.282*** (0.0864) BOD 0.0689 (0.0837) NS 0.324*** (0.106) CONTRDR CICOWN AMILY DEVIATION NSOEINS OREIGN NONEXER NDEPDR DUAL BSIZE 2.237 4.2.1 Tobin’s Q Regressions Variable LARGEST B 3.110 0.348** (0.161) -0.00410 (0.0547) 0.279** (0.131) -0.184 (0.308) 0.262*** (0.0802) 0.258** (0.110) -0.0662 (0.0631) -0.0826 (0.0791) -0.0343 (0.0253) 0.00753 (0.0111) 0.303* (0.160) 0.0205 (0.0522) 0.297** (0.128) -0.257 (0.307) 0.309*** (0.0787) 0.263** (0.109) -0.0759 (0.0625) -0.0641 (0.0784) -0.0350 (0.0252) 0.00754 (0.0111) 0.339** (0.161) -0.0133 (0.0541) 0.229 (0.140) -0.147 (0.310) 0.253*** (0.0792) 0.259** (0.109) -0.0702 (0.0629) -0.0760 (0.0791) -0.0352 (0.0253) 0.00753 (0.0111) 18 0.329** (0.160) 0.0170 (0.0522) 0.313** (0.128) -0.162 (0.306) -0.00223 (0.117) 0.258** (0.109) -0.0758 (0.0624) -0.0661 (0.0784) -0.0329 (0.0252) 0.00679 (0.0111) 0.0111 (0.0572) 0.348** (0.161) -0.00272 (0.0525) 0.278** (0.130) -0.178 (0.308) 0.264*** (0.0782) 0.258** (0.109) -0.0659 (0.0628) -0.0815 (0.0797) -0.0344 (0.0253) 0.00779 (0.0112) BSIZE IZE LEV HOSE icbcode icbcode icbcode icbcode icbcode icbcode icbcode icbcode 010.year 011.year 012.year 013.year Constant Observations R-squared Number of id LM-Test Hausman Test Accepted Regression Estimation -0.0232 (0.0292) 0.00861 (0.00839) -0.0367 (0.0717) 0.0741* (0.0421) 0.0123 (0.0612) -0.107 (0.0657) -0.0235 (0.0775) -0.0705 (0.0535) -0.0619 (0.0984) -0.200** (0.101) -0.0997 (0.172) -0.1000 (0.113) -0.204*** (0.0202) -0.463*** (0.0203) -0.430*** (0.0205) -0.344*** (0.0208) 1.033*** (0.226) 1,230 0.423 246 Prob > chibar2 = 0.0000 Prob>chi2 = 0.4476 RE -0.0244 (0.0290) 0.00939 (0.00830) -0.0400 (0.0711) 0.0721* (0.0416) 0.0104 (0.0605) -0.102 (0.0650) -0.0310 (0.0765) -0.0754 (0.0529) -0.0974 (0.0982) -0.200** (0.0998) -0.0922 (0.170) -0.131 (0.112) -0.205*** (0.0202) -0.463*** (0.0203) -0.431*** (0.0205) -0.346*** (0.0207) 0.980*** (0.223) 1,230 0.424 246 Prob > chibar2 = 0.0000 Prob>chi2 = 0.5968 RE -0.0219 (0.0292) 0.00877 (0.00839) -0.0360 (0.0716) 0.0755* (0.0421) 0.0111 (0.0612) -0.107 (0.0657) -0.0257 (0.0775) -0.0719 (0.0536) -0.0668 (0.0985) -0.201** (0.101) -0.102 (0.173) -0.103 (0.113) -0.204*** (0.0202) -0.463*** (0.0203) -0.431*** (0.0205) -0.345*** (0.0208) 1.015*** (0.226) 1,230 0.424 246 Prob > chibar2 = 0.0000 Prob>chi2 = 0.4653 RE -0.0237 (0.0290) 0.00966 (0.00833) -0.0408 (0.0712) 0.0725* (0.0417) 0.00782 (0.0607) -0.106 (0.0652) -0.0358 (0.0770) -0.0814 (0.0532) -0.103 (0.0984) -0.206** (0.100) -0.0924 (0.171) -0.139 (0.113) -0.205*** (0.0201) -0.463*** (0.0203) -0.431*** (0.0204) -0.346*** (0.0207) 0.975*** (0.223) 1,230 0.427 246 Prob > chibar2 = 0.0000 Prob>chi2 = 0.5171 RE -0.0236 (0.0291) 0.00860 (0.00838) -0.0360 (0.0716) 0.0741* (0.0421) 0.0123 (0.0612) -0.108 (0.0658) -0.0246 (0.0777) -0.0713 (0.0537) -0.0622 (0.0984) -0.200** (0.101) -0.100 (0.172) -0.101 (0.113) -0.204*** (0.0202) -0.463*** (0.0204) -0.431*** (0.0206) -0.345*** (0.0208) 1.034*** (0.225) 1,230 0.423 246 Prob > chibar2 = 0.0000 Prob>chi2 = 0.3478 RE Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman Test demonstrates that random effects (RE) estimation is the reasonable method to explain for Models The results indicate that IGMs’ factors influencing Tobin’s Q including SOE, SOE20, SCICOWN, DEVIATION, INS, NSOEINS, FOREIGN and HOSE and they all have positive impacts on Tobin’s Q 4.2.2 MB Regressions 19 Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman Test demonstrates that random effects (RE) estimation is the reasonable method to explain for impacts on MB The results indicate that SOE, SCICOWN, DEVIATION, INS, NSOEINS, FOREIGN and HOSE have positive impacts on MB 4.2.3 ROE Regressions Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman Test demonstrates that fixed effects (FE) estimation is the reasonable method to explain for ROE meaning SOE, INS and SIZE has positive impacts while INDEPDR and LEV have negative impacts on ROE 4.2.4 ROA Regressions Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman Test demonstrates that fixed effects (FE) estimation is the reasonable method to explain for ROA meaning INDEPDR and LEV have negative impacts and INS and SIZE have positive impacts on ROA 4.2.5 Annual Return Regressions Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman Test demonstrates that OLS estimation is the reasonable method to explain for Annual Return meaning NONEXER and LEV have negative impacts on Stock Annual Return 4.3 Conclusion In general, the results support Hypothesis H2a, H4b, H5, H5a, H6 while reject H2, H8 and H8a Other hypothesis includes H1, H3, H4, H4a, H7 and H9 are not supported The controlled variable firm size and listed on HOSE have positive impacts on firm performance while leverage has negative impact on firm performance Industry and year controlled variables are found to have impacts on firm performance indicating that firm performance could be affected by external environmental factors 20 CHAPTER DISCUSSIONS AND CONCLUSION 5.1 Summary of Main Findings Vietnam has a dominant role of state ownership despite a steady decline in their contribution to GDP growth (Taussig et al., 2015) SOE ownership structure, moreover, is a specialty under view of agency theory, which is the dominant theory perspective for analyzing corporate governance problems (Wicaksono, 2009) Conflicting objectives, agency issues (political interference) and lack of transparency, are considered the main problems of SOEs (Kamal, 2010) Most SOEs pursue multiple – and conflicting – objectives including commercial and social goals (Wong, 2004; Kamal, 2010; Lin, 2012; Chen, 2013) Secondly, SOEs could be managed by politicians who are not believed as good agents (Wong, 2004) The lack of transparency is considered as another problem for SOEs because politicians tend to shield their own interests in the business of SOEs (Kamal, 2010) Many studies have found that state ownership often linked to low efficiency (Hu et al., 2009) However, this study found that state ownership has positive correlation with firm performance This result is contradicted with other results in which state ownership is often linked to low efficiency and low firm performance (Bai et al., 2004; Ding et al., 2007; Nee et al.; 2007; Phung and Hoang, 2013; Tran et al., 2015) This result, could be a result of a variety of special privileges granted to SOEs and give them a leg up on their non-state competition (Taussig et al., 2015) SOEs are still receiving subsidies policies from the government and enjoy competitive advantages over private entities First, SOEs enjoy from the government means that they are discounted from the risk of bankruptcy even as losses accrue Second, SOEs are able to turn a “state monopoly” into an “enterprise monopoly,” wherein they dominate the market and control prices Third, SOEs can exploit Vietnam’s “ask and grant” norm, whereby extra state support is seemingly always forthcoming when SOEs complain of any difficulties Finally, SOEs clearly enjoy preferential access to the country’s 21 scarcest business resources, especially credit and land (Taussig et al., 2015) The improvement of corporate governance in recent years, the anti-corruption campaign from government and the equitization acceleration could be explanation for this positive impact as well State-Owned Holding Company (SOHC) is found to have positive correlation with firm performance Similar to the results found in Singapore with Temasek model where better governance exist, the result of Vietnam demonstrates that SOHC is a suitable model to mitigate the problems of SOEs governance including multiple conflicting objectives, political intervention, and a lower degree of transparency SOHC is a model in which government does not directly manage the enterprises as traditionally model An investment company is established and represents the ownership of the government in companies In Vietnam, SCIC and HFIC are SOHCs SCIC/HFIC represent the state capital interests in enterprises and invest in key sectors and essential industries and to become a strategic investor of the government that is capable of generating maximum value and sustainable returns on investments Temasek holding has been touted in the media as well-governed Empirical evidences show that Temasek linked companies have higher valuations and better corporate governance (Ang and Ding, 2006; Chen, 2013) However, Temasek model could work properly in a system where good and clean governance exist (Wicaksono, 20009) The finding of effective SOHC in Vietnam would contribute to the understanding of role of SOHC model in a week corporate governance environment Ownership structures are central distinguishing features of financial systems Considering ownership structure, particular attention has been paid in the corporate governance literature Recently, conflicts between Controlling Shareholders and Minority Shareholders causing principal–principal conflicts are taken into consideration especially in Asian countries where the ownership concentration is dominant (Gửnenỗer, 2008; Claessens and Fan, 2002; Claessens et al., 2000; Young et al., 2008; Driffield and Pal, 2007; Nam et al., 22 1999) Majority control gives the larger shareholders considerable power and discretion over key decisions (Stiglbauer, 2011) The efficacy of ownership concentration is a controversy of monitoring versus expropriation role In 1980s, concentration ownership is believed to limit agency problem as higher concentration of ownership gives large shareholders stronger incentives and greater power at lower cost to monitor management (Hu and Izumida, 2008) However, interests of large shareholders could be diverged from minority shareholders’ benefits (Hu and Izumida, 2008) Controlling shareholders could exploit the interests of minority shareholders (Hu et al., 2008) Methodologies to measure ownership concentration of almost studies after the research of Demsetz and Lehn (1985) accumulate the ownership five, ten, or twenty largest shareholders However, Earle et al (2005) argued that group accumulation could conceal the interactions among large shareholders and the pattern of concentration The approach of measuring ownership concentration by largest blockholder is supposed to be better than group measurement Therefore, largest ownership is used to measure ownership concentration in this study This study, furthermore, basing on arguments of Earle et al (2005) and Young et al (2008) in which there could be conflict of interests between blockholders, proposed to examine the relationship between the group of the board members other than the largest owner and how this relationship or the comparative relationship of these two groups can impact on firm performance with the argument that ownership of board members other than largest shareholder could converge their interests with minority shareholders and they could act as effective monitoring mechanism The ownership of the board members other than the largest owner is found to have positive correlation with firm performance The result indicates that when ownership of other board members increases, firm performance increases This consolidates the convergence of interest hypothesis in which sufficiently high level of managerial ownership aligns the interests of managers and shareholders hence improve the firm performance (Jensen and Meckling, 1976) A manager’s claim on the 23 performance associated with his fraction of the equity increases the probability that the manager devotes significant effort to maximize firm/shareholder value due to his own interests (Hu and Izumida, 2008) Institutional ownership has a positive impact on firm performance This consolidates the argument that professional shareholders likely play a crucial role in monitoring and controlling and therefore enhance the firm performance (Chen et al., 2008) Institutional blockholding is suspected to guarantee stronger monitoring of managerial action and a higher extent of power to influence managerial decision processes in order to change management strategies (Gorton and Kahl, 2008) This result is compatible with other studies (Balatbat et al., 2004) As SOEs are linked to low efficiency (Bai et al., 2004; Ding et al., 2007), the ownership of state could outweigh the benefit of other institutional investors The institutional ownership excluding state ownership is also to be positive correlated with firm performance It consolidates the previous finding The foreign ownership is found to have positive correlation with firm performance This result is totally compatible with previous studies (Gugler, 1998; Dwivedi and Jain, 2005; Phung and Hoang; 2013) Pfaffermayr and Bellak (2000) argued that affiliating with foreign firms help local companies have access to newer and superior technologies and lead to superior performance Foreign investors from developed markets come with capital and knowledge They could use their powers to impact to invested companies Foreign companies transfer advanced technologies and provide access to international capital markets (Caves, 1996, cited Aitken and Harrision, 1999) A preference for outsider-dominated boards is grounded in agency theory in which managers gain control in the firm and may be able to pursue actions which benefit themselves, but not firm owners Therefore, monitoring mechanisms designed to protect shareholders as owners of the firm is required According to agency theory, effective boards will be comprised of outside 24 directors (Dalton et al., 1998) Elloumi and Gueyié (2001) found that firms with high ratio of independent directors in a board face less frequent financial pressure However, contradicted to the argument that independence BOD provides a defense against the exploitative behavior by the controlling shareholders and Independent directors are expected to be active and effective monitoring role than executive (inside) directors (Fama and Jensen, 1983), the study found that independent directors and non-executive directors have negative impacts on firm performance This result is compatible with Phan (2013) in which firms with higher board independence exhibited poorer firm performance Jackling and Johl (2009) also found that outside directors with multiple appointments appear to have an inverse impact on firm performance The explanation could be as Erickson et al (2005) argued that when firms experience a business downturn, they are pushed by concerned investors to add outside directors Vietnamese economy also felt into downturn in the period of 2009-2013 after financial crisis and witnessed the decrease in firm performance The companies, therefore, could be in pressure to appoint independent directors from shareholders as argument of Erickson et al (2005) and Phan (2013) In addition, the analysis also found some characteristics that have significant relationship with the firm performance including firm size, ratio of leverage, HOSE listed, year and industry In this research, these characteristics are used as control variables However, the results would be useful for further research on the impact of these characteristics 5.2 Implications for Theory The results of this study made understanding for the development of an effective practice of IGMs corporate governance in Vietnamese market The results consolidate the theory of agency to explain for the relationship between the managers and shareholders and the relationship between controlling shareholders and minority shareholders 25 The finding of board ownership deviation is a new contribution to principal– principal agency theory The positive correlation between firm performance and ownership of board members other than largest owner contributes the understanding the role of these members on the principal–principal relationship in which the ownership of board members excluding largest owner could be an explanation for the aligning the interests of board members and minority shareholders The results contributed more understandings of convergence of interest hypothesis and entrenchment hypothesis of managerial ownership raised in agency theory The convergence of interest hypothesis believes managerial ownership has positive effect on firm performance while managerial entrenchment hypothesis has opposed view Agency theory, the dominant theory of corporate governance, models the relationship between the principal and the agent In the context of the firm, the agent (manager) acts on behalf of the principal (shareholder) in condition of separation between ownership and control and conflict of interests between parties (Eisenhardt, 1989; Jensen and Meckling, 1976) Instead of traditional principal–agent conflicts emerged in most studies in developed economies, principal–principal conflicts have been identified as a major concern of corporate governance in emerging economies, especially in Asian Principal– principal conflicts between controlling shareholders and minority shareholders result from concentrated ownership, extensive family ownership and control, business group structures, and weak legal protection of minority shareholders (Young et al., 2008) There could be expropriation of minority shareholders from large shareholders (Claessens et al., 2000) Jensen and Meckling (1976) argued that a sufficient high level of managerial ownership aligns the interests of managers and shareholders hence improve the firm performance However, managers with a significant equity to protect his position from outside control would not contribute best effort and could decrease the firm performance (Fama and Jensen, 1983) The result of this study on board ownership deviation 26 demonstrates that the conflicts of interests between these blockholders could be effective monitoring mechanism State ownership is found to have positive correlation with firm performance provide a different approach to traditional understanding of SOEs corporate governance theory Agency relationships are used to explain for corporate governance issues However, corporate governance for SOEs is different because the difficulty of defining the ultimate principal at SOEs hinders the development of appropriate mechanisms for aligning the agent’s interest with the principal’s (Wicaksono, 2009) SOEs could be attributed to the three main challenges facing SOE corporate governance including multiple and conflicting objectives, excessive political interference and opacity (Wong, 2004; Wicaksono, 2009) The finding of this study for the positive correlation between state ownership and firm performance is not a contradiction to above arguments The result, however, has a spotlight on variety of special privileges that give SOEs a leg up on their non-state competition and SOEs could enjoy preferential access to the country’s scarcest business resources, especially credit and land given them advantages to private competitors (Taussig et al., 2015) The result, therefore, contribute more understanding about SOEs corporate governance issues in which the state faced a core challenge of shifting from control through direct ownership of SOEs to governance of non-state firms through reliable and transparent rules and institutions (Hoff and Stiglitz, 2002; Taussig et al., 2015) The effectiveness of SOHC model provides a new understanding of SOEs The result is contradicted with argument about the low efficiency of SOEs The difficulty in determining the principal at SOEs impedes the development of an appropriate mechanism for aligning the agent’s interest with the principal’s as explanation of agency theory is believed to resolve by SOHC model SOHC is more likely to act as an active investor and push for more transparency and better corporate governance to earn long-term profits SOHC is also restricted by regulations on stock market Placing SOEs under the control of an SOHC 27 rather than the direct ownership of the state might reduce the conflict inherent in the state’s roles as both shareholder and regulator (Chen, 2013) SOHC acts as a safety valve between a regulator and a regulated firm (Hamdani and Kamar, 2012) This would allow the government the flexibility to deal with a particular target firm or industry, and may help avoid a dilemma in which a heavy regulatory enforcement action harms the government’s interests as a shareholder (Chen, 2013) The positive correlation between SOHC and firm performance demonstrated the effectiveness of this model even in a lack of good corporate governance environment This model would be in line with Wong’s (2004) three pillars of SOE reform: avoiding conflicting objectives, minimizing political intervention and improving transparency (Wicaksono, 2009) Literature documented that legal and political institutions influence corporate governance efficacy in different countries (Limpaphayom et al., 2015) The finding of positive correlation between HOSE listed and firm performance also consolidates the finding of Limpaphayom et al (2015) on the critical role of market environment in corporate governance efficacy and firm valuation 5.3 Implications for practice This study provides policy makers, managers, investors and stakeholders in Vietnam with more comprehensive perceptions on the influence of the ownership structures and board characteristics to the firm performance Therefore, regulators could make policy adjustments on corporate governance regulations to be compatible with Vietnam’s conditions as well as international practices It also helps managers make adjustments, improvements in corporate governance at company level in order to achieve better firm performances The study also helps the investors and other stakeholders understanding better the problems of corporate governance in Vietnam Therefore, it can help them in making decisions in investments, choosing board directors, or making corporate governance policy 28 ... Nguyen, T T (2016) Quản Trị Cơng Ty Q Trình Điều Chỉnh Động Cấu Trúc Vốn – Quan Sát Từ Các Doanh Nghiệp Niêm Yết Trên Thị Trường Chứng Khoán Việt Nam Tạp Chí Khoa Học Đại học Mở TP.HCM, 50 (5),... Voluntary Disclosure of Vietnamese listed companies EBES, Singapore, ISBN: 987-605-64002-7-8 Nguyen, T T (2015) Internal Governance Mechanisms and Firm Performance: The Case of Vietnam ICBMLS, Singapore,... studies, especially in weak regulatory environment like Vietnam Applying quantitative method on panel data of listed companies in Vietnam during 2009-2013, this study found that SOHCs have positive