Ảnh hưởng của đặc điểm quản trị đối với thành quả công ty: Bằng chứng từ Việt Nam dựa trên kỹ thuật ước lượng SGMM

Nội dung text: Ảnh hưởng của đặc điểm quản trị đối với thành quả công ty: Bằng chứng từ Việt Nam dựa trên kỹ thuật ước lượng SGMM

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 DO GOVERNANCE CHARACTERISTICS MATTER FOR FIRM PERFORMANCE? EVIDENCE FROM VIETNAM BASED ON SGMM DYNAMIC PANEL ESTIMATION ẢNH HƯỞNG CỦA ĐẶC ĐIỂM QUẢN TRỊ ĐỐI VỚI THÀNH QUẢ CÔNG TY: BẰNG CHỨNG TỪ VIỆT NAM DỰA TRÊN KỸ THUẬT ƯỚC LƯỢNG SGMM Anh D. Pham*, Anh T. P. Hoang , Minh T. H. Le * Vietnam Banking Academy; University of Economics Ho Chi Minh City anhpd@hvnh.edu.vn ABSTRACT This paper investigates the impact of governance characteristics on financial performance of companies listed on Ho Chi Minh City Stock Exchange. By employing system generalized method of moments (SGMM) estimator and a panel dataset covering 152 firms over a period from 2011 to 2016, our results confirm that corporate governance characteristics, viz. the size of board and block-holder ownership, do affect firms’ financial performance in Vietnam. Aside from that no evidence was found for other characteristics such as board gender diversity, CEO duality and non-executive director representation, that have an impact on firm performance. Keywords: Corporate governance, firm performance, board of directors, system GMM, Vietnam. TÓM TẮT Bài viết này xem xét tác động của đặc điểm quản trị đến thành quả tài chính của các công ty niêm yết trên Sở giao dịch chứng khoán Tp. Hồ Chí Minh. Áp dụng phương pháp ước lượng moment tổng quát hệ thống (SGMM) và bộ dữ liệu bảng gồm 152 công ty trong giai đoạn 2011 - 2016, kết quả nghiên cứu cho thấy các đặc điểm quản trị gồm quy mô hội đồng quản trị và tỷ lệ sở hữu bởi cổ đông lớn có tác động đến thành quả công ty tại Việt Nam. Ngoài ra, bài viết không tìm thấy bằng chứng nào cho thấy các đặc điểm quản trị khác như sự đa dạng giới trong hội đồng quản trị, việc hợp nhất chức danh giám đốc điều hành - chủ tịch hội đồng quản trị và tỷ lệ thành viên không điều hành trong hội đồng quản trị có ảnh hưởng đến thành quả hoạt động công ty. Từ khóa: Quản trị doanh nghiệp, thành quả công ty, hội đồng quản trị, GMM hệ thống, Việt Nam. 1. Introduction Corporate governance has been an issue of interest to an enormous number of economic researchers, particularly after the collapse of major global corporations and international banks, such as WorldCom and Commerce Bank due to their weaknesses in corporate governance. The question arises as to whether, and by what means corporate governance structures affect firm performance. Among the typical measures of corporate governance, board characteristics and ownership structure could be considered of the highest importance. So far, studies on the impact of board characteristics and ownership structure on firms' financial performance might take into account factors including board size, CEO duality, female representation on board, the presence of independent directors, or block-holder ownership. For instance, Campbell and Minguez-Vera (2008) and Pham and Hoang (2019) found a significantly positive correlation between the number of female directors on board and firm performance, while others came up with a negative relationship (e.g., Adams and Ferreira, 2009) or found no evidence for such relationship. Likewise, empirical works associated with other aspects yield mixed results. This study seeks to investigate the role of governance characteristics in the business performance of firms listed on the Ho Chi Minh City Stock Exchange (HOSE) over the 2011-2016 period. Unlike most previous studies for the case of Vietnam with the employment of traditional performance measures based on book values, for example, return on total assets (ROA) as per Vo and Phan (2013), or return on equity 241
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 (ROE) as per Doan and Le (2014), our paper presents new perspectives on the governance - performance nexus through the use of the market-based indicator - Tobin's Q as a proxy for performance. An important advantage of Tobin's Q is that it helps predict the future performance of a firm, since this indicator is reflected by the market value of firm's share, thus implying a market assessment of the potential profitability of the firm. 2. Literature review 2.1. Theoretical background 2.1.1. Agency theory Agency theory is the grounding theoretical perspective in corporate governance studies. As indicated by Daily et al. (2003), the dominance of agency theory in governance research could be explained by two reasons. First, it is an extremely simple theory, in which large corporations are reduced to two participants - managers and shareholders - and the interests of each are assumed to be both clear and consistent. Second, agency theory holds that both groups of participants tend to be self-interested instead of sacrifice individual interests for the interests of others. While shareholders expect managers to act in the best interests of the business, managers might not necessarily make decisions for the goal of shareholder wealth maximization, instead, they can act in their own self-interest. This may lead to the reality that managers would take self-interest, not for the sake of the owner. As the issue of conflicts of interest is highly likely to occur in joint stock companies, it might create "agency costs". Thus, a key problem posed by agency theory is how to guarantee the interests of company's owners while reducing agency costs. Hillman and Dalziel (2003) argue that the board of directors is the key to reconciliation of benefits between shareholders and managers. Accordingly, among the most urgent measures in today's corporate governance is to devise an effective board structure. 2.1.2. Resource dependence theory Different from agency theory concerning issues between ownership and management, the focus of resource dependence theory is onthe association of enterprises with external environment. Encompassing various different resources such as labour, equipment, raw materials and information, external environment plays an important role in decision-making process in an organization. Therefore, the board of directors acts as a bridge between the enterprise and the external environment, thus reducing the uncertainty in operations from external and non-controllable factors. According to Gabrielsson and Huse (2004), resource dependence theory appears useful in analyzing board functions and actions. Eisenhardt (1989) proposed that agency theory only explains part of the "big picture" of a business. In addition, this theory seems insufficient to mirror the reality of corporate governance in all contexts analyzed by differences in corporate characteristics in each country (Young et al., 2008). Based on similar arguments, Hillman and Dalziel (2003) and Nicholson and Kiel (2007) suggest that agency theory should be supplemented by resource dependence theory in corporate governance studies. 2.2. Empirical evidence 2.2.1. Impact of board diversity on firm performance Until the present time, there have been numerous studies on the role of woment in strengthening firm performance. Empirical results seem inconsistent as regards the relationship between board gender diversity and business performance. Some studies found a positive association between board diversity and performance of firms, while others reached the conclusion that there is a negative link, or even no link. Erhardt et al. (2003) conducted a study on the relationship between gender diversity in the boardroom and the performance of 127 major corporations in the US over the period of 1993-1998. By employing two dependent variables, namely return on total assets (ROA) and return on investment (ROI), to measure the performance of firms; the percentage of female directors on board to represent board 242
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 diversity variable, research results reveal that the proportion of female directors on board appears positively correlated with both financial performance indicators, viz. ROA and ROI. This proves that the board diversity has a positive impact on the firms‟ financial performance. Campbell and Minguez-Vera (2008) studied the relationship between gender diversity on board and the performance of 68 Spanish companies between 1995 and 2000 employing the fixed effect model and two-stage least squares (2SLS) approach to control endogenous problems. Board diversity variable is measured by the percentage of female directors on board, Shannon index and Blau index, while business performance is proxied by Tobin's Q ratio. Research findings confirm that the board diversity positively affects firm performance and the causal effects seem negligible. Most recently, in a study conducted on 170 non-financial listed companies in Vietnam over the period from 2010 to 2015, Pham and Hoang (2019) also confirmed gender diversity measured by the proportion and the number of female directors on board exerts a significantly positive influence on firm performance. Such effects primarily derive from women directors‟ executive power and management skills rather than their independence status. On the opposite direction, based on the dataset of major corporations in the US between 1996 and 2003, Adams and Ferreira (2009) found that gender diversity on board tends to strengthen monitoring functions, yet, empirical results pointed to a negative correlation between the percentage of female directors on board and Tobin's Q index. Likewise, in a study on 248 enterprises in Norway over the period of 2001-2009, Ahern and Dittmar (2012) concluded that, as the proportion of female directors on board rises by 10%, firms' financial performance, which is characterized by the Tobin‟s Q index, would be reduced by 12.4%. Though there exists both positive and negative dimensions, Rose (2007) found no evidence of the impact of board gender diversity on the performance (measured by Tobin's Q) of Danish companies. In addition, Farrell and Herch (2005) suggest that women tend to be appointed to work for firms with higher performance. Specifically, based on a sample of 300 Fortune-500 companies from 1990 to 1999, they reveal that businesses with high level of ROA tend to appoint female directors to the board. If that is the case, board diversity should be treated as an endogenous variable in studies of the relationship between gender diversity and firm performance. There has been much debate in recent research such as Adams and Ferreira (2009) that gender diversity might only be an endogenous problem, implying that ignorance of the endogenous nature of such relationship may lead to unreliable estimates. 2.2.2. Impact of board size on firm performance The positive impact of board size on firm performance has been indicated in numerous studies. For example, Beiner et al. (2006) investigated the impact of corporate governance on firm value based on a dataset of 109 businesses in Switzerland, and found a positive relationship between board size and firm value (measured by Tobin's Q index). This study also confirms that a large board would be beneficial to the management activities due to the complexity of the business environment as well as the diversity of corporate culture. Meanwhile, other researchers found a negative relationship between board size and business performance. Based on a large sample of 452 major industrial enterprises in the US between 1984 to 1991 and Tobin's Q index as a measure of firm value, Yermack (1996) indicates that the size of board negatively correlates with the performance of firms, since the increase in the size of boards would create much more agency costs and difficulties in reaching uniform decisions. In addition, on investigating the effect of board size on firm value (measured by Tobin's Q) in Singapore and Malaysia, Mak and Kusnadi (2005) found an inverse relationship between the number of directors on board and business value. These findings seem in line with those in some other markets, such as the US market as per Yermack (1996). Such inverse correlation between the size of board and the performance of firms can be generalized for different corporate governance systems. 243
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Besides the positive and negative relationship, Schultz et al (2010), when examining the relationship between governance characteristics and business performance of firms (measured by ASX 200 index) during the period from 2000 to 2007, found a statistically insignificant correlation between board size and firm performance after correcting for endogeneity issues. For the case of Vietnam, the study of Vo and Phan (2013) on 77 enterprises listed on the Ho Chi Minh City Stock Exchange over the 2006-2011 period admits that there exists an inverse correlation between the size of board and firm value, or in other words, the more directors sitting in the boardroom, the worse the firm value would become. 2.2.3. Impact of non-executive directors on firm performance According to the agency theory, a perfect board should have a higher proportion of non-executive members who are believed to produce outstanding performance thanks to their independence of supervisory activities. close of business. Fama and Jensen's (1983) study showed that non-executive directors have more motivation to protect the interests of shareholders, because of the importance of protecting reputation as well as their reputation on the external labor market. Nicholson and Kiel (2007) argue that if the supervisory functions of the board are implemented with performance, especially in the financial statements, it would minimize the opportunity for managers to make a profit for themselves at shareholders‟ costs, therefore shareholders' benefits could be guaranteed. Therefore, the agency theory suggests that a higher proportion of non-executive directors would lead to better monitoring by the board. Besides, the above consideration is consistent with the view of resource dependence theory. Daily et al. (2003) argue that non-executive directors provide access to important resources in accordance with business requirements, and therefore, a higher proportion of non-executive directors could contribute positively to business performance improvement. Bhagat and Bolton (2008) conducted study on the relationship between corporate governance and business performance using two different measures. Correlation between non-executive directors and firm performance are found negative in case of performance measured by ROA, yet insignificant in case of Tobin's Q. In addition, Kiel and Nicholson (2003) investigate the relationship between board structure and the performance of 348 listed companies in Australia and demonstrate that the number of non-executive directors on board shows no correlation in case business performance measured by return on total assets (ROA). However, the study found a positive correlation in case firm performance is measured using Tobin's Q index. Meanwhile, Hermalin and Weisbach (1998) argued that board structure has no impact on the business performance; however, during the research process, these authors recognized that firm performance is mainly driven by managerial experience, but not by the proportion of non-executive board directors. 2.2.4. Impact of CEO duality on firm performance Empirical research on the relationship between CEO duality and business performance yields conflicting results. Some have pointed out that the relationship tend to be positive. Specifically, Donaldson and Davis (1991) observed 321 companies in the US and confirmed that CEO duality helps improve business performance, accordingly, the benefits for shareholders would increase compared to the separation of board chair and CEO (average increase of 14.5% as measured by ROE). Meanwhile, in the East Asian context, Haniffa and Hudaib (2006) have shown a significant negative relationship between duality and business performance (measured by ROA), implying that the separation of positions of board chair and CEO could lead to better performance for firms. However, the shortcoming of the research done by Haniffa and Hudaib (2006) lies in not considering the endogeneity problems linked with corporate 244
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 governance characteristics, thus leading to a less reliable estimates. However, the shortcoming of the study of Haniffa and Hudaib (2006) is that it does not take into consideration the endogeneity of corporate governance variables, thus leading to spurious correlations. It is argued that a high concentration of managerial function and monitoring function in a group of major shareholders (including members who are both board directors and senior executive managers) may pose serious challenges in terms of protecting the interests of other minority shareholders and maintaining an effective monitoring function. In other words, such a board leadership structure may facilitate self-interest behaviour among majority shareholders which in turn may reduce firm performance, as predicted by agency theory. Despite conflicting results regarding the relationship between duality and business performance, there still remains consensus of policy makers, investors and shareholders that managerial duties should separate from control decisions, or in other words, a board chair should not act as the CEO of the company (non-CEO duality). In European countries, more than 84% of companies distinguish between chairman of the board and the CEO (Heidrick and Struggles, 2009). In Vietnam, in accordance with Clause 3, Article 10 of Circular No. 121/2012/TT-BTC regulating corporate governance applicable to Vietnamese public companies: “The chairman of the board of management must not concurrently hold the position of chief executive officer (or general director), unless it is annually approved at the annual general meeting of shareholders”. 2.2.5. Impact of block-holder ownership on firm performance Agency theory suggests that concentration of ownership is one of the important mechanisms for monitoring managerial behaviour. The concentrated ownership by shareholders (such as, institutional and individual investors, and block-holders) helps to mitigate agency problems arising from the separation of ownership and control (Shleifer and Vishny, 1986). Hence, it is argued that the larger the proportion of shares held by block-holders, the stronger the power they will have to make management work for their benefits. Furthermore, holding a large proportion of the company assets provides institutional investors and/or block holders with incentives to monitor managerial behaviour (Haniffa and Hudaib, 2006). Although block-holder ownership is regarded as a mechanism to reduce the conflict between shareholders and management, it may be a potential source of conflict of interest between minority and majority shareholders. However, the empirical evidence regarding the relationship between concentrated ownership (block-holder ownership is used as a proxy) and firm financial performance is unclear and inconclusive across different markets and also within the same market. For example, some studies have found no statistically significant relationship between ownership concentration and firm performance. The study of Demsetz and Lehn (1985) empirically tested 511 large enterprises in the US, with the observation of different forms in the firms‟ ownership structure, including ownership by individual investors, ownership by institutional investors and ownership by top five shareholders. Research results indicate that there is no link between ownership structure and business performance. In addition, some others found a positive relationship – one example, Xu and Wang (1999) conducted a study of 300 Chinese listed enterprises during the period from 1993 to 1995, and found a positive correlation between centralized ownership structure and profitability of enterprise. 3. Research methodology 3.1. Sample and data Based on previous studies, financial companies and banks were excluded from our sample since their liquidity and governance could be affected by different regulatory factors (see, e.g., Mak and Kusnadi, 2005; Schultz et al., 2010; Nguyen et al., 2014). Therefore, our final sample only consists of 152 enterprises listed on Ho Chi Minh City Stock Exchange (HOSE). The study period spans from 2011 to 2016. All data were collected from annual reports, management reports and board of direcrors‟ resolutions of sampled companies published on finance.vietstock.vn. Data on market capitalization 245
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 (market value of firm‟s equity) and stock held by the 10 largest shareholders (blocktop10) were provided exclusively by Tai Viet Corporation. 3.2. Description of variables Dependent variable: Firm performance In line with previous studies (e.g., Coles et al., 2012), this study employs Tobin‟s Q as a dependent variable to measure the business performance. Tobin‟s Q could be worked out as follows. Tobin’s Q = (Market value of firm’s stock + Book value of debt) / Book value of total assets Explanatory variables: Governance characteristics Explanatory variables in this study encompass: - The percentage of female directors on board (Female), representing board diversity. - The percentage of non-executive directors on board1 (Nonexe). - The percentage of independent directors on board (Indep). - CEO duality (Dual), a dummy variable, taking the value of 1 if the board chair is also CEO, and 0 otherwise. - Board size (Bsize), indicating the total number of directors on board. - The percentage of ordinary shares held by shareholders with at least 5% holding to the total number of ordinary shares of a company (Block). - The percentage of ordinary shares held by ten largest shareholders to the total number of ordinary shares of a company (Blocktop10). Besides, as suggested by Wintoki et al. (2012), the one-year lagged Tobin's Q is used as an independent variable to control for the dynamic nature of the governance characteristics - business performance nexus. Control variables Control variables used for the regression model include: (1) firm size (Fsize), measured by taking the natural logarithm of the book value of total assets; (2) firm age (Fage), indicating the number of years from the time the company first appears on the HOSE; (3) leverage (Lev), calculated as the ratio of the company‟s debt divided to its total assets 3.3. Model specification Based on Wintoki et al.‟s (2012) research, the baseline model which demonstrates the impact of governance characteristics on the performance of firms could be written as follows. lnQit = α + γ lnQit-1 + β1 Governance + δ2 Control + ηi + εit (1) where: - Q: Tobin‟s Q, representing firm performance (dependent variable). - Governance: Corporate governance variables, including the percentage of female directors on board (Female), the percentage of non-executive directors on board (Nonexe), CEO duality (Dual), board size (Bsize), the percentage of shares held by block-holders (Block). - Control: Control variables, including firm age (Fage), firm size (Fsize) and leverage (Lev). Theoretically, for estimation of dynamic longitudinal data, either pooled ordinary least squares (OLS), fixed effect or random effect approach could be a viable solution. However, as pointed out by 1 According to Clause 2, Article 2 of Circular No. 121/2012/TT-BTC, non-executive director of the board of management is defined as a member of the board who is not the director (general director), deputy director (deputy general director), chief accountant or any other manager appointed by the board of management. 246
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Wintoki et al. (2012), endogeneity concerns might exist when examining corporate governance characteristics. So far, endogeneity issues arise from two main sources: unobservable characteristics across enterprises and simultaneity. To cope with endogeneity problems, Arellano and Bond (1991) proposed the two-step generalised method of moments (GMM) approach. By and large, the GMM estimation method consists of two main types, viz. difference generalized method of moments (DGMM) and system generalized method of moments (SGMM). According to Hermalin and Weisbach (1998), since firm's current performance and governance characteristics are influenced by their previous financial performance, the relationship between corporate governance and firm performance appears dynamic in nature. As recommended by Blundell and Bond (1998), in case there exists a correlation between the current and previous value of the dependent variable, and simultaneously, the number of years is relatively small, then the DGMM model is no longer effective in estimation. Therefore, the SGMM estimator is chosen for this study. SGMM model approach is briefly defined as a system of two simultaneous equations: one in levels and the other in first differences. While lagged levels of explanatory variables are treated as instruments in the first-differenced equation, their lagged first differences could be employed as instrumental variables for the levels equation (Nguyen et al., 2015). As highlighted by Roodman (2009), the SGMM estimator allows harnessing internal instruments available within the panel and addressing the combination of a short panel, a dynamic dependent variable, fixed effects and a shortage of good external instruments. 4. Results 4.1. Descriptive statistics Table 1: Descriptive statistics (total observations: 912) Variable Mean Median Std. Dev. Min Max Tobin's Q 1.04 0.94 0.45 0.34 5.83 The percentage of female 15.98 16.67 16.39 0.00 80.00 directors (Female) The percentage of non-executive 62.24 60.00 16.71 0.00 100.00 directors (Nonexe) The percentage of independent 15.25 16.67 16.40 0.00 80.00 directors (Indep) CEO duality (Dual) 0.31 0.00 0.46 0.00 1.00 Board size (Bsize) 5.75 5.00 1.21 4.00 11.00 Block-holder ownership (Block) 50.70 51.53 17.70 10.49 97.07 Block-holder ownership top 10 56.84 58.50 16.89 20.00 98.00 (Blocktop10) Firm age (Fage) 5.84 6.00 2.76 1.00 15.00 Firm size (Fsize) 27.82 27.68 1.23 25.57 32.61 Leverage (Lev) 46.79 49.54 20.41 0.26 87.41 Source: The authors Table 1 reports summary statistics for the key variables used in this study. As can be seen, the mean of Tobin‟s Q is 1.04, which is higher than that of studies in other countries, such as Nguyen et al. (2014) studying for Singaporean market at 0.82. This proves that sampled companies have relatively high 247
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 performance, as the mean of Tobin's Q ratio exceeding one would probably generate profits for shareholders, and thus businesses should promote investment. In terms of board diversity, the mean percentage of female directors on board stands at an approximate 16%, which is far higher than that of the Asian region (6%), as per Sussmuth-Dyckerhoff et al., 2012), Singapore (6.9%) and China (8.5%), according to Catalyst statistics (2012). Subsequently, on considering the independence of the board, on average, about 62.24% of board directors are non-executive, and 15.25% are independent directors. Aside from that, as regards duality, about 31% of the chairpersons concurrently hold the CEO positions. As regards board size, the mean number of directors on board is about five. Finally, as for the concentration of ownership, the mean value of the percentage of stock held by shareholders owning at least 5% of the common stock (Block) is about 50.7%, while 56.84% is the percentage of shares held by ten largest shareholders. Hence, it can be concluded that the concentration of share ownership in Vietnamese firms appears rather high. 4.2. Results and discussion Table 2 presents the SGMM estimation results based on Eq. (1). To decompose the role of the governance aspects in shaping firm performance, the baseline specification is split into two sub-models: - Model (1a) tests the effects of governance characteristics through the percentage of female directors on board (Female), the percentage of non-executive directors (Nonexe), CEO duality (Dual), board size (Bsize), the block-holder ownership (Block) to the performance of the business; - Model (1b) re-estimates Eq. (1) by replacing „Nonexe‟ with „Indep‟ (representing the independence of the board), „Block‟ with „Blocktop10‟ (a proxy for concentrated ownership structure) to check robustness of our results to alternative proxies for corporate governance structures. It is evident from Table 2 that our findings remain robust after replacing the variable of block- holder ownership with block-holder ownership top-10. While no evidence was found related to the role of non-executive directors (Nonexe) in business performance (see model 1a), the presence of an independent directors (Indep) appears significantly positively correlated with Tobin's Q (see model 1b). In general, the coefficients of the other corporate governance characteristics remain unchanged, except for duality - although there is a reversal of the sign of the coefficient, yet statistically insignificant. Therefore, our regression results are robust to alternative proxies for corporate governance structures. Besides, statistical test results in Table 2 reveal that Hansen‟s over-identification and AR(2) testing conditions are met. This means our estimation results with SGMM approach are reliable. Table 2: SGMM estimation results of the relationship between governance characteristics and firm performance Regressant: lnQ Model (1a) Model (1b) lnQ(-1) 0.377 0.362 (0.001) (0.001) Female 0.079 0.085 (0.767) (0.716) Indep - 0.736 (0.002) Nonexe -0.293 - (0.380) Dual -0.023 0.099 (0.798) (0.202) 248
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 lnBsize 0.743 0.517 (0.001) (0.010) Blocktop10 - 0.493* (0.084) Block 0.708 - (0.017) Fage 0.089 0.062 (0.001) (0.018) Fsize 0.066* 0.043 (0.081) (0.308) Lev 0.379 0.413 (0.135) (0.188) Intercept -3.660 -2.873 (0.001) (0.016) Observations 760 760 AR(1) (p-value) 0.110 0.113 AR(2) (p-value) 0.169 0.168 Sargan test (p-value) 0.418 0.887 Hansen test (p-value) 0.482 0.529 Notes: p-values in brackets; , , * indicate significance at 1% , 5% and 10% , respectively. Source: The authors Research results in Table 2 show that the coefficient of one-year lagged Tobin‟s Q has a positive correlation at 1% significance level (coefficient β = 0.377). This suggests that, as for businesses in the research sample, past performance results have a positive impact on their current performance. This finding appears consistent with recent studies such as Wintoki et al. (2012), suggesting that past performance should be recognized as an important variable to control for the relationship between corporate governance and business performance of firms. The study found no evidence that the gender diversity in the boardroom exerts a positive influence on the performance of firms. This result supports Rose's (2007) view that high levels of gender diversity in the boardroom does not guarantee that companies could achieve better performance. Despite a positive correlation between board diversity and firm performance, this appears insignificant after fully controlling for the contemporaneous causality. The size of board was found to be positively correlated with firm performance (coefficient β = 0.743) at a 1% significance level. This result is in line with resource dependence theory, proving that a scale expansion of a board would help fortify company‟s linkages with external resources, as well as bringing extra benefits for the company based on advantage of the capabilities, knowledge and experience of the board directors. In addition, this result is consistent with the research of Beiner et al. (2006), contending that a large board would benefit management of business performance a great deal through improved quality of support and counsel, complexity of the business climate and diversity of corporate culture. 249
10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2019 ICYREB 2019 Our results also found that the presence of non-executive directors on board has no impact on the performance of firms. According to Bhagat and Black (2002), there is no evidence that enterprises with numerous non-executive directors on board have better performance than the others. Besides, they argued that the performance of the enterprise does not depend on the number of non-executive directors on board, but each business has a distinct non-executive board structure, which largely depends on the size and growth of their business. We found no evidence that CEO duality has an impact on business performance. This finding is consistent with the research of Mak and Kusnadi (2005) for Singaporean market. The concentration of ownership of block-holders (measured by „block‟ variables) shows a positive correlation with firm performance (coefficient β = 0.708) at a 5% significance level. According to agency theory, ownership concentration is among the most important mechanisms for monitoring management behavior, helping reduce agency concerns arising from the separation between ownership and control decisions. Therefore, the higher proportion of stock held by block-holders, the greater the motivation for them to monitor the manager‟s performance in serving their interests (Shleifer and Vishny, 1986). This result is coincident with the research of Xu and Wang (1999), suggesting that the higher the ownership proportion of block-holders, the more likely it is to enhance firm performance. As regards control variables, financial leverage (Lev) has no significant impact on business performance. Meanwhile, both firm size (Fsize) and firm age (Fage) have a positive correlation with firms‟ business performance. 5. Conclusion The paper empirically evaluates the relationship between governance characteristics (measured by Female, Nonexe, Dual, lnBsize, Block) and corporate performance (measured by Tobin's Q) on a sample consisting of 152 non-financial enterprises listed on HOSE over the period of 2011-2016. By employing SGMM estimation approach in order to control for endogeneity problems, then replacing necessary variables, namely, „Nonexe‟ and „Block‟, with „Indep‟ and „Blocktop10‟, respectively to check the robustness of the estimation model, research results reveals that the impact of governance characteristics on business performance is statistically significant, specifically, board size and block-holder ownership exert a positive influence on firm performance. Accordingly, the study supports the views that: (i) a large board would be favourable to business performance management through improved quality of support and counsel, complexity of the business climate and diversity of corporate culture; (ii) The concentration of block-holder ownership could help alleviate agency concerns arising from the separation between ownership and control decisions, and thus, an increase in the proportion of stock held by block-holders would bring greater motivation for them to monitor managers‟ performance towards their best interests. It is recommended from our findings that enterprises attach great importance to corporate governance characteristics as a fundamental requirement, thereby reinforcing the achieved financial results as well as the sustainable development goals of the businesses. REFERENCES [1] Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of financial economics, 94(2), 291-309. [2] Ahern, K. R., & Dittmar, A. K. (2012). The changing of the boards: The impact on firm valuation of mandated female board representation. The Quarterly Journal of Economics, 127(1), 137-197. [3] Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297. 250
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