Tác động của quản trị công ty đến hiệu quả doanh nghiệp: Nghiên cứu thực nghiệm từ thị trường chứng khoán Việt Nam

Nội dung text: Tác động của quản trị công ty đến hiệu quả doanh nghiệp: Nghiên cứu thực nghiệm từ thị trường chứng khoán Việt Nam

1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 THE IMPACT OF CORPORATE GOVERNANCE MECHANISM ON FIRM PERFORMANCE: AN EMPIRICAL EVIDENCE FROM VIETNAM STOCK EXCHANGE TÁC ĐỘNG CỦA QUẢN TRỊ CÔNG TY ĐẾN HIỆU QUẢ DOANH NGHIỆP: NGHIÊN CỨU THỰC NGHIỆM TỪ THỊ TRƯỜNG CHỨNG KHOÁN VIỆT NAM TS. Vũ Xuân Thủy Trường Đại học Thương mại vuthuy2607@tmu.edu.vn Abstract This research paper aims to exemine the impact of the corporate governance mechanism on firm performance for public companies in Viet Nam. We use unique data on corporate gorver - nance choices for 263 listed firms in Viet Nam for seven years from 2011 to 2017. We construct index/sub-indices of corporate governance describing such aspects of corporate gorvernance as Board of Director’s size, Non-executive directors, ownership arrangements and executive compensation. Besides, the financial performance is measured by two different methods, which include return on asset and return on equity. We use a set of instrumental variables coming mainly from “trust” literature, in particular political diversity, religion and ethnic diversity, and methods of privatisation, to tackle possible endogeneity. We employ ordinary least squares (OLS), fixed effects (FEM), random effects (REM) to analyse the governance effects in the frame - work of standard production function approach. Based on a sample of Vietnamese listed firms and using panel data regressions, the results show that CEO ownership and Government own - ership have significant positive impact on the level of total Executive cash compensation. Lack of control by ownership enables management to extract higher executive compensation. Identity of owners has a significant influence on the level of executive compensation. Furthermore, this study investigated the impact of other governance company (such as firm size, board size, non- executive directors ) determinants on the Executive compensation level for Vietnamese listed firms. In addition, we have found that executive compensation is higher among firms with higher growth opportunities. Keywords: Corporate Governance, Firm Performance, Ownership Structure, Emerging Markets. Tóm tắt Nghiên cứu này được thực hiện nhằm mục đích tìm hiểu tác động của cơ chế quản trị công ty đến hiệu quả doanh nghiệp đối với các công ty đại chúng tại Việt Nam. Bằng việc sử dụng dữ liệu về cơ chế quản trị công ty của 263 công ty niêm yết tại Việt Nam trong giai đoạn từ 2011 đến 2017, Chúng tôi xây dựng chỉ số phụ về quản trị công ty mô tả ở các khía cạnh khác nhau của quản trị công ty như: Quy mô Hội đồng quản trị (Board Size), thành viên HĐQT không tham gia 1242
2. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 điều hành (NEDs), cấu trúc sở hữu vốn và bồi hoàn ban điều hành. Bên cạnh đó, hiệu quả doanh nghiệp được đo lường bằng lợi nhuận trên vốn chủ sở hữu (ROE). Chúng tôi sử dụng phương pháp hồi quy bình phương nhỏ nhất thông thường (OLS), hiệu ứng tác động cố định (FEM), hiệu ứng tác động ngẫu nhiên (REM) để phân tích các tác động của quản trị công ty lên hiệu quả doanh nghiệp. Dựa trên một mẫu các doanh nghiệp niêm yết của Việt Nam và sử dụng hồi quy dữ liệu bảng, kết quả cho thấy sở hữu CEO, sở hữu Chủ tịch HĐQT và quyền sở hữu của Chính phủ có tác động tiêu cực đáng kể đến tỷ suất sinh lời trên vốn chủ sở hữu. Ngoài ra, kết quả cũng chỉ ra rằng Tỷ suất sinh lời đạt mức cao hơn ở những công ty có mức chi trả bồi hoàn cho ban điều hành cao. Từ khóa : Quản trị công ty, Hiệu quả hoạt động, Cấu trúc sở hữu, Thị trưởng mới nổi. 1. Introduction According to Tricker, B. (2015), corporate governance is seen as “ the way power is exer - cised over corporate entities ”. It consists of the board activities of the enterprise and its relation - ships with the shareholders, with the managers as well as with other legitimate stakeholders. The corporate governance ensures that the corporate “is running in the right direction and being run well” (Tricker, 2015). It is defined as “the system by which business corporations are directed and controlled” (Rankin et al,2012). It is widely believed that the implementation of a good cor - porate governance framework presents companies a structured path to better management prac - tices, effective oversight and control mechanisms which lead to opportunities for growth, financing and improved performance (Solomon, 2010). A basic characteristic of Joint-stock companies is equity being owned by different share - holders. Accordingly, each type of ownership could has the different impact on firm performance. Before economic reforms began in 1986, Vietnam’s State-owned Enterprises (SOEs) were solely state-owned proprietorships directly controlled by industry-specific government agencies. The SOE reforms decentralized business decision rights from government agencies to firm manage - ment and expanded enterprise autonomy without a fundamental change in state ownership. All economic organizations in all sectors were state economic sectors. Therefore, executive members in SOEs at all levels was recruited by state agencies. After 1990, Vietnam’s economy began to enter a period of strong opening and reform with the rapid development of the financial market. That reform process is associated with a series of divestments from SOEs, namely the equitization process based on market rules. Therefore, researching on corporate governence in developing countries such as Eastern European countries, China or Vietnam has its own characteristics. State ownership in these countries often has a high proportion after the economy is transformed from a centralized economy to a market economy. In the past two decades attention toward issues related to corporate governance has been increasing as a result of a series of financial and economic events occurring around the world. In this regard, high profile financial scandals, financial crisis, and unexpected corporate failure have driven countries to strengthen their corporate laws in order to increase the confidence in financial markets (Solomon, 2010). As one of the most newly established financial markets in Asia, Viet 1243
3. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Nam has always considered the importance of keeping its financial markets. One of these laws is related to corporate governance. In Viet Nam, there are few studies which examine the effect of corporate governance on performance measures. Viet Nam is one of the fastest growing economies globally and its gov - ernment is keen to support good corporate governance mechanisms to increase investor confi - dence and encourage market improvement. The purpose of this paper is to examine the impact of corporate governance ( ownership structure, Board of Director Structure, Executive compensation) on firm performance. Viet Nam considers one of most unique and attractive marketplace in the region as it provides great oppor - tunities for more investment flows. This research is a contribution to previous studies to investi - gate the effect of corporate governance practices among performance measures for the entire firm as well as propose the proper organizational structure. The remainder of this paper is organized as follows. Section 2 discusses the relevant liter - ature and motivates our key hypotheses. Section 3 introduces the development of our dataset and model specifications. Section 4 presents the results on the relationship between corporate gover - nance and performance of large private enterprises in Vietnam. Section 5 summarizes our key findings and Section 6 concludes the paper. 2. Literature review and Hypotheses development The impact of corporate governance variables on firm performance has been investigated in many studies around the world. This part will review some of these studies that are related to our study in somehow from different countries. Studies on corporate governance and its effects on firm performance are quite well docu - mented in the literature. This section briefly provides measurements of corporate governance and firm performance, and it also reviews the effects of corporate governance on firm performance commonly found in the literature. This review aids in understanding and applying measurements of corporate governance and firm performance in the Vietnamese context in this paper. Many variables used in previous literature for measuring corporate governance; this study took the most relevant variables as proxies for corporate governance. All chosen variables are discussed below for developing a good understanding: 2.1. Measure of Corporate Governance According to Jensen and Meckling (1976), Fama and Jensen (1983), the agency problem may exist between the owner (shareholders) and the agencies (BoD and BoE) or even among BoD and BoE. This problem is clearly revealed when the independence and supervisory functions of the BoD turns out to be ineffective. The solution to limit the issue between shareholders and BoD is to increase the supervisory function of the BoD on the one hand and to complete the struc - ture of income package for the BoE on the other hand so that the benefits of both parties could be harmonized. The conflict arises when there is moral hazard inside the firm, which is called the agency costs of equity. This agency problem can be solved by increasing management own - ership because high management ownership aligns the interests of management and shareholders 1244
4. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 (Jensen, 1976). Other possibilities include monitoring of management by large shareholders (Shleifer, 1986), and the use of debt financing to discipline managers (Jensen, 1986; Stulz, 1990). The term “corporate governance” is initially associated with the “principal agent” problem. At the firm level, a “principal-agent” means a person who owns a firm but is not the same person who controls it. In this sense, If a firm has a multiple ownership, it may result in corporate gov - ernance problems. OECD (2004) provides a broader definition of corporate governance as “the full set of relationships among a company’s management, its board, its shareholders and other stakeholders. It provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance determined.” This definition presents that corporate governance is not only concerned about the internal mechanism of cor - porate governance structure and shareholders’ profit, but also takes into account the external mechanism of corporate governance and stakeholders’ interests (Nguyen and Nguyen, 2016). Another definition of corporate governance is provided by Barrett (2002) who said that this pertained to the ways an organization deals with its various stakeholders. According to the World Bank (1999), corporate governance can be seen from two perspectives: external and in - ternal corporate governance. External corporate governance deals with external stakeholders such as creditors, suppliers, and many others outside the organization, while internal corporate gover - nance focuses on the board of director and the interests of shareholders. Corporate governance has been proxied using different ways and variables. Most studies on this issue use measurements that directly relate to the internal perspective of corporate gov - ernance. For example, Edward and Clough (2005) conduct a survey on measurements of corporate governance and find that the most common proxies used in the literature and in the corporate governance codes are as follows: (i) The size of the board of directors; (ii) Separation of Chairman and CEO (duality); (iii) Majority of the board being comprised of nonexecutives or board dom - inance of independent directors; (iv) Balance of directors’ skills and competencies; and (v) Audit and other board committees. Edward and Clough (2005) also reviewed measurements for the ex - ternal perspective of corporate governance such as effective board performance evaluations, trans - parent appointment processes, and adequate communication with investors. Some studies (Bhagat & Bolton, 2008) focused on median directordollar value ownership and median director-percent value ownership as proxies for corporate governance. The notion of the corporate governance is quite comprehensive. It is often defined as a field in economics that investigates how to secure/motivate efficient management of corporations by the use of incentive mechanisms, such as contracts, organizational designs and legislation (Mathiesen, 2002). In words of Shleifer and Vishny (1997) “[c]orporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” In the scope of this study, we would like to consider the characteristics of board size, Non- executive directors, ownership structure and executive compensation to be the most important internal corporate governance mechanisms for further analysis within an individual country. 1245
5. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 2.2. Comment on Performance Measurement Many studies have developed indicators which are used to measure the performance of firms from different perspectives for a wide range of purposes. Richard et al.(2009) conducted a review of measurements of performance in related papers published in the top five management journals during 2002 and 2007, and they found little scientific debate on which measures are ap - propriate and how to combine measures in order to compare business performance. To investigate the relationship between corporate performance and performance of firms, several measurements of firm performance have been used. According to Bhagat and Bolton(2008) the most common proxies for firm performance can be summarized as; - Return on Equity. -It is measured as operating income (in general, operating income before depreciation) divided by end of year total assets; - Tobin’s Q. -This indicator is calculated based on the procedure provided by Gompers, Ishii and Metrick(2003) and Tobin and Brainard(1968); Because of data collection issues, many studies on this topic use only a single indicator of firm performance. Return on Equity, after-tax profits and payment to state budget are the three most often used performance measures. 2.3. Previous Empirical Studies about Corporate Governance and firm performance 2.3.1. Board Size and Firm performance Based on initial studies, the number of members in BoD is also an important explanatory variable in view of its impact on Firm performance. In specific, one important function of BoD is to set up the income policy for BoE members as well as to supervise all of their operational ac - tivities. However, these functions might be influenced by social factors such as friendship, family relationships and so on. Under that circumstance, a larger BoD could easily facilitate the manip - ulation of the BoE and it was suggested that the size of the smaller BoD would be more effective in controlling the BoE’s actions (Jensen, 1993). This view is also shared by Lipton and Lorsch (1992) as Yemack (1996). When the scale of BoD reaches a certain level, unfavorable factors such as difficulty in coordinated decision-making or the dependence in supervision would appear (Jensen, 1993; Eisenberg et al., 1998). These difficulties are also known as barriers in surveillance. BoE are rep - resentatives for shareholders and are supposed to act for their common goals. Numerous studies have identified various results surrounding the relationship between BoD members and their fi - nancial decision outcomes. Dalton et al. (1999) conducted an analysis on 131 companies in the USA but found no evidence of the relationship between BoE composition and financial perform - ance. Another study by Hermalin and Weisbach (1998) pointed out the relationship between large BoD and company’s operations. These studies not only dealt with the question about the corre - lation of BoD size and company’s performance but also concerned about the number of BoD and its influence on how to provide compensation to BoE. In contrary with this point of view, when BoE are given more authority and become more independent in decision-making it is likely that the supervisory ability of BoD is declining (Her - malin and Weisbach, 1998). To a certain extent, managers would use their power to put pressure 1246
6. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 on salary and incentive policy to limit the supervisory ability of BoD. It also means that when the number and quality of BoD members are strong enough, they will supervise and limit the power of BoE; thereafter, it would cut down on BoE exceeding income. As a supportive point for this claim by Ryan and Wiggins (2004); Adams et al. (2009) concluded that BoD size nega - tively affected BoE income. Thus, although there are various results that have been shown to prove the correlation be - tween the number of BoD members and BoE incomes from previous empirical studies, this study would suggest that in Vietnam, the number of BoD members has significant and positive impact on the management’s remuneration policy. The next hypothesis of this study is: Hypothesis 1: Board Size has a positive impact on firm performance 2.3.2. Non-executive Directors and firm performance According to agency theory, board of directors is formed to monitor the management and protect the shareholders’ interests because of the separation and management causing agency problems and cost, which results in the conflicting interests between managers and shareholders (Jensen and Meckling, 1976 cited in Wu and Li, 2015; Mallette and Fowler, 1992; Fama and Jensen 1983 cited in Abdullah 2004). Non-executive Directors would decrease agency cost and expropriation and increase effective monitoring, which results in a higher firm performance (Fama and Jensen, 1983; Brickely et al., 1994 cited in Saibaba 2013). Therefore, Wu and Li (2015) argue that the composition of board has a significant influence on the quality of board monitoring. Un - affiliated directors are believed to have incentive to perform their monitoring functions and not collude with CEOs at the expense of shareholders’ wealth because they are more independent of management and more likely to protect their reputation in the external market for their services (Fama, 1980; Fama and Jensen 1983 cited in Wu, Li 2015; Nguyen et al., 2014). Conyon & He (2001) and Rashid (2013) show that a high proportion of independent Board members who do not participate in the management will positively impact the total payment to managers. Conyon and He (2011) support the notion that companies with a higher proportion of independent members who do not participate in the board of directors will be more likely to re - place weakly operating managers and provide provide higher payments to well-run executives. Meanwhile, Core et al. (1999) argued that non-executive board members would negatively impact (or limit) the total amount paid to executive managers. Core research shows that the total payment to managers will be higher when there are fewer independent members of the Board. Although the research also shows conflicting results when the sample is in different countries, it is often in developing countries, in the context of the operation of JSCs, it needs more transparency. In order to limit the manipulation of the management board, a proportion of the independent Board mem - bers do not participate in what is really necessary to cut down overpayment activities for executive managers. Therefore, the research hypothesis is set as: Hypothesis 2: Non-executive Directors have a negative impact on firm performance 2.3.3. Ownership Structure and firm performance Ownership structure, as a mechanism in corporate governance to facilitate increased effi - 1247
7. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 ciency of a firm, has been believed to effect financial performance for many years. According to Jensen and Meckling (1976), managers may not always act for the interests of those who hire them, but possibly because of their own sake in distributing benefits to stakeholders. Berle and Means (1932) set forth that ownership dispersion implies management is distinguished from own - ership, which, as Jensen and Meckling (1976) emphasize, may contribute to agency problems between managers and shareholders or shareholders and debtors. On the other hand, Shleifer and Vishny (1986) and Morck, Shleifer and Vishny (1988) detect the phenomenon of ownership con - centration. La Porta et al. (1999) and Claessens et al. (2000) usher in the conception of ultimate controller; they define firm ownership as voting rights, unearthing that many controlling share - holders of listed firms predominate firms by means of pyramid structure and cross holding, which could result in central agency problem. Therefore, if managerial ownership is increased, their in - terests will be balanced to the interests of shareholders leading to possible remarkable reduction of conflicts between managers and shareholders, gradual solution to agency problem and as a re - sult, improvement of firms’ financial performance. Hypothesis 3: Ownership structure have a significant impact on firm performance. hManagement ownership Morck et al. (1988) investigate the relationship between management ownership and market valuation of the firm, as measured Tobin’s Q. In a 1980 cross-section of 371 Fortune 500 firms, they find evidence of a significant nonmonotonic relationship. When examining the relationship between Tobin’s Q rate and internal ownership level, they point out that within a certain extend of internal ownership level, the Tobin’s Q rate is correlated positively with internal ownership, while negatively in other ranges. This indicates a non-linear relationship between internal own - ership and firms’ financial performance (measured by Tobin’s Q). It also shows that a firm may achieve the best performance when choosing ownership struc - ture at a specific ratio. In addition, Fama and Jensen (1983) prove that the increase of managerial ownership would lead to the increase of entrenchment of managers. This means that the increase of the shared managerial ownership will bring about the increase managers’ influence on business performance and the decrease of investors’ influence on financial performance. Hypothesis 3.1: Management ownership have a positive impact on firm performance. hGovernment Ownership The direction of the relationship between government ownership and firm performance in prior literature was not conclusive. Overall, political connection is measured as a firm’s execu - tive- or board-level connections with or contributions to the government (Claessens et al., 2008; Faccio, 2010; Faccio et al., 2006; Fan et al., 2007; Khwaja and Mian, 2005). This anecdotal ev - idence supports Murphy’s (2013) assertion that, despite being largely ignored in the literature, government intervention has been a major influence on firm performance over time. Government ownership is also an important factor affecting to the firm performance of joint stock companies, especially in the context of transition economies such as China and Vietnam. The impact of gov - ernment ownership on firm performance is inconsistent in previous studies. 1248
8. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Some European governments followed suit and proposed regulating executive pay in firms that receive government aid or that are under some form of state control (Saltmarsh, 2009; Flynn and Vinocur, 2012). Depending on different research patterns in different countries, the govern - ment ownership may be positive or negative with firm performance. While, Bos (1991) argues that in companies where the government owns the majority of share capital, the government has a efficient control of the company. Zhaoyang GU (2010) pointed out that with strong government control, it was difficult to attribute firm performance to management effort as the government participated significantly in SOEs’ operating, investing and financing activities. Managers were measured by how they implemented government designated plans rather than firm profitability. In contrast, Mak & Li (2001) argues that the government tends to be less proactive in controlling its investments, and also because of easier capital mobilization, leading to the phenomenon of companies owning houses. Based on the above arguments, in the Viet Nam environment, the relationship between government ownership and firm performance will have a negative direction. Because laws system in Viet Nam like many developing country are not ensures investors protection in the Viet Nam financial markets. Moreover, terms of transparency corporate monitoring in government’s com - pany is very weak. Hypothesis 3.2: Government ownership have a negative impact on firm performance. hForeign ownership This indicator is measured by the percentage of ordinary shares held by foreign sharehold - ers. Earlier and recent empirical studies conclude that the foreign ownership has positive influences on the firm’s performance. This might be true for developed countries; however, in developing and transition economy, some findings are in contrast with earlier empirical findings. Nurhan Aydin et al (2007) show that the firms with foreign ownership operating in Turkey perform better than the dosmetic owned ones in respect to ROAs. The evidence supports the hy - pothesis that foreign ownership participation increases performance of firms. Besides Alan and Steve (2005) also looked at the short and long term performance of UK corporations acquired by foreigners. The findings on 333 overseas acquisitions by UK limited companies for the period 1984-1995 reveal significant positive returns on the firm performance. However, Phong Nguyen Anh et al (2018) find that the lecerage and age have positive cor - relation with firm performance (measured by Tobin’s Q) while the foreign ownership, size and liquidity have negative effect on performance. Therefore, the research hypothesis is expected to be: Hypothesis 3.3: Foreign ownership have a positive impact on firm performance 2.3.4. Executive compensation As discussed above, the representative problem arises when the information state is dis - 1249
9. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 proportionate, which makes it impossible for the investors to observe effort of BoM. When in - vesting capital, shareholders try to encourage managers towards the direction of maximizing shareholders’ benefits. However, managers may have individual goals and pursue personal mo - tivations when running a company. According to Jensen and Murphy (1990), the main solution to benefit conflicts was to propose shareholder’s income-based-regulations for BoM’s returns. If payment policy is summed up based on company performance, it would encourage BoM to per - form well in management role to maximize company value and shareholder benefits (Dhaouadi, 2012). Other studies have also shown that there is a positive relationship between firm perform - ance and BoM income (Barontini & Bozzi, 2009; Andreas et al., 2010). Some relevant researches have revealed the existence of a strong positive correlation between financial results and salary of BoM in joint-stock companies. If in Belliveau et al. (1996) the correlation is 0.41, Finkelstein and Boyd (1998) presented a lower correlation of 0.13 and Johnson’s (1982) shown the lowest of 0.003. In contrast, the study by Brick et al. (2005) pointed out that there is a strong negative cor - relation between management compensation and company performance. Focusing on the same subject, Zhou (2000) also examined operations of multiple companies in Canada and found out that CEOs salary was inversely related to firm size and the level of reimbursement was signifi - cantly relied on company performance. In addition, Hempel and Fay (1994) concluded that there was no relationship between BoE income and firm performance while Dogan and Smyth (2002) acknowledged an unclear relation - ship between executive income and business performance. Although there are still numerous heterogeneous opinions about the influence of company performance on BoM earnings, most conclusions from empirical studies have acknowledged the positive effect between company performance and BoE income. Sharing the same point of view with most of these studies, this article attempts to show the correlation between BoE earnings and the performance of listed companies in Vietnam. The hypothesis is: Hypothesis 4: Executive compensation has a positive impact on Firm performance. 3. Research Methodology This study uses quantitative methods to estimate the factors that influence income of BoE. Basing on the survey of relevant theories, data collection and regression model, random-access model (REM) and fixed- Fixed Effects Model (FEM). 3.1. Data considerations Secondary data on financial status, listed stocks, dividends and dividends are available at cophieu68.vn and vietstock.vn. Research database is manually collected from the prospectuses, financial statements and annual reports of 228 companies listed on the Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX). The data for all the variables were extracted from the published annual reports and financial statements of the listed companies in the HOSE and HNX covering the years 2010-2016. The internal financial indicators of enterprises are regularly calculated once a year. 1250
10. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 However, as secondary data from listed companies in Vietnam’s stock market (HOSE) is corporate data from 2005 to 2016, actual data is inconsistent and lack of availability. Over the period of 6 years (2005 - 2009), the income of the Board of Management was not widely publicized among companies, so the sample was reduced to 228 companies listed on HOSE and HNX period 2010 - 2016. With 1596 observations during the period from 2010 to 2016 and applying means of ran - dom analyses. 3.2. Emprical research model In this study, in order to be able to examine the impact of ownership structure and coporate governance on the firm performance of the listed company, this research applied regression mod - els for data tables based on overviewed economic models. This regression analysis aims to find the impact of variables: Ownership structure, firm size, board size, growth and financial perform - ance of the firm to the total executive cash compensation. The objective of this study is to inves - gate the influence of capital ownership structure on the level of executive compensation. The model that was used to test the hypothesis was: ROE t = α + β 1CEO_OWN it + β2CHAIR_OWN it + β3FR_OWN it + β4GOV_OWN it + β5TCOM it + β6FSIZE it + β7BSIZE it + β8GROWTH it + β9NEDS it + εit Where: - it = The value of company i at time t i = 1, 2, 3, 4, , 228 and t = 1, 2, 3, 4, 5, 6, 7 (2011-2017) - ROE is the dependent variable – firm performance - TCOM it is the dependent variable - total compensation paid to the board of executives in the Vietnam listed company, including salaries, bonuses and other allowances. - CEO_OWN: CEO ownership ratio - CHAIR_OWN: Chairman ownership ratio - FR_OWN: Foreign ownership ratio - GOV_OWN: Government ownership ratio - FSize, Growth, BSize are independent variables Through the process of reviewing related studies, the study synthesized and constructed a hypothetical framework with details about variables and the expected correlation hypotheses among observed variables and company’s stock market prices as the following table. Table 1: Summary of variables Symbol Variables Content Expected Correlation Independent variables – Corporate Governance CEO_OWN CEO ownership ratio The percentage of capital held by the CEO (+) CHAIR_OWN Chairman ownership The percentage of capital held by the chair - (+) ratio man 1251
11. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 FR_OWN Foreign ownership The percentage of capital held by the foreign (+) ratio investor GOV_OWN Government ownership The percentage of capital held by the gov - (+) ratio ernment TCOM Executives compensa - Natural Log of (1+ BoE’s total income) tion BSIZE BoD Size Total number of directions on BoD (+) NEDs Non-executive Directors Percentage of non-executive directors to total (-) number of directors on a board TCOM Executives compensa - Natural Log of (1+ BoE’s total income) (+) tion Others variables GROWTH Growth in terms of market to book value (+) FSIZE Firm Size Natural log of company market capitaliza - (+) tion Dependent variables – Firm performance ROE Firm performance Percentage of operating profit to equity 4. Empirical Results After studying relevant theoretical frameworks, the next step is to build up research model, setup the implementation of necessary tests and run model regression with the appropriate method. 4.1. Descriptive Statistics The basic criteria described in Table 2 and Table 3, which were used in statistics, included: mean value, standard deviation, maximum value and minimum value. Table 2: Details of variable Expected N Maximum Mean Std. Deviation Correlation ROE 1596 -7.836 0.783 0.111 0.267 LNTCOM 1596 18.09 25.23 21.27 0.870 LNFSIZE 1596 21.82 32.82 27.06 1.359 BSIZE 1596 3.000 11.00 5.443 1.056 NEDS 1596 1.000 10.00 3.176 1.229 CEO_OWN 1596 0.000 85.39 9,520 12.43 CHAIR_OWN 1596 1.000 85.390 21.306 16.059 FR_OWN 1596 0.000 55.570 7.4088 11.711 GOV_OWN 1596 0.000 87.380 26.702 24.172 GROWTH 1596 0.000 14.820 0.9423 1.0144 Source: Author calculation results 1252
12. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 It could be seen from the calculated results in table 2 that: It could be referred that the average value of LNTCOM is approximately 21,27 , the varia - tion from the minimum value of 18.09 to the maximum of 25.23. It could be concluded that the distribution of the variable is standard deviation (Kurtosis at 4.19 and skewness at 0.28) and po - sitively impact on the research process . The average CEO ownership ratio is 9.52%; The average Chairman ownership ratio is 21.3%; The average foregin ownership ratio is 7.41%, and 26.7% for state ownership. Based on the results of statistical analysis described above, financial results of companies in terms of ROE also present a strong variation among companies over years. In particular, The average ROE of companies in the period 2010 to 2016 is approximately 10.9%. The average rate of ROE is 13.5% and ranges from the minimum value of -7.836 up to the maximum value of 0.783 . This indicates a large degree of volatility in terms of ROE among companies in the study area over examined periods. 4.2. Correlation matrix In this section, we will analyze the correlation matrix between variables in the sample to solve the limitations of analyzing each variable by showing a more detailed view through the re - lationship between the dependent variable and the explanatory variables in the regression model, while showing a preliminary picture of the correlation between explanatory variables. After running eview, the results of correlation analyses among variables in research model are shown in the following table: Table 3: Correlation matrix among variables in research model ROE TCOM FSIZE BSIZE NEDS CEO_ CH_OWN FR_OWN GOV_ GROW OWN OWN ROE 1.000 TCOM 0.130 1.000 FSIZE -0.002 0.614 1.000 BSIZE 0.039 0.271 0.218 1.000 NEDS 0.033 0.189 0.192 0.543 1.000 CEO_OWN -0.036 -0.043 0.032 -0.064 -0.202 1.000 CH_OWN 0.017 -0.030 0.019 -0.179 -0.052 0.325 1.000 FR_OWN 0.101 0.326 0.235 0.168 0.163 -0.035 -0.051 1.000 GOV_OWN 0.032 0.028 -0.024 -0.166 -0.087 0.012 0.370 -0.084 1.000 GROWTH 0.063 0.260 0.173 0.128 0.128 -0.019 0.059 0.096 -0.102 1.000 Source: researcher’s caculation from research data 1253
13. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 4 below describes the correlation matrix among variables in researched samples and aims to solve the limitation in analyzing each variable by showing a more detailed view through the correlation among independent variables and dependent variables. Correlation coefficients are lower than 0.8 (maximum 0.6) means that the occurrence possibility of hyperbolic phenomena is negligible. The results of the pair correlation analysis between the explanatory variables show that there are no pairs of variables with the correlation coefficient rij> 0.8, while the majority of the linear relationship between The explanatory variables are just below 0.3. Thus, it can be af - firmed that there is no strong autocorrelation between the explanatory variables in the model, so the possibility of multicollinearity is very low or absent, thus does not affect the main level corp - ses of estimates, supporting research can use these variables to analyze linear regression models. 4.3. Heteroskedasticity Test and Serial Correlation LM Tests Table 4: Heteroskedasticity Test and Serial Correlation LM Test Table 4.A: White - Heteroskedasticity Test: F-statistic 6.175372 Prob. F(54,1541) 0.0000 Obs*R-squared 283.9300 Prob.Chi-Square(54) 0.0000 Scaled explained SS 484.2102 Prob.Chi-Square(54) 0.0000 Table 4.B: Breush-Godfrey - Serial Correlation LM Test F-statistic 610.2193 Prob(F-statistic) 0.0000 Obs*R-squared 694.5490 Prob.Chi-Square 0.0000 Source: researcher’s caculation from research data In Table 4, the results in Table 4.A show the White test (testing the variance of the variance error) and Table B presents the Breusch-Godfrey test - Serial Correlation LM Test (self-correlation test of the residual) . Prob. Chi-square in both Table 4.A and Table 4.B are less than 5%. This result shows that the model have the variance of the change error and the self-correlation of the residual. Thus, the least-squares POOL model is not usually appropriate to explain the regression result because there are no variance phenomena of change error and self-correlation of error. The - refore, the study continued to run two FEM and REM models on the same research model, and to choose one of these two models to estimate the regression model. The study will use Hausman (1978) test with hypothetical pair as follows: H0: REM model is suitable H1: FEM model is suitable 1254
14. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 Table 5: HausmanTest Correlated Random Effects - Hausman Test Equation: EQ_TCOM Test cross-section random effects Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob. Cross-section random 50.494457 9 0.0000 Nguồn: Kết quả xử lý dữ liệu của tác giả The results of the test of Hausman (1978) showed that the value of Chi-Sq (10) = 100.232058 was statistically significant with Prob = 0.0000 <5%, so it rejected the hypothesis H0 accepting hypothesis H1. Therefore, the FEM model is suitable to analyze the impact of fac - tors on payment policies for managers of joint stock companies listed on the Vietnam Stock Mar - ket. In addition, when comparing R2 of two models FEM and REM, the coefficient R2 of the FEM model is greater than the R2 coefficient of REM. This further shows that the FEM model is usually appropriate to explain the regression result. 4.4. Result of Regression Executive Cash Compensation The above test results shows that the FEM model is appropriate to explain the regression result. The FEM model is a suitable regression model to measure and evaluate the impact of fac - tors on the total level of payment for managers. Therefore, the author uses the estimation results of FEM model to discuss research results, research hypotheses, thereby giving assessments of various factors affecting the payment policy. Table 6: Result of FEM regression Dependent Variable: ROE Method: Panel Least Squares Date: 11/11/20 Time: 10:33 Sample: 2010 2016 Periods included: 7 Cross-sections included: 228 Total panel (balanced) observations: 1596 Variable Coefficient Std. Error t-Statistic Prob. TCOM 0.059310 0.018420 3.219872 0.0013 FSIZE 0.065313 0.023350 2.797167 0.0052 BSIZE -0.005256 0.013840 -0.379795 0.7042 NEDS 0.000286 0.010997 0.025966 0.9793 CEO_OWN -0.002066 0.000851 -2.428171 0.0153 1255
15. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 CHAIR_OWN 0.001980 0.000931 2.127028 0.0336 FR_OWN 0.001265 0.001104 1.145775 0.2521 GOV_OWN -0.001542 0.000906 -1.701479 0.0891 GROWTH_MV_BV -0.006475 0.008975 -0.721528 0.4707 C -2.873780 0.686764 -4.184521 0.0000 Effects Specification Cross-section fixed (dummy variables) Period fixed (dummy variables) R-squared 0.274989 Mean dependent var 0.110701 Adjusted R-squared 0.145313 S.D. dependent var 0.267138 S.E. of regression 0.246967 Akaike info criterion 0.180211 Sum squared resid 82.52310 Schwarz criterion 0.998624 Log likelihood 99.19174 Hannan-Quinn criter. 0.484153 F-statistic 2.120576 Durbin-Watson stat 2.349512 Prob(F-statistic) 0.000000 Source: researcher’s caculation from research data Notes: *, , denote significance at the 1%, 5% and 10% levels, respectively Thus, the regression model has the following results: ROE t = -2.87378 – 0.002066CEO_OWN it - 0.001542GOV_OWN it +0.00198CHAIR_OWN it + 0.05931 TCOM it + 0.065313 FSIZE it 5. Results Discussion Before discussing the results, the study will summarize the expectations for the relationship between the independent variable and the dependent variable and the results of the study after estimating the regression model of the factors influencing the firm performanc. The summary re - sults are presented in Table 7 below: Table 7: Result regression Observative Regression Expection Note variable result TCOM + + Match with expectation FSIZE + + Match with expectation BSIZE + 0 No meaning 1256
16. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 NEDs - 0 No meaning CEO__OWN + - Not Match with expectation CHAIR__OWN + - Not Match with expectation FR__OWN - 0 No meaning GOV__OWN - - Match with expectation GROWTH + 0 No meaning Source: researcher’s caculation from research data The main purpose of this study is to examine the impact of governance mechanism on firm performance in joint-stock companies listed on centralised securities market in Vietnam. Based on the above results, after running the regression models with 4 explanatory vari - ables, there are 5 factors of governance mechanism that impact on the firm performance in joint- stock companies listed on Ho Chi Minh Stock Exchange (HOSE) and Hanoi (HNX); in which, there are 4 statistically significant variables (p-value <5%), including: Executive compensation (TCOM), Firm size (FSIZE), Chair ownership and CEO ownership (CEO_OWN) and 1 variable are statistically significant (with p-value <10%) is government ownership ratio (GOV_OWN). The level of explanation of the three groups’ factors is recognized at approximately 25% and this rate is considered to be not remarkable. However, it is suggested to be understandable as apart from those mentioned above factors, there are numerous not-yet-to-be-mentioned as well other qualitative factors that could not be quantified. The results of the study also showed a different impact on the capital ownership ratio of different components to the firm performance of listed companies in Vietnam. - CEO and Chair ownership: The research results show that CEO and Chair ownership has a negative and significant effect on firm performance with p-value <0.05. That means, the executive board with a high percentage of ownership often has a deep right to decrease firm per - formance. It is suggested that the executive board holds a large percentage of shares, the salary and bonus are also higher, and so incentive for increase firm performance. - Government ownership: The results of the regression model show that the Beta coefficient represents a negative correlation between Government ownership and firm performance (statis - tically significant with p-value<0.1). This means, companies with higher levels of ownership by the state will reduce firm performance. Because the key executive managers of these companies who usually represent state ownership tend to build prudent business plans, which leads to two issues: (i) The level of bonus payment to managers will tend to be higher than the actual per - formance of the company; ii) The board of executives could be lack of motivation. - Foreign ownership: The research results show that the impact of foreign ownership factors on firm performance of listed companies is not statistically significant, but the correlation coef - ficient between these two variables is still positive. 1257
17. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 - Board Size: The research results show that the impact of foreign ownership factors on firm performance of listed companies is not statistically significant, but the correlation coefficient between these two variables is still positive. - Firm Size: has positive and statistically significant correlation (+) with firm performance. The study outcomes clarify a positive and significant effect of firm size on firm performance, which align with the initial expectation. The larger companies, the higher firm performance. This conclusion is consistent with Baker et al. (1988) and Darmadi (2011) arguments that large com - panies have more financial resources to hire senior staff for management role and pay higher re - imbursement. In addition, large companies have complex business models and high level of diversification so they pay higher salary and bonus to BoE to handle complex tasks that require advanced skills. Moreover, the process of analysing data in research tables revealed that when using cross section weights to examine individual conditions of each company, if managers help increase company size in financial market it seams like there might be an increase in their income. However, this tendency is not quite clear as it did not happen with all research targets. - Executive compensation (TCOM) According to Kubo (2001), shareholders do not have enough information and necessary insight to monitor BoE. Therefore, in order to increase the ef - fectiveness of monitoring activities; shareholders, which are represented by BoD and Board of Supervisors should supervise BoE activities and at the same time associate company benefits (business performance) and BoM benefits (income paid). In addition, the “efficiency-based” pay - ment model is the focal point of representative theory and thereby forming a correlative relation - ship between firm performance and income level which helps adjust the benefits between shareholders and BoE (Jensen, 1993). The research results were supported by representative the - ory and studies by Barontini and Bozzi (2009), Darmadi (2011). 6. Conclusion There have been many research conducted concerning firm performance in developed mar - kets, however, not enough attention has been paid to emerging market like Viet Nam. This paper is one of the pioneer studies on the relationship between corporate governance and performance of firms in Vietnam. This research has provided new evidence on the relationship between cor - porate governance and performance of large private enterprises in Vietnam. Using a database on all listed companies in the Vietnamese stock market, this study has evaluated the extent and direction of impact of gorvernance on firm performance in the period of 2010 - 2016. Furthermore, this study also examined the impact of governance factors and executive compensation on firm performance in Vietnam. The research result shows that ex - ecutive compensation tends to increase in large-scale companies and achieve higher financial performance. Economic reforms in Vietnam are still an ongoing process. Further decentralizing govern - ment control appears to be the direction that is likely to occur. Our results suggest that reducing the direct involvement in firms’ business activities while allowing the government to retain the ultimate control of SOEs is likely to lead to better firm performance, especially when substituted with incentive pay schemes. Executive compensation in SOEs has received more stringent public 1258
18. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020 ICYREB 2020 scrutiny in recent years. Much of the controversy focuses on the rising level of compensation and a lack of strong tie to performance. Our study suggests a possible tendency of over-compen - sation when government ownership is higher. What appears to be important is to strengthen the tie between pay and performance. When setting compensation policies, the government should consider its involvement in the firms’ business activities rather than simply issuing a “compen - sation limit” for all firms. REFERENCES 1. Adams, J. (1996), “Principals and agents, colonialists and company men: The decay of colonial control in the Dutch East Indies”, American Sociological Review , 61(1), 12–28. 2. Agrawal, A., & Knoeber, C. R. (1996), “Firm performance and mechanisms to control agency problems between managers and shareholders”, Journal of Financial and Quantitative Analysis , 31(3), 377–397. 3. Ahmed, A. (2009), “Managerial ownership concentration and agency conflict using logistic regression approach: Evidence from Bursa Malaysia”, Journal of Management Research , 1(1), 1–10. 4. Andreas, J. M., Rapp, M. S. and Wolff, M. (2010), “Determinants of director compen - sation in two-tier systems: evidence from German panel data”. CEFS working paper series, 06. 5. Berkema, H.G. and Gomez-Mejia, L.R., 1998, “Managerial compensation and firm per - formance: A general research framework”, Academy of Management Journal , Vol. 41, No.2, 135-145. 6. Bebchuk, L. A., Fried, J. M. (2003), “Executive compensation as an agency problem”, Journal of Economic Perspectives . 17, 71-92. 7. Bhagat, S. and B. Bolton(2008), “Corporate governance and firm performance”, Journal of Corporate Finance 14, 257-273 8. Brahmadev Panda, N.M. Leepsa (2017), “Agency theory: Review of Theory and Evi - dence on Problems and Perspectives”, Indian Journal of Corporate Governance . 9. Brickley, J.A., J.L. Coles, and G. Jarrell(1997), “Leadership structure: separating the CEO and chairman of the board”, Journal of Corporate Finance , 3, 189-220. 10. Cai, C., Hiller, D., Tian, D., & Wu, Q. (2015). “Do audit committees reduce the agency costs of ownership structure?” Pacific-Basin Finance Journal , 35(A), 225–240. 11. Chowdhury, D. (2004), “Incentives, control and development: Governance in private and public sector with special reference to Bangladesh” Dhaka: Viswavidyalay Prakashana Samstha. 12. Claessens, S., Djankov, S., Fan, J., Lang, L., 1999. “Expropriation of minority share - holders: evidence from East Asia”, Policy Research paper 2088. World Bank, Washington DC. 1259
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