The impact of cultural values on the profitability and the risk of vietnamese fdi firms

Nội dung text: The impact of cultural values on the profitability and the risk of vietnamese fdi firms

1. THE IMPACT OF CULTURAL VALUES ON THE PROFITABILITY AND THE RISK OF VIETNAMESE FDI FIRMS Assoc.Prof.Dr. Nguyen Thanh Hieu1 Abstract: The purpose of this paper is to investigate the impact of national culture on the performance and sustainability of Vietnamese firms. The study employs data from the Vietnam Enterprises Survey (VES) conducted between 1992 and 2011 to interview about 6468 firms in total 63 provinces in Vietnam. In general, the results show that in high power distance cultures, power distance and masculinity will increase firms’ performance. Better firm performance is also found in firms characterized by an uncertainty avoidance culture. However, we found that there is no significant evidence showing that individualism can affect firm performance. With regard to firm failure probability, the findings of the study show that while masculine and uncertainty avoidance culture trigger the probability of failure in firms, power distance and uncertainty avoidance have no impact on firm failure. In terms of risk taking, we also provide evidence that culture values can significantly affect firm risk taking behaviour. Specifically, we find that while firms operate in high uncertainty avoidance and high power distance culture are less likely to take risks, firms operate in high individualism and masculinity culture are more risk taking. Keywords: Corruption, National Culture, Performance, Failure, Vietnam 1. INTRODUCTION Culture is often defined as the knowledge explaining human thought and behavior in the business and management literature. For example, Hofstede (1991) stated culture as the “collective programming of the mind that distinguishes the members of one group or category of people from another”. As described by North (1990), the common understandings are known as the informal institutions, and national culture, as one of these informal institutions has motived and explained for human behaviors that are compatible with the popular beliefs, values, norms and practices in a nation (Licht et al., 2007; Lewellyn, 2017). Some studies (i.e., Menon et al., 1999; Prim et al., 2017) refer national culture as a common frame of reference or logic held by the people living in a society and hence may exert impact on the performance of firms. In particular, the business strategies and consequently the performance of firms may largely differ across different firms due to the fact that culture can drive firms’ desire of growing and maintaining its fundamental capabilities (Yalcinkaya et al., 2017). Unfortunately, despite the pervasiveness of culture importance, its influence on firm performance has long been neglected in the corporate literature, leading to the question of whether national culture can affect firm performance remains unanswered. According to Hofstede (1980), there are four cultural dimensions of national culture namely power distance, uncertainty avoidance, individualism and masculinity. Specifically, on the 1 National Economics University; Email: hieuthanhnguyen.neu2021@gmail.com 872
2. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 873 one hand, power distance and uncertainty avoidance are associated with the structural and functional system of firms and hence may build the business model that firms wish to follow. On the other hand, individualism and masculinity are more related to the way how people perform in a firm rather than the firms themselves. Kessapidou (2002) found that individualism can lead to the better performance of affiliate firms in a collectivistic society and highlight that national culture do affect the performance of foreign firms operating in Greece. As shown in Broekhuizen et al. (2017), uncertainty avoidance can either has a positive or negative influence on firm performance. Despite that fact that the recent literature has paid some attention on some cultural dimensions, such as individualism and uncertainty avoidance, no study so far has consider all four cultural dimensions at the same time, leaving the question of whether four cultural dimensions may exert similar or different impact on firm performance remains unexplored. One possible explanation for this fact is due to the difficulty in culture measurement. Therefore, it is very important to evaluate the role of national culture when firms do business oversea and we expect that cultural values which are associated with the decision making process of people will be influential to the performance of firms. This issue may particularly be vital in the context of foreign direct investment (FDI). Decision and ability to cope with business environment and therefore deciding to invest into a country perhaps one of the most important strategic decision made by foreign investors. Foreign investors investing in a country, particularly in frontier market like Vietnam, which characterized as having weak legal infrastructure, financial unpredictability and conflicting and negative bureaucratic decision-making, thus experience challenged in choosing appropriate CEO to run the business. They can either employ a CEO from their nations so that they can understand their national and corporate culture, or to employ a domestic CEO as they may have existing local knowledge and capable of understanding market senses. CEO of foreign enterprise have to conduct their decision based on the prevalence of business environment. How they cope with culture norm in such countries, how they understand the market and react correspondingly is particular vital to ensure business sustainability. Financial economics literature emphasizes that social norms plays a critical role in shaping CEO behavior and the corresponding firm performance. Although several previous studies have concentrated on the link between managerial compensation schemes and firm performance (i.e. Coles et al., 2006 and Low, 2009), not many researches focus on the role of cultural context in shaping firm choices and its corresponding performance. This research therefore aims to fill this gap in the literature by examining how several dimensions of national culture may affect the performance of FDI firms. To the best of our knowledge, this is among the first studies that focus on how national culture affect firm performance. Specifically, in this study, we investigate whether and how cultural values can affect firm performance in terms of both profitability, failure probability and risk taking behavior. This is because apart from profitability, failure probability and firm risk-taking behavior are often given much attention from investors, policy regulators and shareholders since they are not only fundamental to firm performance and survival but they are also pointed out as a root cause of the financial crisis in 2008 by many researchers. In this study, Vietnam is chosen as the empirical setting to examine the effect of corruption on firm performance since Vietnam is a typical developing country and corruption remains a
3. 874 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI major barrier to business (Tenev et al., 2003). Since the time when the reform policy known as Doi Moi in 1986 has been introduced, Vietnam has attempted to develop an open and market- oriented economy and among its objectives, reduce corruption is considered as a main task. Unfortunately, despite of enormous effort from Vietnamese government, corruption is still severe, prevalent and remains an obstacle for foreign investors doing business in this country. The International transparency survey in 2018 has pointed out that Vietnam is classified as the low-transparency country. This study can contribute to the existing literature in some ways. First, this study provides an empirical evidence about how firm performance can be explained by the national culture factor and adds to the knowledge of how values and norms are important in driving firm behaviors. Second, this research can contribute to the literature about the link between culture and firm performance in an emerging country based on a dataset of 6468 FDI firms in Vietnam for the 20-year period between 1992 and 2011. The rest of the paper is proceeded as follows. Section 2 describes data and section 3 presents empirical findings. Section 4 provides robustness tests and section 5 concludes. 2. LITERATURE REVIEW 2.1. National Culture In order to define and measure national culture, Hofstede (1983) developed a comprehensive framework identifying the most key problems that all countries around the world may encounter and based on that constructed four cultural dimensions including: (i) power distance - an indicator reflects the level of power that is distributed unequally and is accepted by people in a society; (ii) uncertainty avoidance – an indicator reflects the degree to which people in a society are annoyed with anxiety and uncertainty; (iii) individualism – an opposite indicator reflects the preference of collectivism that means a tightly knit social framework; and lastly (iv) masculinity an indicator reflects the preference of success, assertiveness and achievement while femininity reflects the preference for modesty, care and relationships. The study of Hofstede (1991) shows that on the one hand, power distance and uncertainty avoidance are related to not only the structural and functional framework of organizations but also their business models; on the other hand, individualism and masculinity are associated with the people themselves in a firm. Some other studies illustrate the critical role of cultural factors in shaping the process of making decisions by affecting the institutional and legal framework where people and organizations operating in. For instance, Breuer et al. (2011) show that optimistic and confident people are related to individualism and thus are more risk-taking. Other studies find that cultural factor is associated with accounting transparency, corporate governance, judicial efficiency and investor protection (i.e. Hope, 2003; Licht et al., 2005 and Doidge et al., 2007; Beraho and Elisu, 2010) 2.2. The impact of culture on firm profitability The influence of culture on society means that it can also affect organizations in societies and individuals who work in those organizations. As suggested by Kreps (1990) since there are indicators that could not be regulated ex ante, cultural values can play a significant role in
4. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 875 shaping organizational structure and operation. However, the literature so far has given much less attention on the link between cultural values and firm performance with a few exceptions were largely based on questionnaires and scales to measure cultural values. Very limited studies such as the work of Calori and Sarnin (1991) and the study of Guiso et al. (2015) show that culture can significantly affect the economic performance of firms. Similarly, Sarala and Vaara (2010) find that firms can achieve higher profitability through the activities of structural reforms or mergers and acquisitions are mainly driven by cultural factors. Selnes et al. (1996) also provide evidence that the extent to which cultural values can affect corporate market orientation and its profitability is significantly different among countries. Further than that, both Calori and Sarnin (1991) and Selnes et al. (1996) point out that these differences not only depend on country’s characteristics but they also vary among different industries because each industry will have its own culture and values that it follows. The study of Edmans (2011) provides an evidence about the positive relationship between good working conditions and stock returns. In contrast, Guiso et al. (2015) find that not only firm profitability is influenced by culture but its culture is also influenced by the financial decisions made in firms. Specifically, they find that firm profitability is significantly determined by factors including the ability of hard working and teamwork, integrity and quality. More recently, some scholars (i.e. House et al., 2004 and Gruman and Saks, 2011) show that cultural values can affect workers’ motivation and firms’ economic profitability. According to these authors, culture can be seen as the performance orientation and thus it can positively influence firm profitability. The empirical studies so far have attempted to examine the effect of each cultural dimension on the profitability of firms. Firstly, PDI reflects the extent to which a less powerful person accepts and expects that power is distributed unequally. Accordingly, people in high power distance culture are more willing to accept a hierarchical order in which everyone possesses a position without asking for explanation. In contrast, people in low power distance culture tend to keep the distribution of power in balance and ask for explanation for any inequality. As mentioned by Newman and Nollen (1996), the amount of formal hierarchy, the extent to which people in societies can freely participate in decision making process and the degree of centralization are greatly determined by power distance. As such, firms operating in higher power distance culture are more likely to be centralized and discourage the involvement of employees in the process of making decisions. In relation to profitability, the empirical study of Denison and Mishra (1995) find that corporations having higher participation of workers tend to grow more rapidly and achieve better performance. Additionally, according to Kreiser et al. (2010), leaders in low power distance societies are often characterized by having more forward looking visions when they adopt new business strategies, putting more effort to boost their firm status by distinguishing themselves from their competitors, and enacting more proactive strategies as well as actively seeking new business opportunities to increase survival chances because of the fast changing economic environment caused by the lower power distance culture. Based on this, it would be expected that PDI is negatively associated with profitability. Secondly, IND is the individualism cultural dimension. Accordingly a high value of this dimension reflects the extent to which people look after themselves only while a low value, often referred to collectivism means that people are expected to take care of each other. The
5. 876 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI empirical evidence to date shows that the influence of individualism on profitability remains ambiguous. As suggested by Chen et al. (2017), people in individualistic-dominant culture often place high value on personal achievements and overconfidence, and thus this type of culture encourages firm innovation. Similarly, Gorodnichenko and Roland (2017) find that individualistic culture is positively associated with more innovation and higher growth which are brought by social status rewards. Chen et al. (2017) further show that firms operate in individualism societies are more innovative. Newman and Nollen (1996) highlight that in corporations, individualism is manifested as autonomy, personal responsibility for outcomes, and personal-level rewards, and managers participate in activities aimed at larger strategic payoff. In addition, as mentioned by Morris et al. (1993) in high collectivism culture, people tend to focus on their assigned tasks only due to duties become over-segmented. Based on these arguments, it can be indicated that individualism culture could improve profitability. Nevertheless, there are some reasons why individualism can also be negatively related to profitability. First, it is strongly suggested that teamwork and coordination are important factors affecting the success of entrepreneurs. Second, it is argued that without the identification of groups or teams, people usually have more incentives to make use of organizational resources for their own interests. Finally, many scholars mention that there might be more incomplete duties if people cannot cooperate with superior experts and access the essential resources. Thirdly, MAS stands for the masculinity cultural dimension and reflects the extent to which people in society value success, assertiveness, material rewards and heroism. Accordingly, a high score of this dimension means a more competitive environment, while a low score of that implies a more consensus-oriented environment where people prefer caring for the weak, modesty, life quality and cooperation. As highlighted by Newman and Nollen (1996) and Chang and Noorbakhsh (2009), since masculinity is reflected in merit- based chances for recognition, rewards and higher earnings, managers in this culture are necessarilly performance driven individuals and desire for achievements. As a result, they tend to be more ambitious, decisive and are more likely to accept risky projects (Kreiser et al., 2010). Also, firms in masculinity societies are more willing to adopt innovative strategies to exploit external opportunities surrounding their working environment than their in feminine-dominant society counterparts. Thus, it is reasonable to expect that firms operating in masculinity culture can achieve higher profitability. Finally, UAI cultural dimension refers the degree to which people in a society are uncomfortable with ambiguity and uncertainty. Accordingly, a society with high value of this dimension characterized by having rigid codes of belief and behavior and are narrowed- minded while a country with low value of that has a more loosen up attitude with principles are less than practice. Chen et al. (2017) and Kreiser et al. (2010) show that firms in high uncertainty avoidance culture tend to have fewer and less considerable patents and are more risk taking. In addition, Covin and Slevin (1989) find that these firms have more proactive behaviors while Mueller and Thomas (2001) mention they exploit more opportunities in the surrounding environment and Lieberman and Montgomery (1988) highlight that they tend to be the first movers in the new markets. Based on these arguments, it can be implied that uncertainty avoidance culture can significantly affect firm profitability. In contrast, Boubakri and Saffar (2016) propose that since people in uncertainty avoidance culture tend to heavily
6. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 877 rely on rules and regulation, they are less likely to suffer from conflicts of interest and have more incentives to protect investors. Furthermore, Newman and Nollen (1996) argue that the clarify of procedures, strategies, and rules in uncertainty avoidance has help workers in this culture feel more comfortable with uncertainty and ambiguity. As a result, in this cultural environment, both employees and firms become more productive and thus can contribute to higher profits. In this sence, uncertainty avoidance may positively associated with firm profitability. 2.3. The impact of culture on firm risk taking Risk-taking behavior has long been seen as an important part of corporate activities. As suggested by Lumpkin and Dess (1996) and Miller (1983), understanding the effect of culture values on people who are responsible for the process of making decisions is particularly important as it can provide implications about the extent to which firms are willing to take risk. The literature to date has somehow documented the link between risk taking and four cultural dimensions. Firstly, the risk taking-uncertainty avoidance nexus has been found in several studies. For example, both McClelland’s (1960) and Hofstede (1980) argue that managers in uncertainty avoidance culture tend to take less risk. According to them, managers in uncertainty avoidance culture are less willing to cope with ambiguity, less ambitious and thus tend to take less risks. Similarly, Mitchell et al. (2000) suggest that since managers in uncertainty avoidance culture are less likely to display commitment tolerance and assume the risks inherent in the entrepreneurial act, they will take less risk than those in uncertainty accepting culture. Secondly, with regard to individualism-collectivism cultural dimension, Morris et al. (1994) show that managers in collectivist culture tend to be less autonomous and independent than those in individualistic societies. As a consequence, managers with collectivist culture have less incentives to violate group norms and thus will less likely to engage in activities that are considered as risky. According to Palich and Bagby (1995), since entrepreneurs are more optimistic about the external environment than their nonentrepreneur counterparts, managers in individualistic culture tend to make more risky investments. Hofstede (1980) also points out that due to personal achievements are often placed higher value in individualistic societies, managers belong to this type of culture tend to be more risk taking to achieve higher payoff that arises from both their effort and leadership. Thirdly, regarding masculinity-femininity cultural dimension, Hofstede (1980) suggest that masculine culture often place a higher value on personal achievement and thus managers belong to this type of culture tend to be more ambitious and willing to take risk than managers belong to other types of culture. The findings of Hofstede’s study also imply that managers in masculine culture are often characterized as having quick decisions while careful and thorough decisions are often made by managers in feminine-dominant culture. Many scholars (i.e. McGrath et al., 1992) explain the reason is that since it usually takes a lot of time in analyzing and evaluating projects and business activities, managers in feminine culture tend to avoid any activity that they believe as risky. In contrast, since masculine managers are more likely to emphasize on showing off and tend to be over self-confidence, they feel that the willingness to obtain prestige and recognition is worth to involve in risky activities. Finally, Hofstede (1980) suggest that while people in high power distance culture value the status in
7. 878 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI society, those in low power distance culture focus more on their own position and often place a higher value on social mobility. As a result, Shane (1993) indicates that while managers in low power distance culture have more incentives to participate in risky activities to enhance their current status, those in high power distance culture tend to adopt more stable strategies to solidify their current industry standing instead. Furthermore, Thompson (1967) shows that since the implement of hierarchical bureaucratic structures and the tight control mechanisms are often adopted by corporations in high power distance societies, these organizations place a higher value on conservatism and thus individuals belong to this culture tend to have less autonomy and freedom in making decisions. 3. KEY VARIABLES OF INTEREST AND SAMPLE As suggested by Hofstede (1980), culture can be measured by four cultural dimensions including power distance, individualism, masculinity and uncertainty avoidance. Later, Michael (1980) develops the fifth cultural dimension namely long term versus short term orientation that complements the Hofstede’s framework and is available in Hofstede et al. (2010). Generally, the availability of these cultural dimensions takes place at one time point only, nevertheless, it is also argued that there might be substantial stability in some society values such as failure, success and belonging. Similarly Beugelsdijk et al. (2015) propose that the stable feature of culture can be explained by the claim that differences in values among societies are originated from history and drivers of socio-economic developments. Howerver, in this study, we follow the highly influenced classifications of Hofstede and uses four cultural dimensions that have extensively been used in national culture studies (i.e., Hofstede, 1983b; Schwartz, 1997) that are power distance, individualism, masculine and uncertainty avoidance. Accordingly, the cultural values data on power distance (PDI), masculinity (MAS), individualism (IDV), and uncertainty avoidance (UAI) are retrieved from Hofstede’s VSM 2013 and Geert Hofstede website. With regard to firm specific characteristics, we control for firm size as suggested by Pasiouras and Gaganis (2013). In addition, we add in the model the market-to-book value of assets ratio (MB) as suggested by some scholars (i.e. Maury and Pajuste, 2005; Villalonga and Amit, 2006). This ratio is calculated as the sum of the equity market value plus the debt book value divided by the sum of the book value of equity and debt. According to these authors, a higher value of this ratio, the lower value attached to the assets and the higher the value associated with growth opportunities and more risk taking. Previous studies (i.e. Hambrick and Mason, 1984 and Chaganti and Parasuraman, 1997) also indicate the relationship between age and gender of the managers and the performance of firms and thus we include these two variables into our model. The data on firm specific characteristics is collected from the Vietnam Enterprises Survey (VES) conducted between 1992 and 2011. In addition, to control for macroeconomic factors, we add into the baseline model two country-specific variables including GDP and INFLATION. As suggested by Martinez-Sola et al. (2014) and Cherchye and Verriest (2016), firms can be more profitable in rapid growing conditions and thus we include into the model the variable GPD which controls for economic growth and is measured as the annual GDP growth rate. Also, Cherchye and Verriest (2016) point out that inflation may affect firm profitability by making firms’ returns more volatile and as such, we add in
8. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 879 the model the INFLATION variable that controls for the inflation rate and is measured by the annual change in the consumer price index. Next, Table 1 presents the descriptive statistics, while Table 2 shows the correlation matrix of all variables. Table 1. Summary Statistics Variable Obs Mean S.D Min Max pdi 6,468 61.879 14.588 0.000 104.000 idv 6,468 30.529 21.623 0.000 91.000 mas 6,468 52.097 19.591 0.000 110.000 uai 6,468 2.539 26.329 0.000 104.000 corr 6,468 2.920 0.823 1.380 5.465 inflation 6,468 1.463 4.624 0.000 3.000 firm_size 6,468 10.213 2.032 0.000 18.397 MB 6,468 5.174 2.602 -4.592 6.410 age 6,468 47.462 9.413 22.000 80.000 gender 6,468 0.920 0.272 0.000 1.000 gdp 6,468 0.833 0.373 0.000 1.000 Table 2. Correlation matrix pdi idv mas uai inflation size MB age gender gdp pdi 1 idv -0.483 1 mas -0.074 0.417 1 uai -0.328 0.107 0.310 1 inflation -0.0279 0.006 0.003 0.015 1 size -0.001 -0.034 0.078 0.086 0.342 1 MB -0.022 0.034 0.006 -0.007 -0.002 0.017 1 age -0.110 0.038 0.094 0.183 0.233 0.165 -0.003 1 gender -0.065 0.059 0.105 0.152 0.019 0.089 0.001 0.145 1 gdp -0.041 0.093 0.046 0.015 0.005 0.081 0.007 -0.053 0.001 1 4. EMPIRICAL MODEL AND RESULTS First, in order to examine how national culture affect firm performance, I use the following model: FIRM_PERFORMANCEit = CULTUREit+ CONTROL_VARIABLESit + π + δ + ε(i,t) where: i denotes firm i, t denotes year t, ε_(i,t) is the error term. The dependent variable FIRM_PERFORMANCE is measured by both profitability and risk. First for profitability, we use the return on assets (ROA) ratio. Second, for firm risk we use the standard deviation of ROA to proxy for the degree of risk taking in firms as in John et al., (2008). We also examine the probability of failure that takes the value of 1 if firms failed or became insolvent in a given year. The key explanatory variables are CULTURE represent the four cultural values: power distance (PDI), individualism (DIV), masculinity (MAS) and uncertainty avoidance (UAI) as mentioned in the previous section. We also include a broad set of control variables such as
9. 880 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI firm size, firm equity to turnover ratio, managers’ age and gender, inflation and economic growth (GDP growth rate. In addition, π and δ control for the unobserved province-specific and year fixed effect. 4.1. National Culture and Firm Profitability The results of how national culture affect firm profitability are provided in Table 3. The dependent variable is Profitability, proxy by return on assets (ROA). Table 3: National culture and firm profitability Dependent Variable: ROA (1) (2) (3) (4) PDI 0.004 (0.002) IDV 0.003 (0.002) MAS 0.002 (0.001) UAI 0.003 (0.001) SIZE 0.109 0.108 0.109 0.109 (0.020) (0.020) (0.020) (0.020) INFLATION 0.056 0.057 0.056 0.057 (0.020) (0.021) (0.021) (0.021) MB 0.000 -0.000 0.000 0.000 (0.000) (0.000) (0.000) (0.000) AGE 0.010 0.010 0.002 0.025 (0.064) (0.062) (0.060) (0.063) GENDER 0.011 0.008 0.014 0.002 (0.049) (0.049) (0.050) (0.049) GDP 0.115 0.118 0.113 0.117 (0.024) (0.024) (0.025) (0.025) Industry dummies YES YES YES YES Province dummies YES YES YES YES R-square 0.05 0.05 0.05 0.05 No. Obs. 6468 6468 6468 6468 Note: *, , and denotes significance at the 10%, 5%, and 1% level, respectively. Firstly, as shown in Table 3, the estimated coefficient on PDI is significantly positive, suggesting that firms with high power distance gain a higher level of profitability. This positive relationship could be explained by two possible following reasons. It is first argued by House et al. (2004) that firms having high power distance cultures are more likely to be involved in upholding rigid hierarchies. As a result, individuals belong to this culture type
10. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 881 find it hard to be initiative and flexible. Moreover, in rigid hierarchies, the leadership and authority are often central, which then lower the managerial discretion, especially the exercise of activities that do not favor the benefits of stakeholders. Also, in this type of culture, individuals are more likely to be dependent and obedient, which means that these people are less likely to engage in activities that could harm firm’s profitability as they are mostly relied on authority instructions (Cohen, et al., 1992; Parboteeah et al., 2005). The second reason is that in power distance culture, people tend to comply with laws and regulations (Kemper et al., 2011) depend on the codes of conduct when behave (Vitell et al., 1993) and thus have more incentives to ‘whistle-blow’ an unethical behavior (i.e., Curtis et al., 2012; MacNab et al., 2007). For these reasons, business leaders in power distance culture often focus more on control and rules enforcement as well as act in the interest of stakeholders, which result in an increase in the profitability of firms ultimately. In term of masculinity, the coefficients on MAS in model (3) is significantly positive, indicating that masculinity culture which values achievement and competition can improve the profitability of firm. The possible reason is that in societies dominant by masculine culture, people usually value ambitious and competitive employees (Vitell et al., 1993). They also place more attention on scale (big) and speed (fast) because these factors can reflect the effectiveness and efficiency in performance (Hofstede, 1983a). As a result, people belong to this type of culture favor substantial and speedy success more than social justice and legitimacy. Moreover, ostentatious manliness, which is emphasized among the male members of a masculine culture, can play a significant role in mental programming at an ethical crossroad (Hofstede, 1983) for decision making. It can push one to favor a “now or never” kind of attitude to achieve financial goals in a “big and fast” way. This is also the explanation why when people are reluctant or hesitant to take an opportunity to achieve success, they will be criticized as being cowardly or lacking confidence. In brief, due to these reasons, masculinity culture may lead to an improved profitability and development of firms. With respect to uncertainty avoidance, the coefficient on UAI in model (4) is significantly positive, indicating a better performance of firms in societies characterized by an uncertainty avoidance culture. Perhaps because managers in this culture have more fear of uncertainty than in low avoidance cultures, therefore, have a strong inner urge to perform as a way of relieving anxiety and uncertainty and one of the most effective instruments is to build wealth (Hofstede, 1983). As a result, managers in high-risk avoidance culture may be inclined to increase their firms’ performance to maximize returns as quickly as possible. In contrast, the coefficients on IDV is not statistically significant, suggesting there is no significant evidence showing that there are differences in the effect of individualism on firm performance. 4.2. National Culture and Firm risk First, Table 4 provides the results of the effect of national culture on the failure probability of firms. Columns (1)-(4) of table 3 report regressions of the failure variable on the four culture dimensions (PDI, IDV, MAS, UAI). Firstly, the estimated coefficient on MAS is significantly positive, implying that firms having masculinity culture tend to emphasize on competition, success, and are less sympathetic for the weak are more likely to be failed. This is possibly because managers in these firms are less risk-averse and are more involved in high risk
11. 882 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI projects (i.e., Bellucci et al., 2010; Berger, 2017) and thus increase the risk of failure. In addition, masculine culture values ambitious and competitive individuals, especially males as argued by Vitell et al. (1993) so in this type of culture, firms are more likely to engage in riskier activities which consequently lead to higher probability of firm failure. In term of uncertainty avoidance, the coefficient on UAI is significantly positive, implying that firms with strong UAI culture suffer higher probability of failure. This possibly because high UAI cultures are less competitive but more risky due to the “competition-stability” view. Specifically, a low level of competition are associated with a high level of moral hazard and adverse selection problems, leading to a higher level of risk encounter by firms as well as a higher probability of failure (i.e., Boyld & De Nicolo, 2005). In contrast, the effects of power distance and uncertainty avoidance provide no consistent results since the coefficients on PDI and UAI are not statistically significant. I also find some evidence on firm characteristics and CEO characteristics as determinants of their failure. Specifically, I find that larger firms are less likely to fail than small firm. FIRM_AGE is positively associated with firm failure, suggesting that older firms significantly increase firm failure probability. CEO_AGE is positively associated with firm failure in the UAI culture only. Table 4: National culture and firm failure Dependent Variable: Probability of Failure (1) (2) (3) (4) PDI 0.009 (0.016) IDV -0.004 (0.009) MAS 0.019 (0.011) UAI 0.011 (0.008) SIZE -0.196 -0.196 -0.193 -0.193 (0.028) (0.028) (0.028) (0.028) INFLATION 0.134* 0.129* (0.076) 0.134* 0.121* (0.076) (0.076) (0.076) MB -0.000 -0.000 -0.000 -0.000 (0.000) (0.000) (0.000) (0.000) AGE 0.306 0.275 0.333 0.385* (0.221) (0.223) (0.230) (0.229) GENDER -0.033 -0.045 -0.008 0.025 (0.150) (0.149) (0.150) (0.154) GDP 0.108 0.101 0.116 0.110 (0.117) (0.117) (0.119) (0.118) Industry dummies YES YES YES YES Province dummies YES YES YES YES R-square 0.19 0.19 0.20 0.20 No. Obs. 6468 6468 6468 6468 Note: *, , and denotes significance at the 10%, 5%, and 1% level, respectively.
12. INTERNATIONAL CONFERENCE PROCEEDINGS: GLOBAL FDI AND RESPONSES OF FDI ENTERPRISES IN VIETNAM IN THE NEW CONTEXT 883 Second, the results of how national culture affect firm risk taking are provided in Table 5. The dependent variable is RISK, proxy by standard deviation of ROA. Shown in Table 5, the coefficients of power distance and uncertainty avoidance are negative and significant, and thus suggesting that a higher score of these cultural dimensions will lead to the less risk-taking behaviour. This result is consistent with some prior studies (i.e. Kreiser et al., 2010; Mihet, 2013; Li et al., 2013 and Ashraf et al., 2016). In general, our findings imply that firms operate in high uncertainty avoidance and high power distance culture are less likely to take risks because they are uncomfortable with ambiguity and unequality. In constrast, our results show that individualism and masculinity have a positive and significant relationship with firm risk, indicating that a high scores of these cultural dimensions will lead to more risk taking behavior in firms. This finding is in line with several previous studies such as Kreiser et al. (2010); Mihet, 2013; Li et al. (2013) and Ashraf et al. (2016). In terms of individualism, our result is supported by Hofstede (1980) who argue that since individualism has long been related to competition and capitalism, people belong to this cultural type are more risk taking. With regard to masculinity, our findings are also supported by previous literature that there remains an intuitive association between the risk taking behaviour and the self-confident behavior in masculine societies. Overall, our study find that culture values can significantly affect firm risk taking behaviour. Table 5: National culture and firm risk Dependent Variable: RISK (1) (2) (3) (4) PDI -0.008 (0.004) IDV 0.006 (0.008) MAS 0.005 (0.003) UAI -0.009 (0.003) SIZE 0.129 0.138 0.159 0.209 (0.056) (0.024) (0.036) (0.120) INFLATION 0.036 0.057 0.156 0.057 (0.012) (0.021) (0.021) (0.021) MB 0.014 -0.032 0.071 0.091 (0.013) (0.021) (0.015) (0.048) AGE 0.015 0.016 0.072 0.028 (0.022) (0.172) (0.090) (0.072) GENDER 0.031 0.078 0.014 0.032 (0.024) (0.289) (0.052) (0.082) GDP 0.116 0.127 0.153 0.162 (0.016) (0.027) (0.028) (0.071)
13. 884 KỶ YẾU HỘI THẢO KHOA HỌC QUỐC TẾ FDI TOÀN CẦU VÀ ỨNG BIẾN CỦA DOANH NGHIỆP FDI TẠI VIỆT NAM TRONG BỐI CẢNH MỚI Industry dummies YES YES YES YES Province dummies YES YES YES YES R-square 0.06 0.06 0.06 0.06 No. Obs. 6468 6468 6468 6468 Note: *, , and denotes significance at the 10%, 5%, and 1% level, respectively. 5. CONCLUSION Using the data from Vietnam Enterprise Survey (VES), this paper provides some of the first evidence on the role of national culture on the performance and sustainability of firms. We first find that in high power distance cultures, power distance culture will increase firms’ performance. This is because in high power distance cultures, managers have been socialized to value the following of rules and established professional norms and thus, they will be more likely to restrain themselves from engaging in activities which could harm firms’ performance. In term of masculinity, this type of culture values achievement and competition and thus can improve the profitability of firm. The possible reason is that in societies dominant by masculine culture, people usually value ambitious and competitive employees (Vitell et al., 1993). They also place more attention on scale (big) and speed (fast) because these factors can reflect the effectiveness and efficiency in performance (Hofstede, 1983a). For these reasons, masculinity culture may lead to an improved profitability and development of firms. With respect to uncertainty avoidance, better performance is found in firms characterized by an uncertainty avoidance culture. Perhaps because managers in this culture have more fear of uncertainty and thus they are inclined to increase their firms’ performance to maximize returns as quickly as possible. In contrast, we found that there is no significant evidence showing that there are differences in the effect of individualism on firm performance. With regard to firm failure probability, the results show that masculine culture trigger the probability of failure in firms. Perhaps the lack of information about the opportunity and risk of the local business environment has led firms to a higher level of uncertainty, and consequently higher likelihood of business failure. In term of uncertainty avoidance, the results imply that firms with strong UAI culture suffer higher probability of failure. This might be due to the fact that high UAI cultures tend to avoid competition, which may be associated with greater risk according to the “competition-stability” view. Low competition increase moral hazard and adverse selection problems, making the firm riskier and increasing the probability of failure (i.e., Boyld & De Nicolo, 2005). We further find that the effects of power distance and uncertainty avoidance provide no consistent results since the coefficients on PDI and UAI are not statistically significant. Finally, we also provide evidence that culture values can significantly affect firm risk taking behaviour. Specifically, we find that while firms operate in high uncertainty avoidance and high power distance culture are less likely to take risks, firms operate in high individualism and masculinity culture are more risk taking.
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