Does corporate governance structure matter for firm financial performance? A system GMM panel analysis for Vietnam
Main Article Content
Abstract
This paper investigates the impact of governance characteristics on financial performance of companies listed on the Ho Chi Minh Stock Exchange. By employing the system generalized method of moments estimator and a panel dataset covering 152 firms over the period from 2011 to 2016, our results indicate that corporate governance characteristics namely the size of board and block-holder ownership, affect the financial performance of Vietnamese firms. Surprisingly, no statistically significant evidence is found concerning the impact of other characteristics such as board gender diversity, CEO duality and non-executive director representation on firm performance.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Corporate governance, Firm performance, Board of directors, System GMM
References
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Ahern, K.R. and Dittmar, A.K. (2012), “The changing of the boards: the impact on firm valuation of mandated female board representation”, Quarterly Journal of Economics, Vol. 127 No. 1, pp. 137 - 197.
Arellano, M. and Bond, S. (1991), “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”, Review of Economic Studies, Vol. 58 No. 2, pp. 277 - 297.
Balatbat, M.C.A., Taylor, S.L. and Walter, T.S. (2004), “Corporate governance, insider ownership and operating performance of Australian initial public offerings”, Accounting & Finance, Vol. 44 No. 3, pp. 299 - 328.
Beiner, S., Drobetz, W., Schmid, M. and Zimmermann, H. (2006), “An integrated framework of corporate governance and firm valuation”, European Financial Management, Vol. 12 No. 2, pp. 249 - 283.
Bhagat, S. and Black, B. (2002), “The non-correlation between board independence and longterm firm performance”, Journal of Corporation Law, Vol. 27, pp. 231 - 273.
Bhagat, S. and Bolton, B. (2008), “Corporate governance and firm performance”, Journal of Corporate Finance, Vol. 14 No. 3, pp. 257 - 273.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Campbell, K. and Mínguez-Vera, A. (2008), “Gender diversity in the boardroom and firm financial performance”, Journal of Business Ethics, Vol. 83 No. 3, pp. 435 - 451.
Cao, D.K, Hoang, H.Y. and Tran, M.N. (2017), “Impact of CEO’s characteristics on firm performance: the case of Vietnam”, External Economics Review, No. 89, pp. 56 - 67.
Coles, J.L., Lemmon, M.L and Meschke, J.F. (2012), “Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance”, Journal of Financial Economics, Vol. 103 No. 1, pp. 149 - 168.
Cornett, M.M., Marcus, A.J., Saunders, A. and Tehranian, H. (2007), “The impact of institutional ownership on corporate operating performance”, Journal of Banking & Finance, Vol. 31 No. 6, pp. 1771 - 1794.
Daily, C.M., Dalton, D.R. and Cannella, A.A. (2003), “Corporate governance: decades of dialogue and data”, Academy of Management Review, Vol. 28 No. 3, pp. 371 - 382.
Demsetz, H. and Lehn, K. (1985), “The structure of corporate ownership: causes and consequences”, Journal of Political Economy, Vol. 93 No. 6, pp. 1155 - 1177.
Doan, N.P. and Le, V.T. (2014), “The impact of corporate governance on equitized firm’s performance in Vietnam”, Journal of Economic and Development, Vol. 203, pp. 56 - 63.
Donaldson, L. and Davis, J.H. (1991), “Stewardship theory or agency theory: CEO governance and shareholder returns”, Australian Journal of Management, Vol. 16 No. 1, pp. 49 - 64.
Eisenhardt, K.M. (1989), “Agency theory: an assessment and review”, Academy of Management Review, Vol. 14 No. 1, pp. 57 - 74.
Erhardt, N.L., Werbel, J.D. and Shrader, C.B. (2003), “Board of director diversity and firm financial performance”, Corporate Governance: An International Review, Vol. 11 No. 2, pp. 102 - 111.
Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, Journal of Law and Economics, Vol. 26 No. 2, pp. 301 - 325.
Farrell, K.A. and Hersch, P.L. (2005), “Additions to corporate boards: the effect of gender”, Journal of Corporate Finance, Vol. 11 No. 1-2, pp. 85 - 106.
Gabrielsson, J. and Huse, M. (2004), “Context, behavior, and evolution: challenges in research on boards and governance”, International Studies of Management & Organization, Vol. 34 No. 2, pp. 11 - 36.
Haniffa, R. and Hudaib, M. (2006), “Corporate governance structure and performance of Malaysian listed companies”, Journal of Business Finance & Accounting, Vol. 33 No. 6-7, pp. 1034 - 1062.
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Hillman, A.J. and Dalziel, T. (2003), “Boards of directors and firm performance: integrating agency and resource dependence perspectives”, Academy of Management Review, Vol. 28 No. 3, pp. 383 - 396.
Kiel, G.C. and Nicholson, G.J. (2003), “Board composition and corporate performance: how the Australian experience informs contrasting theories of corporate governance”, Corporate Governance: An International Review, Vol. 11 No. 3, pp. 189 - 205.
Mak, Y.T. and Kusnadi, Y. (2005), “Size really matters: further evidence on the negative relationship between board size and firm value”, Pacific-Basin Finance Journal, Vol. 13 No. 3, pp. 301 - 318.
Nguyen, T., Locke, S. and Reddy, K. (2014), “A dynamic estimation of governance structures and financial performance for Singaporean companies”, Economic Modelling, Vol. 40 (C), pp. 1 - 11.
Nguyen, T., Locke, S. and Reddy, K. (2015), “Does boardroom gender diversity matter? Evidence from a transitional economy”, International Review of Economics & Finance, Vol. 37 (C), pp. 184 - 202.
Nicholson, G.J. and Kiel, G.C. (2007), “Can directors impact performance? A case based test of three theories of corporate governance”, Corporate Governance: An International Review, Vol. 15 No. 4, pp. 585 - 608.
Pham, A.D. and Hoang, A.T.P. (2019), “Does female representation on board improve firm performance? A case study of non-financial corporations in Vietnam”, In: International Econometric Conference of Vietnam, Springer, Cham, pp. 497 - 509.
Roodman, D. (2009), “A note on the theme of too many instruments”, Oxford Bulletin of Economics & Statistics, Vol. 71 No. 1, pp. 135 - 158.
Rose, C. (2007), “Does female board representation influence firm performance? The Danish evidence”, Corporate Governance: An International Review, Vol. 15 No. 2, pp. 404 - 413.
Schultz, E.L., Tan, D.T. and Walsh, K.D. (2010), “Endogeneity and the corporate governanceperformance relation”, Australian Journal of Management, Vol. 35 No. 2, pp. 145 - 163.
Shleifer, A. and Vishny, R.W. (1986), “Large shareholders and corporate control”, Journal of Political Economy, Vol. 94 No. 3(1), pp. 461 - 488.
Sussmuth-Dyckerhoff, C., Wang, J. and Chen, J. (2012), Women matter: an Asian perspective, McKinsey & Co, Washington DC., USA.
Vo, H.D. and Phan, B.G.T. (2013), “Corporate governance and firm performance: evidence from Vietnamese listed companies”, Journal of Economic Development, Vol. 275, pp. 1 - 15.
Wintoki, M.B., Linck, J.S. and Netter, J.M. (2012), “Endogeneity and the dynamics of internal corporate governance”, Journal of Financial Economics, Vol. 105 No. 3, pp. 581 - 606.
Xu, X. and Wang, Y. (1999), “Ownership structure and corporate governance in Chinese stock companies”, China Economic Review, Vol. 10 No. 1, pp. 75 - 98.
Yermack, D. (1996), “Higher market valuation of companies with a small board of directors”, Journal of Financial Economics, Vol. 40 No. 2, pp. 185 - 211.
Young, M.N., Ahlstrom, D., Bruton, G.D. and Chan, E.S. (2001), “The resource dependence, service and control functions of boards of directors in Hong Kong and Taiwanese firms”, Asia Pacific Journal of Management, Vol. 18 No. 2, pp. 223 - 244.
Ahern, K.R. and Dittmar, A.K. (2012), “The changing of the boards: the impact on firm valuation of mandated female board representation”, Quarterly Journal of Economics, Vol. 127 No. 1, pp. 137 - 197.
Arellano, M. and Bond, S. (1991), “Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations”, Review of Economic Studies, Vol. 58 No. 2, pp. 277 - 297.
Balatbat, M.C.A., Taylor, S.L. and Walter, T.S. (2004), “Corporate governance, insider ownership and operating performance of Australian initial public offerings”, Accounting & Finance, Vol. 44 No. 3, pp. 299 - 328.
Beiner, S., Drobetz, W., Schmid, M. and Zimmermann, H. (2006), “An integrated framework of corporate governance and firm valuation”, European Financial Management, Vol. 12 No. 2, pp. 249 - 283.
Bhagat, S. and Black, B. (2002), “The non-correlation between board independence and longterm firm performance”, Journal of Corporation Law, Vol. 27, pp. 231 - 273.
Bhagat, S. and Bolton, B. (2008), “Corporate governance and firm performance”, Journal of Corporate Finance, Vol. 14 No. 3, pp. 257 - 273.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Campbell, K. and Mínguez-Vera, A. (2008), “Gender diversity in the boardroom and firm financial performance”, Journal of Business Ethics, Vol. 83 No. 3, pp. 435 - 451.
Cao, D.K, Hoang, H.Y. and Tran, M.N. (2017), “Impact of CEO’s characteristics on firm performance: the case of Vietnam”, External Economics Review, No. 89, pp. 56 - 67.
Coles, J.L., Lemmon, M.L and Meschke, J.F. (2012), “Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance”, Journal of Financial Economics, Vol. 103 No. 1, pp. 149 - 168.
Cornett, M.M., Marcus, A.J., Saunders, A. and Tehranian, H. (2007), “The impact of institutional ownership on corporate operating performance”, Journal of Banking & Finance, Vol. 31 No. 6, pp. 1771 - 1794.
Daily, C.M., Dalton, D.R. and Cannella, A.A. (2003), “Corporate governance: decades of dialogue and data”, Academy of Management Review, Vol. 28 No. 3, pp. 371 - 382.
Demsetz, H. and Lehn, K. (1985), “The structure of corporate ownership: causes and consequences”, Journal of Political Economy, Vol. 93 No. 6, pp. 1155 - 1177.
Doan, N.P. and Le, V.T. (2014), “The impact of corporate governance on equitized firm’s performance in Vietnam”, Journal of Economic and Development, Vol. 203, pp. 56 - 63.
Donaldson, L. and Davis, J.H. (1991), “Stewardship theory or agency theory: CEO governance and shareholder returns”, Australian Journal of Management, Vol. 16 No. 1, pp. 49 - 64.
Eisenhardt, K.M. (1989), “Agency theory: an assessment and review”, Academy of Management Review, Vol. 14 No. 1, pp. 57 - 74.
Erhardt, N.L., Werbel, J.D. and Shrader, C.B. (2003), “Board of director diversity and firm financial performance”, Corporate Governance: An International Review, Vol. 11 No. 2, pp. 102 - 111.
Fama, E.F. and Jensen, M.C. (1983), “Separation of ownership and control”, Journal of Law and Economics, Vol. 26 No. 2, pp. 301 - 325.
Farrell, K.A. and Hersch, P.L. (2005), “Additions to corporate boards: the effect of gender”, Journal of Corporate Finance, Vol. 11 No. 1-2, pp. 85 - 106.
Gabrielsson, J. and Huse, M. (2004), “Context, behavior, and evolution: challenges in research on boards and governance”, International Studies of Management & Organization, Vol. 34 No. 2, pp. 11 - 36.
Haniffa, R. and Hudaib, M. (2006), “Corporate governance structure and performance of Malaysian listed companies”, Journal of Business Finance & Accounting, Vol. 33 No. 6-7, pp. 1034 - 1062.
Heidrick and Struggles (2007), 10th Annual Board Effectiveness Study, 2006-2007, USC Center for Effective Organizations.
Hermalin, B.E. and Weisbach, M.S. (1998), “Endogenously chosen boards of directors and their monitoring of the CEO”, American Economic Review, Vol. 88 No. 1, pp. 96 - 118.
Hillman, A.J. and Dalziel, T. (2003), “Boards of directors and firm performance: integrating agency and resource dependence perspectives”, Academy of Management Review, Vol. 28 No. 3, pp. 383 - 396.
Kiel, G.C. and Nicholson, G.J. (2003), “Board composition and corporate performance: how the Australian experience informs contrasting theories of corporate governance”, Corporate Governance: An International Review, Vol. 11 No. 3, pp. 189 - 205.
Mak, Y.T. and Kusnadi, Y. (2005), “Size really matters: further evidence on the negative relationship between board size and firm value”, Pacific-Basin Finance Journal, Vol. 13 No. 3, pp. 301 - 318.
Nguyen, T., Locke, S. and Reddy, K. (2014), “A dynamic estimation of governance structures and financial performance for Singaporean companies”, Economic Modelling, Vol. 40 (C), pp. 1 - 11.
Nguyen, T., Locke, S. and Reddy, K. (2015), “Does boardroom gender diversity matter? Evidence from a transitional economy”, International Review of Economics & Finance, Vol. 37 (C), pp. 184 - 202.
Nicholson, G.J. and Kiel, G.C. (2007), “Can directors impact performance? A case based test of three theories of corporate governance”, Corporate Governance: An International Review, Vol. 15 No. 4, pp. 585 - 608.
Pham, A.D. and Hoang, A.T.P. (2019), “Does female representation on board improve firm performance? A case study of non-financial corporations in Vietnam”, In: International Econometric Conference of Vietnam, Springer, Cham, pp. 497 - 509.
Roodman, D. (2009), “A note on the theme of too many instruments”, Oxford Bulletin of Economics & Statistics, Vol. 71 No. 1, pp. 135 - 158.
Rose, C. (2007), “Does female board representation influence firm performance? The Danish evidence”, Corporate Governance: An International Review, Vol. 15 No. 2, pp. 404 - 413.
Schultz, E.L., Tan, D.T. and Walsh, K.D. (2010), “Endogeneity and the corporate governanceperformance relation”, Australian Journal of Management, Vol. 35 No. 2, pp. 145 - 163.
Shleifer, A. and Vishny, R.W. (1986), “Large shareholders and corporate control”, Journal of Political Economy, Vol. 94 No. 3(1), pp. 461 - 488.
Sussmuth-Dyckerhoff, C., Wang, J. and Chen, J. (2012), Women matter: an Asian perspective, McKinsey & Co, Washington DC., USA.
Vo, H.D. and Phan, B.G.T. (2013), “Corporate governance and firm performance: evidence from Vietnamese listed companies”, Journal of Economic Development, Vol. 275, pp. 1 - 15.
Wintoki, M.B., Linck, J.S. and Netter, J.M. (2012), “Endogeneity and the dynamics of internal corporate governance”, Journal of Financial Economics, Vol. 105 No. 3, pp. 581 - 606.
Xu, X. and Wang, Y. (1999), “Ownership structure and corporate governance in Chinese stock companies”, China Economic Review, Vol. 10 No. 1, pp. 75 - 98.
Yermack, D. (1996), “Higher market valuation of companies with a small board of directors”, Journal of Financial Economics, Vol. 40 No. 2, pp. 185 - 211.
Young, M.N., Ahlstrom, D., Bruton, G.D. and Chan, E.S. (2001), “The resource dependence, service and control functions of boards of directors in Hong Kong and Taiwanese firms”, Asia Pacific Journal of Management, Vol. 18 No. 2, pp. 223 - 244.