The Relationship between Ownership
Structure, Supervision Mechanism and
Firm Performance – An Empirical Study
in Vietnam Listed Firms
Advisor: Dr. Lin Yi Hua
Graduate: Le Thi Hong Minh
1
Outline of the study
Introduction
The regulation
of Corporate
Literature
reviewGovernance
in Vietnam
Literature review, Research Methodology
Data Analysis and Results
Contribution and Conclusion
2
Research background & Motivation
The world crisis impact sharply on world economy,
reduces investor’s confidence, discourage outside
investment. Corporate governance seems like an insight
method to solve the root of crisis through reducing
emerging market vulnerability to financial crisis,
decreasing transaction cost and the cost of capital.
Good corporate governance increases higher
productivity, makes a lower risk of financial system and
creates a capital market development. Thus, the better
corporate governance gets the better firm performance.
3
Research background & Motivation
Vietnam is in changing stage from state owned to private
enterprises, but it’s not many studies about corporate governance in
Vietnam to indicate both the positive and negative points in fact to
give the more exact conclusion for improving corporate governance
in Vietnam
Moreover, Vietnam integrates more and more into the world
economy, thus need develop awareness and knowledge of corporate
governance to build up the consistent management system.
To investigate how to apply the enterprise law 2005 to shareholder
company and how well the relationship between corporate
governance structure to firm performance in Vietnam from 2006 to
2008 in Vietnam.
4
Objectives
(1) To evaluate the
relationship between
ownership structure,
supervision mechanism
and firm performance in
Vietnam.
(3)To identify the
(2) To compare the affect
reasons and find the
of corporate governance
way to enhance
on firms between
effectively corporate
Vietnam and others
governance in
countries.
Vietnam Listed firm
in the future
5
The stage of development of Vietnam's stock market
2000 -2005
2006
2007
2008
2009
In a boring
state
The
breakthrough
development
of Vietnam's
stock market
Stage stock
market boom
Greatly
reduced
Vietnam's
stock market
continued to
decline in
2009.
Center Ho Chi
Minh City
Securities on
July 20th 2000
Capitalization
of the stock
market of
Vietnam has
increased
sharply,
reaching 13.8
billion in
December in
2006
Increase of
126% in just
three months
VnIndex has
lost nearly
60% in value
Sales growth
of about 40%
over, but
operating
profit rose 8%
Fears of a
"bubble
market",
control tight
market
Profit
companies in
2008 declined
by 30%.
Losses in real
estate
investments
and securities
pushed net
profit down
25%. 6
March 8th
2005
securities
trading
centers in
Hanoi
Definition of Corporate Governance
“Corporate governance comprehends that
structure
of
relationships
and
corresponding responsibilities among a
core group consisting of shareholders,
board members and managers designed to
best foster the competitive performance
required to achieve the corporation's
primary objective”
(OECD Report, 1998)
7
Definition of Corporate Governance
“ Corporate governance (CG) is the system
by which companies are directed and
controlled. The CG specifies the
distribution of rights and responsibilities
among different participants in the
corporation, such as board, managers,
shareholders and other stakeholders… ”
(Cadbury Committee, 1999)
8
The types of Companies in Vietnam
sole
member
limited Co
Limited
liability Co
with more than
one member
Corporate
Group
Shareholding
Company
Limited
liability
Sole
proprietorship
Partnership
9
The Enterprise law 2005
The regulation of CG in Vietnam
The Board of Management:
 is a management body of the company, which
is entitled to act on behalf of the company in
exercising all the rights and obligations,
 at least 3 members and no more than 11
members,
required to reside in Vietnam will be stipulated
in the company charter,
Members of boards of Management are not
necessarily shareholders of the company,
10
(Article 108, 110 of the Enterprise Law 2005)
The regulation of CG in Vietnam
Director or General director
The Board of Management will appoint one among
them or other person to act as the director or general
director of the company.
will act as the legal representative of the company
unless the company charter specifies that the
chairman of the Board of Management will so act.
The term is no more than 5 years and can be
renewed unlimitedly.
(Article 116, Enterprise Law 2005)
11
The regulation of CG in Vietnam
Board of Supervisor
Will comprise of from 3 to 5 members
Will be no more than 5 years
The members of the Board of supervision can
be reelected with unlimited number of terms.
More than half of the members of the Board
of supervision must reside in Vietnam, and at
least one member is an accountant or auditor.
(Article 121, Enterprise Law 2005)
12
Concepts of Model
In this study, a model will be developed to
explain the relationship between ownership
structure, Supervisor mechanism and firm
performance ( ROA, ROE, EPS).
These relationships are impacted on two control
variables, like: firm scale and debt ratio.
13
Model Research
Ownership
structure
Supervisor
mechanism
1.
2.
3.
4.
5.
State share percentage
First major shareholder
Second major shareholder
Managers’ stock holding ratio
Ownership concentration
6. Board size
7. Board of manager and Supervisor
8. Independent trustee
9. Foreign ownership
10. Institutional ownership
14
Research Hypotheses
H1: There is a positive relationship between the State ownership percentage and firm performance
H2: There is a negative relationship between the ratio of first major shareholder and firm
performance
H3: there is a negative relationship between the ratios of second shareholder and firm performance
H4: There is a positive relationship between managers’ stock holding ration and firm performance
H5: There is negative relationship between ownership concentration and firm performance
H6: there is a negative relationship between Board size and firm performance
H7: There is a positive relationship between the stock holding ratio of Board and Supervisor and
firm performance.
H8: There is a positive relationship between independent trustee ratio and firm performance.
H9: There is a positive relationship between foreign ownership and firm performance
H10: there is a positive relationship between institutional ownership and firm performance.
15
Sample
The data collection in this study involves
Vietnam stock market in both south and north
centers. From more than 500 listed firms, about
300 listed firms has annual reports. However,
only 150 listed firms have enough variables
required for this study.
16
Research Methods
Descriptive
statistic
Descriptive
the main
features of a
collection
data in
quantitative
terms.
Correlation
analysis
Correlation
measures
the relation
between
variables
together.
t - Test
The t-test tell
us if the
variation
between
two
•
groups is ‘
significant”
or not
Multiple
regression
analysis
To predict the
model to
describe and
measure the
relationship
between
dependent
variables and
independent
17
ones
Table 4 – 1: Descriptive statistic
Items
Firm scale
Ln firm scale
Debt ratio
State share percentage
First major shareholder
Second major shareholder
Manager's stock holding
ratio
Ownership concentration
Board size
Boards and supervisors'
stock holding ratio
Independent trustee ratio
Foreign shareholder ratio
Institution ownership
ROA
ROE
Ln EPS
EPS
Mean
Median
S.D
8.039E+11 3.23902E+11 2.70237E+12
Minimum Maximum
3237000 3.203E+13
26.089
0.50299
0.27211
0.34068
0.0846
26.5037
0.524
0.2687
0.3061
0.0792
2.151502
0.234852
0.232947
0.169415
0.090478
14.99
0.001
0
0.07
0
31.098
0.873
0.843
0.782
0.791
0.11879
0.0448
0.150984
0
0.601
0.15648
5.96129
0.11325
5
0.138109
1.69753
0
4
0.808
14
0.2966
0.25034
0.31257
0.001
2.85
0.04871
0.12956
0.54191
0.08768
0.18061
7.71549
3497.68
0
0.0315
0.3425
0.06006
0.14233
8.02725
2901
0.140305
0.268035
2.092929
0.095278
0.191991
1.362427
2881.221
0
0
0.003
-0.017
-0.041
0.868
-3488
1
2.81
26.29
0.635
1.964
9.564
14250
18
Table 4 – 2: Correlation coefficients
ln X1
lnX1
1
X2
X3
.071
X2
.071
X3
.072 .292**
X4
.040
X5
-.008
X6
X7
X8
X9
X4
.072
1 .292**
X6
X7
X8
X9
X10
X11
X12
.120 .740**
.081
.120
.001 -.344** -.160* -.442** -.143 -.176*
-.110 -.075
1 -.278**
-.110 -.288** -.278**
.043 -.151 -.126
.078
.032
1
.132 -.145
.105
.043 .585** .761** -.145
.115
.110
.025
.110 -.090 -.180* -.026
1
.289** -.151 -.133 -.103
.010
.032 .761** -.103
.132
-.006 -.126 -.105
ROA ROE Lneps
.040 -.008 -.214** -.004 .289** -.006
1 .740** -.288** -.066 .585** -.133 -.105 -.061 -.226**
-.214** -.075 -.066
-.004
X5
.026 .169*
1 -.212**
.094 .250**
.074 .200*
.036
.083
.074
.113
1
-.111
.016 -.030
.023
.047
.003
.069 -.021
.100
.059
.025
1 .806** .181*
-.011
.111
1 .171* -.006
.129
-.111
1
X11
.078 -.344** -.226** -.180* .169* -.085 -.095 .200*
.016
.069
X12
.010 -.160*
.025 -.026
ROA
.006 -.442**
.072
.094 -.006 -.025
.104
.083
.023
.100 .181* .171*
ROE
.069 -.143
.144 .250** -.087 -.052
.084
.074
.047
.059
Ln eps
.135 -.176* .232**
.041 .163*
.113
.003
.025
.001 -.026 -.025
.041
.084 .163*
.074
.026 -.161* -.097
.158
.104
.081
.158 -.081
.144 .232**
.137 -.097 -.095 -.025
1 -.054
.137 -.054
.135
.001 -.006 -.087 -.081
X10
.001 -.061 -.090
.072
.069
.115 -.129 .287** -.161* -.085 -.026 -.025 -.052
.052 -.129 -.212**
.105 .287**
.052
.006
.036 -.030 -.021 .806**
1 .276** .362**
-.011 -.006 .276**
.111
1 .292**
.129 .362** .292** 19
* Significant at 0.05 level, ** significant at 0.01 level, *** significant at 0.001 level
1
Variables
Strongly
Positive
Weakly Positive
Strongly Negative
State shareholder
Debt ratio, ln
EPS
First major
shareholder, HHI
Second major,
Foreigner
shareholder
First major
shareholder
State share,
HHI, ROE
Second major
Second major
shareholder
foreign
Management
stock holding
Board &
supervisor
Ownership
concentration
State share, first
major
Ln eps
Board size
Firm scale
Foreign
Board &
supervisor
Manager stock
holding
Weakly
Negative
Foreigner
shareholder
ratio
State, first
Firm scale
Independent
trustee ratio
Board size
Independent
Foreign
shareholder
Institutional
ownership
Second major,
ROA
Institutional
Foreign
ROA
Debt, state share
First major
20
Debt ratio
*P≤0.1, **P≤0.05, ***P≤0.01
Table 4 - 3: Table of t-test
DEPENDENT VARIABLES
INDEPENDENT VARIABLES
LOW
HIGH
State share percentage
t- value
First major shareholder
LOW
HIGH
t- value
Second major shareholder
LOW
HIGH
t- value
Manager ownership
LOW
HIGH
t- value
Ownership concentration
LOW
HIGH
t - value
Board size
LOW
HIGH
t - value
Board & Supervisor’s stock
LOW
holding ratio
HIGH
t - value
Independent trustee
LOW
HIGH
t- value
Foreign
LOW
HIGH
shareholder
t- value
Institutional ownership
LOW
HIGH
t- value
ROA
N
77
78
77
78
77
78
77
78
77
78
3
152
77
78
131
24
77
78
77
78
ROE
MEAN
.07835
.09690
-1.214
.08055
.09473
-.926
.09146
.08396
.489
.09282
.08261
.664
.07370
.10149
-1.834**
.06637
.08811
-.390
.08625
.08911
-.186
.08763
.08796
-.015
.07217
.10300
-2.040***
.07978
.09549
-1.028*
N
77
78
77
78
77
78
77
78
77
78
3
152
77
78
131
24
77
78
77
78
EPS
MEAN
.15010
.21073
-1.984
.12485
.23565
-3.760**
.19320
.16818
.810
.19713
.16430
1.060
.16482
.19619
-1.017
.09582
.18228
-.771
.16218
.19880
-1.189
.16735
.25297
-1.051**
.17257
.18855
-.519**
.16267
.19831
-1.157
N
77
78
77
78
77
78
77
78
77
78
3
152
77
78
131
24
77
78
77
78
MEAN
2623.20
4360.94
-3.932**
2915.69
4072.20
-2.545*
3826.17
3173.40
.497
3446.82
3547.88
-.218
2971.92
4016.69
-2.288
2909.33
3509.29
-.356
3790.15
3208.95
1.256*
3493.83
3518.67
-.039
3352.35
3641.14
-.623
2843.31
21
4143.66
-2.875
Regression Model
Firm
performance
ROA
ROE
EPS (ln EPS)
=
Ownership
structure
State share, First
major shareholder,
Second major
shareholder,
Management ‘s
shareholder,
Ownership
concentration
+
Control
variables
+ε
Firm scale
Debt ratio
22
Regression Model
Firm
performance
ROA
ROE
EPS (ln EPS)
=
Supervisor
Mechanism
Board size, Board
and supervisor’s
stock holding ratio,
Independent trustee,
Foreign percentage,
Institutional
ownership.
+
Control
variables
+ε
Firm scale
Debt ratio
23
DEPENDENT VARIABLE
ROA
MODEL 1
Intercept
MODEL 2
.152
.170
.001
.001
-.207***
-.206***
State share percentage
.091*
.090*
First major shareholder
-.014
-.035
.006
-.045
-.029
-.146
.014
.023
Control variable
Ln firm scale
Debt ratio
Independent variable
Second major shareholder
Manager's stock holding ratio
Ownership concentration
Square Terms
SMH2
.090
MSH2
R2
.242
.251
.246
Adjusted R2
.206
.199
6.671***
5.234***
F-statistic
Table 4 – 4: Table of regression model 1 and 2
24
Table 4 – 5: Table of regression Model 3 and 4
DEPENDENT VARIABLE
ROA
MODEL 3
MODEL 4
.134
.201
.002
.002
-.192***
-.187***
.001
-.020
-.003
-.004
Independent trustee ratio
.078
.004
Foreign shareholder ratio
-.076
-.063
.012**
.011*
Intercept
Control variable
Ln firm scale
Debt ratio
Independent variable
Board size
Boards and supervisors' stock holding
ratio
Institution ownership
Square Terms
BS2
.001
IT2
.117
R2
.230
.237
Adjusted R2
.193
.189
6.268***
4.995***
25
F-statistic
*P≤0.1, **P≤0.05, ***P≤0.01
*P≤0.1, **P≤0.05, ***P≤0.01
Table 4 – 6: Table of regression model 5 and 6
DEPENDENT VARIABLE
ROE
MODEL 5
MODEL 6
.018
.019
.005
.005
-.161**
-.165**
-.005
-.013
.521***
.525***
Second major shareholder(SMH)
-.026
-.134
Manager's stock holding ratio (MSH)
-.047
.023
-.349**
-.346**
Intercept
Control variable
Ln firm scale
Debt ratio
Independent variable
State share percentage
First major shareholder (FMS)
Ownership concentration (HHI 5%)
Square Terms
SMH2
.216
MSH2
-.136
R2
.127
.128
Adjusted R2
.085
.074
3.038***
2.353**
26
F-statistic
Table 4 – 7: Table of regression model 7 and 8
DEPENDENT VARIABLE
ROE
MODEL 7
Intercept
MODEL 8
.045
-.061
.006
.006
-.153**
-.165**
Board size
.007
.045
Boards and supervisors' stock holding
ratio
.029
.027
Independent trustee ratio
.099
.449*
Foreign shareholder ratio
-.138
-.176
.011
.014
Control variable
Ln firm scale
Debt ratio
Independent variable
Institution ownership
Square Terms
BS2
-.002
IT2
-.556
R2
Adjusted R2
F-statistic
.043
.060
-.003
.002
.944
1.027
27
*P≤0.1, **P≤0.05, ***P≤0.01
Table 4 – 8: Table of regression Model 9 and 10
***P < 0.001, **P<0.01, *P<0.05
Dependent variable
Ln EPS
Model 9
Intercept
Model 10
5.692
5.452
.099
.109**
-1.635***
-1.797***
2.137***
1.892***
-1.248
-.880
-.808
-4.197*
.664
4.527*
.595
.609
Control variable
Ln firm scale
Debt ratio
Independent variable
State share percentage
First major shareholder
Second major shareholder
Manager's stock holding ratio
Ownership concentration
Square Terms
SMH2
6.837*
MSH2
-7.854
R2
.148
.180
Adjusted R2
.107
.128
3.561***
28
3.437***
F-statistic
Table 4 – 9: Table of regression model 11 and 12
DEPENDENT VARIABLE
Ln EPS
MODEL 11
Intercept
MODEL 12
5.688
5.906
.088
.087
-1.132**
-1.145**
.054
.001
-.037
-.035
Independent trustee ratio
.230
.696
Foreign shareholder ratio
-.822
-.827
.145
.094
Control variable
Ln firm scale
Debt ratio
Independent variable
Board size
Boards and supervisors' stock
holding ratio
Institution ownership
Square Terms
BS2
.003
IT2
-.732
R2
.072
.072
Adjusted R2
.027
.014
F-statistic
1.590
*P≤0.1, **P≤0.05, ***P≤0.01
1.231
29
Research Hypotheses
H1: There is a positive relationship between the State ownership percentage
and firm performance
H2: there is a negative relationship between the ratio of first major
shareholder and firm performance
H3: there is a negative relationship between the ratios of second shareholder
and firm performance
H4: There is a positive relationship between managers’ stock holding ration
and firm performance
H5: There is negative relationship between ownership concentration and
firm performance
H6: there is a negative relationship between Board size and firm
performance
H7: There is a positive relationship between the stock holding ratio of Board
and Supervisor and firm performance
H8: There is a positive relationship between independent trustee ratio and
firm performance.
H9: There is a positive relationhip between foreign ownerhip and firm
performance
H10: there is a positive relationship between institutional ownership and
firm performance.
Support
/Not
Strongly
supported
Strongly
supported
Strongly
supported
Strongly
supported
Strongly
supported
Not
supported
Not
supported
Supported
Not
supported
Strongly
supported
30
Conclusion
The role of state share in Vietnamese firms is
dramatic important, affect significant to firm
performance.
The effect of outside board such as independent
trustee and foreign share is completely unclearly.
The control variables has negative significant
correlation to firm performance in Vietnam listed
firms.
31
Conclusion
The study can help to show the reality
relationship between corporate governance
structure and firm performance.
It has some different from Western countries
and Vietnam cause of specific characteristic
environment (Republic Socialist Country)
32
Contribution and Implication
The study is
the first basic
step to get
more and more
academic
research about
corporate
governance in
Vietnam in the
near future
Study contributes the
small part into indicating
the real relationship
between ownership
structure, supervision
mechanism and firm
performance in Vietnam.
Which supports to find out
solutions for negative
points in improving
corporate governance in
Vietnam.
CG in
VN
State Owners have a
lot rights in making
decision in Vietnam
firms now. It should
transferred to other
shareholders like
outside supervisors
mechanism to
improve the
awareness of them in
get a better operation.
33
Limitation
The literature review focused on Western
Research
and
capitalist
country,
thus
implementation these into Vietnam situation
faces some limitation.
Most of large capital firms belong to Government
(51%), thus Government also control the business
lead to some indicators are inconsistent.
Furthermore, Private firms have small total assets,
it’s not easy to apply corporate governance studies.
34
Limitation
The equalization process in Vietnam has just
happened for the initial period, SOEs did not
post enough information for all companies in
Vietnam now, and the time period is only limited
in 2006 – 2008.
from 500 listed firms, only 150 firms have
enough information supplies for studying which
reduces the exact of study result.
35
Future Research
In the future,
the data
information in
Vietnam is
better; the study
will reach more
exactly in
empirical
research.
The study cannot
compare between
industries to
examine which
gets the best
relationship
between corporate
governance
structure and firm
performance.
The more and
more enhancing
the law systems
for managing
and taking part
in of outside
supervision
mechanism will
help a better
research.
36
Thank You !
L/O/G/O
37