160 Finance dissertation on gender diversity and profitability of commercial bank in Vietnam,Master''''s Thesis

This research examines the effects of gender diversity in the board of directors of a large sample of commercial banks in Vietnam on their financial performance, measured by return on eq

⅞1 a ∣a

Dissertation submitted in partial fulfillment of the

Requirement for the MSc in Finance

Universip

of the

FINANCE DISSERTATION ON GENDER DIVERSITY AND PROFITABILITY OF COMMERCIAL BANK

IN VIETNAM

NAME OF STUDENT: NGUYEN NGOC TRAM

ID No: 17047734 Intake 1

Supervisor: Dr Pham Chi Quang

iħ -W

This research examines the effects of gender diversity in the board of directors of a large sample

of commercial banks in Vietnam on their financial performance, measured by return on equity(ROE) and return on assets (ROA) The empirical analysis is conducted via descriptive statistics,correlation matrix and analysis of multivariate regression in order to answer the research

question: What is influence of women presence in board on profitability of commercial

banks in Vietnam?

This research is highly structured and quantitative in nature, using the data collected from largestbanks in the Vietnamese banking system in period from 2013 to 2017, with data related to theboard of director being extracted from the annual reports for all commercial banks listed on bothHNX and HOSE, while data related to dividend payment and bank-specific characteristics wereextracted from the published financial reports by banks

The research findings show that there was positive relationship between woman in board andperformance of commercial banks in Vietnam, although the influence could not cover both return

on assets and return on equity

This research is completed successfully thanks to the contributions from the following people;

Firstly, I owe my deepest gratitude to my supervisor for all of his dedication and enthusiasm in giving me detailed and constructive feedback so that I can improve the quality of my research

I would also like to extend my sincere thanks to my colleagues and lecturers in the University who inspired and equipped me sufficient research skills to conduct this study,

Last but not least, I would love to thanks my parents for their unconditional love and support

Table of Contents

Abstract 2

Acknowledgement 3

Chapter 1 Introduction 5

1.1 Research background 5

1.2 Research rationale, motivation andcontribution 6

1.3 Research purpose, question and statement of research objectives 8 1.4 Research structure 8

Chapter 2 Literature Review 10

2.1 Boards and Board composition 10

2.2 Board effectiveness 10

2.3 Board composition and Bank performance 11

2.4 Board gender diversity and financial performance 12

2.5 Bank financial performance and measurement 13

2.6 The role of gender diversity and its effect on performance: Evidence 14

2.7 Female in board and bank performance 18

2.8 Literature gaps and hypotheses development 20

Chapter 3 Methodology 22

3.1 Type of research 22

3.2 Research philosophy 24

3.3 Research approach 24

3.4 Research design 25

3.5 Data collection method 25

3.6 Variables Definition 26

Gender diversity measurement 26

Bank performance measurement 26

Chapter 4 Research result analysis 28

4.1 Descriptive Statistics 28

4.2 Correlation Analysis 29

4.3 Discussion of the Findings 30

Chapter 5 Result discussion 32

Chapter 6 Conclusion and recommendation 33

6.1 Summary of the research 33

6.2 Summary of the main empirical findingsand implications 34 6.3 Policy recommendations 35

6.4 Research limitations and suggestions for future studies 35 References 36

Appendices 42

Chapter 1 Introduction

Director board is one of the most internal governance mechanisms helping organizations to beeffectively directed and controlled so that they can maximize shareholder’s wealth Classicaltheorists of corporate governance therefore emphasized the increasing importance of thecorporate board seeking to provide managerial oversight and control to deter it from opportunisticbehavior (Fama & Jensen 1983, Jensen 1993, Jensen & Ruback 1983) Arguably, the academicdiscussion of board structure and composition has extensively focused on many board attributesand how to maintain board effectiveness to drive financial performance However, the subject ofboard diversity as an important corporate governance concept has recently caught the attention ofpolicy makers, corporate stakeholders and academia As defined by Ahern and Dittmar (2012),board diversity refers to the variation among its members, Effective corporate governance isbelieved to have a positive association with board diversity, which is the prerequisite for boosting

profitability Consistent with the self-interest principle and free cash flow hypothesis posited byAkhigbe and McNulty (2013), good governance with diversity at the boardrooms enhancesdecision-making process and performance The observable attributes of board diversity as

concluded by Anderson and Reeb (2008) and Arano et al (2010), refer to personalities, values,

learning styles age, gender, race and educational and managerial background In recent years,gender diversity in the boardroom has become a newly explored and highly debated governancetopic since gender diversity and the participation of female directors on board have been reported

to be predictors for financial performance

Director board and its composition have been a focal point of corporate governance structure,directing affecting market value of organizations In the banking industry, this mechanism plays

as an important role in maximizing shareholder’s wealth while ensuring operating stability ofbanks since they are responsible for creating wealth for various stakeholders including clients,

borrowers, regulators and depositors (Peterson & Philpot 2006, Smith et al 2006) In emerging

markets, director board role is quite complicated because of the serious asymmetric informationrisk which affect the efficiency in allocating bank resources Therefore, despite having highregulation level, the role of director board in banking governance is given higher attention sincethe collapses of credit institutions might disturb the resources allocation as well as system forpayment, negatively affecting directly the world economy This motivates the researcher toconduct the current study on the contribution of women participation in boardrooms andoversight role of the director boards in Vietnamese commercial banking

Over decades of empirical research, the effect of the women directors into the boardrooms onprofitability and financial performance of banks has gained inconclusive and mixed results due tothe influence of national culture, regulation, economic context, level of governance effectivenessand the scope of financial markets across nations of developed and developing economies

(Peterson & Philpot 2006, Smith et al 2006) Board diversity has still been hugely contemplated

as the most effective governance policy as concluded in the empirical study of Kahn and Santos(2005) and Dobbin and Jung (2011), Diversified structure for firm governance can be indicatedbased on geography with local administration versus foreigners, minority versus majorityshareholders, characteristics of the board such as age, qualification, ethnicity The appointment offemale directors in bank board in a number of empirical studies indicated a strong effect on

financial performance (see for example Smith et al 2006, Adams & Funk 2012, Dobbin & Jung

2011) On the other hand, in another research conducted in ASEAN-5 listed commercial banks by

Zulkufly et al (2015), the female presence in the bank boardrooms among a selected number of

commercial banks in ASEAN is merely for the regulatory compliance and the market for highperforming female executives could be limited, especially in commercial banking As agreed by

Staikouras et al (2010) and Zulkufly et al (2015), countries in ASEAN mainly constitute of

developing economies in which the lowest rates of gender diversity This is a wonder that howthe gender structure with participation of female directors impact on bank performance This isthe rationale which inspires the implementation of this research with a particular emphasis onVietnamese commercial banking context, which has been left unexplored in the existingliterature

The present research therefore concentrates on the participation of women directors in bankboardrooms as board diversity variable which is the predictor for the bank performance Theempirical effect of this board composition attribute on performance of a selected number of

Vietnamese commercial banks is investigated According to Zulkufly et al (2015), the circles of

corporate governance feature board gender diversity which includes the participation of women

on the boardrooms, which is the definition applied in the present research Unlike prior studies,this research intends to use financial data collected from largest banks in the Vietnamese bankingsystem in period from 2013 to 2017 with data related to the board of director being extractedfrom the annual report for all commercial banks listed on both HNX and HOSE for the 5-years-period between 2013 and 2017, while data related to dividend payment and bank-specificcharacteristics were extracted from the published financial reports by banks Furthermore, othernon-banking industries which have been conducted in another economic contexts are not capable

of being generalized to commercial banking since there is a significant difference between

banking and non-banking industries (Zulkufly et al 2015, Croson & Gneezy 2009) Another

motivation for choosing the commercial banking data is that almost all of the prior researcharticles have been dealt with multi-sectoral companies therefore tending to produce inconclusive

findings as acknowledged by Balasubramaniam et al (2015) and Dobbin and Jung (2011) In

order to contribute to the academic literature, this research seeks to focus merely on thecommercial banking sector and the data for the research is quite easily accessible

This research contributes to the extant literature by supplying updated empirical evidence on theinfluence of women presence and board monitoring on the financial performance of commercialbanks in Vietnam To the best of the researcher’s knowledge, there has been virtually no prior

examination to be implemented regarding the extent to which Vietnamese banking sector hasperformed after it has undergone the structure change with a particular attention to genderdiversity in the boardroom As such, this research intends to provide a number of practicalunderstandings as well as implications regarding the contribution of female executives in general

or independent female directors in particular Finally, the results of the present empirical researchpromise to generate practical insights and implications into the authority accountable forcontrolling the extent of gender diversity as well as oversight mechanism of the board ofdirectors

Based on research background, context and identified motivations as well as significance for theresearch topic, the present empirical study aims to investigate the effects of gender diversity inthe board of directors of a large sample of commercial banks in Vietnam on their financialperformance, measured by return on equity (ROE) and return on assets (ROA) The empiricalanalysis is conducted via descriptive statistics, correlation matrix and analysis of multivariateregression

The research question is therefore as follows:

What is influence of women presence in board on profitability of commercial banks in Vietnam?

In order to answer the key question, the following research objectives can be stated:

1 To study the impact that gender diversity on board can have on banks’ profitability inVietnam

2 To study the level of gender diversity in boardrooms of commercial banks in Vietnam

3 To examine if there is any relationship between boards gender diversity and banksprofitability levels

4 To make contributions towards gender diversity research in Vietnam banking sector

The remaining of this research can be structured as follows Chapter two presents the literaturereview and the development of hypotheses Chapter three justifies the chosen methodology anddiscusses how the data are collected and analyzed Panel data analysis is employed to examinethe relationship between board gender diversity and firm performance The sample consists of 12

commercial banks listed on the HNX and HOSE for the 5-years-period between 2013 and 2017.

We used a five-year period to mitigate any potential sample bias The identities of directors wereobtained from the firms’ annual reports From these reports, the number of board members iscalculated Accounting data, such as the book value of debt, the book value of total assets, andthe return on assets were obtained from securities companies, such as BaoViet Securities, BIDVSecurities Chapter four presents the main empirical results Chapter five discusses the empiricalresults in light of the previous empirical evidence Chapter six concludes the research bysummarizing the key results, practical implications, limitations of the research and how toimprove in future studies

Chapter 2 Literature Review

As indicated by prior literature board director and its composition have a significant impact onthe performance of listed companies and the main function of the board is to make the interests ofmanagers and those of shareholders aligned by working closely with managers while providingsubstantial oversights and control to ensure they do not commit opportunistic behaviour (Adams

& Funk 2012, Dobbin & Jung 2011, Croson & Gneezy 2009) Since the director board is critical

to the effectiveness of the corporate decision control system, the role of the board cannot bedenied in mitigating the agency conflicts between managers and shareholders, reducing the level

of asymmetric information risk and adverse selection normally occurred in publicly shareholdingfirms with dispersed ownership structure The quality of firm’s monitoring and decision-makingprocess are argued to have significant associations with the effective boards

Board composition, according to Croson and Gneezy (2009), is defined as the balance between

inside and outside directors Following the research conducted by Staikouras et al (2010) and

Adams and Funk (2012), the current research defines this governance mechanism as thecharacteristics of members in the board in the aspects of age, gender, executive or non-executivemembers and the level of education and qualification A large body of empirical literature arguedthat there is homogeneity of the board in comparison to the environment in which they areoperating Board diversity with effective resembling of the environment in which they areoperating can position the firms more competitively Regarding age aspect, female directors areyounger than male ones in general by roughly five to six years (Core 2016, 2012), suggesting notonly do females impact diverse board in the aspect of gender, but in terms of age, havingsignificant contributions to the diverse views on the director board

Board effectiveness ensures their organization quickly adapt and respond to the changingbusiness environment with high level of uncertainty, seeking to supply suitable leadership and

managerial oversight in order to drive organization to success (Barako et al 2006) There has

been a number of significant factors influencing board effectiveness as concluded by priorstudies, including board composition, board independence, ownership concentration internaldynamics of the board, which are grouped as the controllable variables Moreover, researchconducted by Campbell and Minguez-Vera (2008), concluded on uncontrollable factors

impacting board effectiveness including industry type, complexity, legislative setting, industry

ethos A recent research conducted by Hillman et al (2015), found out the major dimensions of

board effectiveness including strategic and operational control, elucidating that operational

control activities are related to the roles of the board in supervising managerial decision-making

process in terms of the financial and economic position of the firm, needing expertise in

statistical and quantitative competence Board effectiveness, according to the research findings of

Balasubramaniam et al (2015), can be used as the mediator or intervening construct among

company performance and board processes

The relationship between board size and bank performance has been frequently examined in priorstudies Dunn (2011) carried an empirical and quantitative analysis on a large sample of Canadiancompanies over the period 2000 to 2008, concluding that boards with small size is positivelyassociated with return on assets, a widely used proxy for bank performance Sharing the sameempirical observation, the research conducted by Macey and O’Hara (2013) who examined theeffect of board size of a large sample of US banks, concluded that smaller board size has astatistically significant effect on bank profitability, measured by return on investment sincesmaller size enables quicker decision-making and control to reduce asymmetric information riskand moral hazard However, there are several studies concluding that the size of the directorboards has an insignificant impact on performance (see for example Wang & Cliff 2009, Farrell

& Hersch 2005) Regarding board composition, Wainaina (2013) reported that this variable has

no relationship with bank profitability despite a direct correlation being reported This result is inline with that of Ujunwa (2012) who concluded that board composition has an insignificantimpact on bank profitability, measured by market-to-book ratio and Tobin’s Q Conducting a

wide scale of research for a large sample of banks across OECD nations, Jurkus et al (2010)

reported that an inverted U-shaped association among the proxies for bank profitability includingreturn on equity, return on sales, profit margin and return on assets, and board size Their resultsindicated a positive impact of board independence on the performance of banks Additionally,using a sample of 100 banks in selected countries in European from 2005 to 2010, and 50 banksoperating across Switzerland and EU-15 throughout the year 2010, Farrell and Hersch (2015)reported that boards characterized with higher number of independent members are more likely topositively influence the bank performance since they are independent from management toprovide unbiased business judgement to shareholders Non-executive members are therefore

entrusted by shareholders since they help reduce agency costs and interest conflict Theproportions of non-executive directors and bank performance have received a mixed association.The Code of corporate governance and regulators in the UK suggested the composition of board

members must be balanced, consisting of independent members (Carter et al 2013) Although

banks comprised the highest number of independent members, it would not ensure to maximizethe performances Therefore, the presence of those non-executive members on board must bemonitored in order to create more shareholder’s wealth

As argued by Carter et al (2013), female executives influence board effectiveness by suggesting

that two of the board activities including service task and financial control have an inverse impact

on the number of female directors The female members have different power on team cohesion

by the nature of the performed tasks There is a direct association between gender diversity andfinancial performance in the board room However, the gender diversity in executive suite isnegatively associated with financial performance In order to assess how firm performsfinancially wealthy, return on equity, return on sales and return on assets are frequently used If ithas one or more female executives meanwhile the identical organization with one or more femaledirectors indicate lower average profitability (Farrell & Hersch 2005)

As mentioned by Freeman et al (2004), the organization innovation level can be improved by

electing one or two female members in the board Additionally, their results indicated that theassociation between the number of women in board and the organization innovation level areinfluenced by strategy perspective and direction In a more recent research conducted by

Balasubramaniam et al (2015), it was reported that when the board is comprised by 30 percent of

female members, they can positively affect the financial performance The critical mass of 30percent females indicated that having around three women on the board (Gohlmann & Vaubel2007) Appropriate proportion of women executives can create advantages for the organizationsince they can contribute their innovative capability and diversity in decision-making, improvedpercentage on the board leadership Such factors can result in more effective work environment

by accommodating more women holding key executive positions for the organization (Freeman

et al 2004) The empirical analysis from the research conducted by Campbell and Minguez

(2010) indicated that the proportion of females holding executive positions is positivelyassociated with financial performance

Werbel and Shrader (2003) argued that the financial performance can be improved by havingboard diversity with careful and true and fair appointment of executive members since it canresult in higher profitability ratios to the organization It is further known that gender diversitycan promise higher returns, higher customer loyalty and therefore higher profit margins sincediverse groups are more likely to confront more idea conflicts that take them ahead of the simplesolutions which homogenous groups normally consider, resulting in higher level of innovative

ideas and financial performance Regarding this argument, Gul et al (2011) further added that

teams which are consisted of men and women can indicated higher profitability measured byprofit margins, sales volume and earnings per share

Following previous empirical evidence, financial performance of banks can be gauged withdifferent measures including efficiency, profitability, accounting based ratios, market basedratios, level of competitiveness and productivity

As argued by Singh and Vinnicombe (2004), profitability is the most frequently used proxymeasure for performance since it can assess financial results from the perspective of efficiencywhile evaluating whether the organizations are capable of making sufficient cash flows from itsoperating activities to make it durably develop their businesses The profitability aims to presentthe modality to attain the banking operations and serves as a benchmark to assess if banksachieve their KPI and whether profit maximization and shareholder’s wealth maximization areachieved Furthermore, the importance of using profitability for bank performance is explained

by Barako et al (2006), who purported that it helps analysis to be achieved for indicators of

measuring performance arising from the accounting dates which demonstrates the referencingperiods in most synthetic expressions of financial position and income statement

From previous empirical evidence, return on equity (ROE) and return on asset (ROA) among themost widely-used proxies for performance, measuring the firm’s capacity to generate profits fromthe shareholders’ investments and from the total assets, respectively into the companies ROE andROA use net profit in relation to the book value of shareholder’s equity and to the firm’sresources, accordingly so that the value generated from the businesses per dollar invested byshareholders can be identified However, the use of net income includes heterogeneous and non-recurrent items which may conceal the actual profitability structure From banking perspective,ROE is the most used profitability assessment for realizing how well the banking services and

activities can generate returns from the average stockholder’s equity Both ratios can be found onannual reports (Brennan 2010) Furthermore, they are seen as the easiest approach to assesshistory of financial performance meanwhile indicating an effective indicator for future forecast(Kersley & O'Sullivan 2012) According to Barako and Brown (2008), the most efficientassessment of the financial institutions for their financial position is to use ROA and ROE, whichare normally adopted as the dependent variables in almost multivariate analysis, regressingagainst the independent variables for corporate governance, board structure, gender diversity andboard composition The use of ROE and ROA also allows the comparative analysis across banksmore easily and effectively.

Women on board and its effect on financial performance have remained under consideration bymany prominent scholars over decades A large amount of studies has been conducted indeveloped economies to evaluate the effect of gender diversity on firm performance withopposing results, leading to inconclusive decision on positive or negative effects of genderdiversity Darmidi (2010) argued that female directors appear to serve on better performingcompanies and there was a statistically insignificant abnormal returns on the appointment ofwomen elected to the board

Rather than the need for female executives being performance-based, findings indicated firms inresponse to either external or internal demands for board diversity Studying gender diversity inSwedish board rooms, Kans and Stengards (2012) argued that the percentage of female topexecutives is positively associated with ROE and ROA after controlling for a number of firm’sfinancial variables and causality direction Their findings indicated that proportion of women onexecutive boards, performance proxies vary from non to positive in relation and theannouncement for women executives on board has a statistically significant impact on ROE Inanother research conducted by Darmidi (2010), it was reported that women holding top executivepositions affect firm performance, depending on their qualifications and expertise In this study,Tobin’s Q was adopted as performance measure and there was weak evidence for a positiverelationship between women participation below CEO level and Tobin’s Q Their findingsemphasized potential competitiveness for identification as well as development of talent inmanagement and leadership of female executives Sharing the same empirical observation,

Bertrand et al (2010) who examined the dynamics of the gender gap for young professionals in

the financial and corporate sectors in the UK, concluded that gender is positively associated with

firm’s value measured by market-to-book ratio and that the opposite causal association isstatistically insignificant The UK investors did not penalize companies, which increased theirwomen on the director board and that greater board diversity can create values since share priceindicated a positive impact by announcement of women executives.

De Andres,and Vallelado (2008) reported that women executives do have some contributionstowards board inputs as well as corporate outcomes and that gender diverse board of directorsallocate more attempt to corporate monitoring and control since female directors are punctual andregular in comparison to their male counterparts but this aspect does not result in significantfinding by rising the female ratio as directors would indicate a positive impact on profitabilityratios In another research conducted by Fan (2012), the importance of board diversity to firmperformance and board independence was highlighted Relying on a large sample of Singaporeanlisted firms with the panel data regression analysis, his empirical result show statisticallyinsignificant relationship between profitability ratio of ROE, market-to-book ratio, price-earningratio, gender mix and gender influence Notwithstanding the increasing attention tribute to boarddiversity, the majority of existing evidence indicated slow progress to the achievement of thebalanced boards in terms of diversity (Dunn 2011, Werbel & Shrader 2003) which could bebecause companies remain impartial regarding the benefits board diversity offers Drawing upon

a large sample size of the US listed companies with more recent financial data, Hussein andKiwia (2015) examined the relationship between female board members and firm performance.Their panel data multivariate regression analysis with fixed effect model reported on a negativerelationship between those variables Another argument supporting for the empirical fact thatgreater board gender diversity has an inverse effect on corporate profitability can be found in theresearch done by Farrell and Hersch (2005) who argued that female directors are more risk-adverse than their male counterparts and the participation of female executives in the boardincrease the costs of the company as a result of higher turnover as well as absenteeism.Therefore, greater gender diversity has negative effect on the profitability ratios if femaledirectors are elected as tokens rather than for their competencies In this regard, the theory oftokenism posited by Eisenhardit (1989) is applicable who argued that the tenure of femaleworkforce within the enterprises is impacted by the percentages in which they find themselvesunder more pressure to demonstrate their skills worth as compared to male directors Consistent

with the tokenism perspective, the research conducted by Grosvold et al (2007) examined board

diversity in the UK and Norway, concluding that members of homogeneous groups can have

effective and frequent communication since they are more likely to share identical perspectives.The group homogeneity allows cooperation and less touching conflicts to occur which lead toless time consuming for the decision-making process.

On the other hand, there has been a number of studies reporting on the strong relationshipbetween gender diversity and firm’s value but different approaches utilized in each studygenerated different findings Utilizing the financial event study approach, Hermalin andWeisbach (2003) reported that there is a positive response in general from investors towards theelection of female executives working on the boards among a sample of Canadian listedcompanies This research examined the gender diversity in the Anglo Saxon context while testing

if investors showed a systematic reaction towards the various executive vacancies held by femaledirectors, a question which gained low level of prior academic attention On the other hand, amore recent research conducted by Kersley and O'Sullivan (2012), an empirical investigation ongender diversity between high-profile executives from Fortune 500 companies and its impact oncostly agency conflicts was conducted Their results indicated that companies having higherproportion of women directors show lower costly agency conflict and asymmetric informationrisk, which lead to higher values of ROE and ROA Therefore, a statistically significantrelationship was reported which implied that increased diversity in director boards is positivelyassociated with accounting-based performance ratio, ROE and ROA, regardless of the absence ofexternal governance effectiveness

Making use of financial data from a large sample of Indonesian publicly listed financialcompanies, Prihatiningtias (2012) examined gender diversity in the board room and firmperformance, reporting that the increases of female proportion as directors’ share value decreasescreating an unfavourable impact on Tobin’s, which is opposite to the findings reported byKersley and O'Sullivan (2012) In their argument, women executives were not senior andexperienced as their male counterparts were Because of such diversity, companies confrontedlosses and to cover the cost, they took loans from various sources thus operating expenses rose,meanwhile profits and profitability decreased As a result, Tobin’s Q decreased Examining thelongitudinal data of the Pakistani listed companies to investigate gender diversity and firm

performance, Mirza et al (2012) intended to test if potential differences in performances of

women and men owned companies disappear when suitable proxies for profitability wereutilized The OLS regression findings reported that there is virtually no difference in performancebetween women and men owned ventures Singh and Vinnicombe (2004) observed the impact of

firm’s gender diversity on board among 150 sample UK companies on their shares performance,proxied by market-to-book ratio, ROE and ROA Their findings revealed that investors feelbiased, tending to get rid of investing in companies having women holding top executivepositions, which led to a decrease in share prices This explained by there are so few women intop UK boardrooms.

It is quite Crystally clear from the above review that gender diversity can be seen as a significantdeterminant driving corporate financial profitability despite the fact that its effect on firmperformance is inconclusive since empirical studies vary across countries Although the effect hasmixed arguments and perspectives, there has been a number of theories putting forward toexplain why gender diversity may carry profound impact on firm’s value

Smith et al (2006), who utilized a panel study of 2500 Danish firms to examine the role of

women in top management on firm performance, revealed that companies which have high level

of diversity in boardrooms appear to outperform those which have lower diversity level sincediversity in boardrooms facilitates greater comprehension of marketplace by matching the boarddiversity to that of customers and staff thereby improving the ability of market penetration

Gender diversity as theorized by Singh et al (2008), results in creativity and innovation since

such characteristics do not have random distribution in the population, therefore creating positivechanges for corporate profitability An exploration of board diversity in Austraila also producedsimilar empirical results This research examined gender diversity among top 100 public listedcompanies’ board, reporting limited practices of gender diversity in the boards of Australiancompanies This is despite the recent public commentary regarding governance practice as well

as the advocacy of board diversity in this nation The relationship between firm performance andboard diversity was tested based on the agency theory (Jensen & Meckling 1976, Fama & Jensen1983) who emphasized the self-interest principle and separation of ownership and control couldlead to intensified costly conflict of interests between managers and shareholders The theoryadvocated for board diversity and firm performance According to the findings reported by both

Singh et al (2008) and Busta (2007), there is a statistically significant and positive relationship

between board gender diversity and firm performance, showing consistency with the agencytheory that board gender diversity can improve board’s ability to monitor managements Thosestudies explored the proportion of female directors on board who truly increased board’sindependence because they appear to ask questions which their male counterparts might not askand the board gender diversity can create a source of competitive advantage for company if it

enhances the firm’s image and positive effect on customer’s behaviour and thereforeperformance.

Nevertheless, it is worth acknowledging that the gender diversity role and its contributiontowards the effective functioning of the corporate boards have been left unexplored in developingand emerging markets in which gender discrimination is popular cultural fact It is evident thatthe empirical evidence on the role of female directors on corporate board and its effect oncommercial banking sector is virtually non-existent, which motivates the current research toattempt to address this research issue in the context of a sample of commercial banks in Vietnam

The proportion of high-profile women on the executive board, as reported by Smith et al (2006,

is not positively associated with financial performance In this research, it was noticed thatfamily-controlled companies in Malaysia possess higher proportion of women on the board.Opposing to this perspective, the research conducted by De Andres,and Vallelado (2008, revealedthat financial performance indicators, measured by Tobin’s Q and return on assets, can be driven

by gender diversity Companies with women occupying CEO positions were reported to generatemore profit margins and return on sales (Singh & Vinnicombe 2004) Utilizing a sample ofleading banks in the UK, the empirical study conducted by Levine (2004) reported that boardswith only one female executive can deliver increased profitability ratios

Although prior studies tend to observe the significant and positive effect of female directors onboard on the financial performance, the relationship between board size and performanceindicators has neutral association Nevertheless, in order to acquire appropriate stability forgender diversity on board, supervisory and law-making attempts must be done (Darmidi 2010) Inthe recent research conducted by Kersley and O'Sullivan (2012), female directors in Pakistanibanks tend to reduce financial performance, giving unfavourable signal to investors owing to thesocietal stereotype in this developing country criticizing the destructive and disturbing behaviour

of female executives who are not well-educated, not confident and tending to avoid risks

Research conducted by Hussein and Kiwia (2015) reported that due to cultural differences,emotional instability and patience matters, female CEOs tend to reduce financial performanceproxies However, the study done by Brennan (2010) concluded that special characteristicspossessed by female executives needed to have positive impacts on the organizational strategicimplementation are positively associated with return on sales and investments Sample firms in

this research with at least one female director can assist more productivity and provide effectivemanagerial oversight to increase more efficient management of resources to generate higherreturns.

Scholars interested in the participation of women on director board and bank performance tend tosupport that board diversity with more female directors are positively associated witheffectiveness in board governance and managerial control According to the research done byNielsen and Huse (2010), the impact of board diversity on shareholder’s value was documented.Despite an unclear association between those two variables since there is no reported statisticallysignificant relationship, diversity is still a part of exemplary governance structure and enhancedthe board professionalism that might create boosted bottom line Additionally, as the aftermath ofthe 2008 credit defaults and turbulence posited, it is quite critical to elect the director board withhigh-profile and responsible directors with high level of expertise and qualifications so thatgovernance practices can be improved and change management process can be implementedeffectively to recover financial prospect and sustainability of the organization Indeed, when theappointment of female directors is not successful, according to Adams and Funk (2012), banksmight face unconscious or conscious discrimination attitudes which might fail the effectiveprocess of the decision-making of the financial entities In this regard, a key aspect forappropriate governance practices could rely on more transparency and openness of the leadershipselection process and this might assist the promotion for women to participate into the director

board of the banks as evidenced in the research conducted by Barako et al (2006) who concluded

that consideration was prioritized for female candidates to apply for the CEO or high rankedexecutives in a sample of recapitalized banks in Iceland so that the restoration of the confidenceand normal operation of the banking system can be done

However, the problems of governance practices inherent in banks for the composition as well asduties of the director board have been at the core of it Board diversity is therefore not a matterwhich have gained academic attention Indeed, there is a large number of empirical research onthe role of female directors on bank performance focusing on the examination of the differences

in executing female executives’ performance and other minority owned US commercial banks

The research conducted by Anderson et al (2004), concluded that minority-owned banks appear

to be smaller and less profitability but incurred more expenditure than comparable groups of

non-minority banks Another recent research done by Staikouras et al (2015), on the other hands,

reported that minority-owned banks had improved capital ratios and reduced holdings of liquid

assets meanwhile keeping expansions of the purchased funds by comparing the operatingperformance of their sample banks relative to the set of banks with best practices The findingsindicated that female-owned banks are the most effective in the sample of minority and female-owned banks.

Grosvold et al (2007) examined board diversity among a large sample of UK banks and Norway

banks over the year 2003 and their findings revealed no fundamental association betweenperformance-based ratios including Tobin’s Q, ROE and ROA, and the structure of the directorboard In perspective of the phenomenon of generally traded on an open-market association for

UK banks, it was reported that the growing number of female board directors can establish morefreedom and diverse decision making for the board With various qualities, this can improvethinking and decisions for bank strategies and diverse board can have support for bankingactivities

It is quite crystally clear from the above review that gender diversity can be seen as a significantdeterminant driving corporate financial profitability despite the fact that its effect on firmperformance is inconclusive since empirical studies vary across countries Although the effect hasmixed arguments and perspectives, there has been a number of theories putting forward toexplain why gender diversity may carry profound impact on firm’s value Nevertheless, it isworth acknowledging that the gender diversity role and its contribution towards the effectivefunctioning of the corporate boards have been left unexplored in developing and emergingmarkets in which gender discrimination is popular cultural fact It is evident that the empiricalevidence on the role of female directors on corporate board and its effect on commercial bankingsector is virtually non-existent, which motivates the current research to attempt to address thisresearch issue in the context of a sample of commercial banks in Vietnam

Following the increasing academic interest in board gender diversity and the effect of thepresence of female directors on the boardroom, especially in developed economies, it is of greatinterest to examine the pattern of board gender diversity in Vietnam with a particular emphasis onthe commercial banking sector, in a way to make academic contributions to the limited research

on board diversity from a developing country perspective The explanatory mode of study applied

in this research intends to shed some practical implications into gender diversity in the banks’boardrooms in such an economy in which there is a lack of regulatory frameworks related to

board composition As evidenced from some studies conducted in the Europe, they have begunregulating the composition of the director board regarding its diversity by establishing genderquotas, applicable in Sweden, Norway and France Additionally, there have been some regulatoryrecommendations made for maintaining board effectiveness such as the Tyson Report (2003),Higgs Review (2003), Combined Code (2009, 2010) However, in Vietnam, there is virtually nosuch guidelines for board diversity and therefore companies are advised to promote genderdiversity in general as part of the socially responsible business practices While Ashbaugh-Skaife

et al (2006) and Grosvold et al (2007) supplied the characteristics of companies with ethnic

minorities on board for the US and the UK accordingly, the present research addresses thatresearch gap in the context of Vietnamese commercial baking as one developing economyutilizing a different dimension for board diversity, for example, gender and nationality diversity.The present research therefore concentrates on the participation of women directors in bankboardrooms as board diversity variable which is the predictor for the bank performance Theempirical effect of this board composition attribute on performance of a selected number of

Vietnamese commercial banks is investigated According to Zulkufly et al (2015), the circles of

corporate governance feature board gender diversity which includes the participation of women

on the boardrooms, which is the definition applied in the present research In addition other banking industries which have been conducted in another economic contexts are not capable ofbeing generalized to commercial banking since there is a significant difference between banking

non-and non-banking industries (Zulkufly et al 2015, Croson & Gneezy 2009) Another motivation

for choosing the commercial banking data is that almost all of the prior research articles havebeen dealt with multi-sectoral companies therefore tending to produce inconclusive findings as

acknowledged by Balasubramaniam et al (2015) and Dobbin and Jung (2011) In order to

contribute to the academic literature, this research seeks to focus merely on the commercialbanking sector and the data for the research is quite easily accessible

This research contributes to the extant literature by supplying updated empirical evidence on theinfluence of women presence and board monitoring on the financial performance of commercialbanks in Vietnam To the best of the researcher’s knowledge, there has been virtually no priorexamination to be implemented regarding the extent to which Vietnamese banking sector hasperformed after it has undergone the structure change with a particular attention to genderdiversity in the boardroom As such, this research intends to provide a number of practicalunderstandings as well as implications regarding the contribution of female executives in general

or independent female directors in particular Finally, the results of the present empirical researchpromise to generate practical insights and implications into the authority accountable forcontrolling the extent of gender diversity as well as oversight mechanism of the board ofdirectors.

The research question is as follows:

What is influence of women presence in board on profitability of commercial banks in Vietnam?

As a result of the literature review, the following hypotheses are developed

H1: There is a significant positive relationship between female representation on the board

of directors and commercial bank’s financial performance in Vietnam.

H2: There is no significant positive relationship between female representation on the board of directors and commercial bank’s financial performance in Vietnam.

Saunders, Lewis and Thornhill (2012) asserted that within the field of academic research, thereare three type of researches, which are qualitative, quantitative and a mixed method that combineboth quantitative and qualitative In which, the quantitative research refers to research methodthat use numerical and statistic and non-numerical data such as graph and chart to generatemeaning of founded information, analyse and interpret these data On the other hand, qualitativeresearch refers to research methods that use non-numerical data that was obtained from narrativeresearch and interview, then make senses and interpret these data by using personal knowledgeand understand of researchers Denzin and Lincoln (2005) mentioned that the nature ofquantitative and qualitative research is different, which lead to distinctive methodologies of eachresearch type in collecting, analysing and interpreting finding Thus, qualitative research ispreferred by researchers who want to explore certain event or phenomenon by collecting,analysing, interpreting and making sense of data that was collected within the natural context andsetting of the research object This method is applied in order to gain in-depth understanding ofthe phenomenon or event, through which, generalize theory for the phenomenon or event Forthis reason, qualitative research process required physical access of researchers to research