In this study, the author characterized corporale goveranec by the Board of Director's sive, CRO duality, Board of Directors independence, managerial ownership, state ownership, and audi
Background of the stuủy,
Corporate governance is essential for establishing effective structures and processes for managing firms and guiding strategic development Adhering to principles of good governance ensures transparency, accountability, fairness, and responsibility in management practices, which are crucial for building stakeholder trust and promoting sustainable growth.
Corporate governance is increasingly important for boosting firm efficiency and ensuring long-term value creation for both shareholders and stakeholders It is heavily influenced by key parties involved in a company's management structure, including shareholders, investors, creditors, employees, and government authorities The primary goal of implementing good corporate governance practices is to optimize long-term company value while maintaining transparency and accountability As Vietnamese joint-stock companies face evolving regulatory requirements, more organizations are adopting robust corporate governance principles to enhance corporate performance and stakeholder trust.
Taw as well as the demands of stakeholders of the business
Policymakers and companies alike are increasingly focused on strengthening corporate governance to prevent financial scandals High-profile failures such as Enron and Equifax in the US, along with the collapses of HLH, One.Tel in Australia, and Parmalat in Italy, highlighted the need for robust governance mechanisms These crises raised significant concerns about the effectiveness of existing oversight systems In response, the US implemented landmark regulations like the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 to enhance corporate transparency and accountability Similarly, these international scandals spurred greater public interest and regulatory reforms aimed at improving corporate governance standards worldwide.
Inzecent years, Vietnam has made many reforms in the legal field Therefore, Corporate govemance regulations have made important progress Currently, the Enterprise Law of
In Vietnam, the foundational legal frameworks for corporate governance are primarily established by the Securities Law of 2006 and the Civil Code of 2005 However, the adoption of international best practices in corporate governance, such as the OCD 2004 Code of Conduct, remains limited mainly to listed companies and, to a lesser extent, public companies, indicating room for broader implementation across the corporate sector.
The first, Vietnam Corporale Governance Cods of Resl Practices for Public Cornparnes was launched on August 13 by the State Securities Commission of Vietnam (SSC) in Ho
Chi Minh City Tl was developed with technical supporl from the Tnternalional Finance
Corporation (FC), a member of the World Bank Group, and in partnership with the Swiss
The State Secretariat for Economic Affairs (SCO) has issued a comprehensive code outlining best corporate governance practices primarily for Vietnamese public companies This code recommends standards that surpass minimum legal and regulatory requirements, promoting the adoption of international best practices Implementing these guidelines will help Vietnam align with its ASEAN peers, who have long established similar corporate governance frameworks.
From an internal perspective, the Company's Charter and Regulations are the basis for dealing with corporaic governance issues Thus, in terms of form, Vietnam has frameworks for corporate governance
In October 2006, MPDF published a comprehensive research report on corporate governance in Vietnam, analyzing 85 large enterprises across various legal types and industries The study offered valuable initial findings and strategic recommendations to inform the drafting of the Enterprise Law, aiming to improve governance standards in Vietnamese businesses This influential report contributed to the broader development of corporate governance policies in Vietnam during that period.
The bank released a comprehensive report evaluating Vietnam's corporate governance compliance with the Standards and Principles of Securities Compliance (ROSC) The report reviews the legal framework, practices, and adherence levels of listed companies, assessing how Vietnam’s corporate governance framework aligns with internationally recognized standards This analysis provides insights into the progress and challenges faced by Vietnamese companies in implementing effective governance practices since Vietnam's market regulations were established in 2008.
Research Division - Vietnam Assessment Report Company surveyed the corporate governance issue Lor joint-slock companics in the ranking of 500 largest enterprises in
Vietnam, recommended some structural issues, number, and composition of the Board of
Vietnam's corporate governance practices currently face significant gaps, with the legal framework, business operations, and compliance reality often misaligned The internal control system is notably weak, and policies designed to protect minority shareholders lack clarity and effectiveness Additionally, the transparency of disclosure mechanisms remains limited, highlighting the need for strengthened governance policies to align with global standards and protect stakeholders effectively (Loean and Gordon, 2008).
Objective of the study
Research on the impact of corporate governance on firm performance has yielded mixed findings To address this inconsistency, this study aims to precisely assess how corporate governance influences profitability among Vietnamese companies, utilizing an updated, time-series sample for comprehensive analysis.
This study investigates the impact of corporate governance factors on firm performance among Vietnamese listed companies It examines whether Board independence, CLO duality, and State ownership have a negative effect on firm performance Additionally, the research explores whether Board size, ownership by the Board of Managers, gender diversity on the board, and audit quality positively influence firm performance The findings aim to provide insights into how these governance variables shape the financial success of companies in Vietnam.
This paper is organized into five sections, beginning with the Literature Review that highlights key theories and prior research while explaining hypothesis development The third section covers the data and methodology used in the study Section 4 presents descriptive statistics and findings on the relationship between governance and performance The final section concludes the paper and suggests directions for future research.
Extensive research has established a strong link between corporate governance and firm performance, highlighting that well-managed companies tend to be more competitive, efficient, and capable of delivering higher dividends to shareholders (Brown & Caylor, 2004) Corporate governance plays a crucial role in fostering growth and financial stability by enhancing investor confidence, strengthening financial market credibility, and promoting economic efficiency (Jesover & Kirkpatrick, 2005) Furthermore, effective corporate governance is vital for sustainable economic growth, as it supports long-term development goals (Spanos, 2005) According to Sadiq Shahid and Abbas (2019), good governance practices boost investor confidence, leading to increased investment levels and more sound decision-making by board members Companies with strong corporate governance frameworks tend to enjoy higher market valuations due to reduced capital costs, emphasizing the importance of governance in enhancing firm value.
Research by Bai, Liu, La, Song, and Zhang (2004) highlights the importance of corporate governance in influencing firm performance Bhagat and Bollon (2008) explore the endogenous relationship between corporate governance, firm performance, capital structure, and ownership structure, concluding that strong corporate governance is positively linked to better company performance Similarly, Akdogan and Boyacioglu (2014) find that the level of application of corporate governance principles significantly impacts return on assets and return on equity, with a positive effect.
Corporate governance is crucial for enhancing a firm's performance, with a well-established link between effective governance practices and improved financial market development in both emerging and developed markets (Black, 2001; Klapper and Love, 2002; Gompers et al., 2003; Beiner and Schmid, 2005).
However, ualure, direcion, magritude and operating proc s of the relationship
‘between developed and developing financial economies differ due to differences in their economic, social, regulatory structure, and consumer behaviors (Heinrich, 2002;
Research indicates that the relationship between corporate governance and firm performance has been widely debated in developing economies Fhikioya (2009), examining 107 firms listed on the Nigerian Stock Exchange from 1998 to 2002, found that ownership concentration positively influences firm performance Similarly, Arora and Sharma (2016) suggested that larger corporate boards in India are linked to a broader scope of academic expertise, which enhances decision-making processes and improves overall performance.
Kathuria (2020) indicated the performance of Indian distribution utilities is better both financially and technically with a high corporate governance index Ow Shu and Chiang's
A 2014 study examined the impact of corporate governance on corporate social performance, emphasizing the influence of both inside and outside block shareholders in Taiwanese listed companies Additionally, a panel sample of 493 non-financial firms in Thailand was analyzed, with firms categorized into small and large subsamples to explore how different corporate governance structures affect firm performance This research highlights the significance of shareholder influence and firm size in shaping corporate social responsibility outcomes.
The corporate governance framework in Vietnam is still in its developmental stage, addressing various perspectives such as legal considerations explored by Nguyen (2008), and qualitative approaches examined by Le and colleagues (Detthamronga, Chancharata, and Vilhessonthi, 2017) Despite ongoing progress, there is a need for further research to strengthen corporate governance practices and transparency in Vietnam’s evolving business environment.
Walker (2008), and quantitative approach by Vo and Phan (2013a, b, ¢, d) Vo and Phan's consecutive studies cavered a wide variety of corporate governance issues, however, their eslimmalion for firm performanes is (airly restricted
The research on agencies problem has been carried out extensively in varioux academic fields such as accounting (Ronen and Balachandran, 1995, Watts and Zimmerman, 1983)
4 finance (Frydinan and Jenter, 2010, Tosi, Wemer, Katz and Ηmez-Mejia, 2000), economics (Jensen and Meckling, 1976, Ross, 1973, Bloom and Milkovich, 1998,
The relationship between principals and agents is a central concept in various fields, including sociology and customer behavior research This dynamic involves principals hiring agents to perform tasks or make decisions on their behalf, which can lead to conflicts of interest when the agent's actions do not align with the principal's best interests (Jensen & Meckling, 1976; Schroeder et al., 2011) Such conflicts often arise due to differences in ownership independence (Laiho, 2011; Rasiah, 2012) and varying risk preferences, potentially resulting in decision-making that diverges from the principal’s objectives.
Research indicates that issues such as information asymmetry (Linder and Moss, 2015), moral hazards (Palia and Porter, 2007; Panda and Leepsa, 2017), and agency problems can significantly reduce firm performance (Dawar, 2014; Abdullah, Shah, and Khan, 2012) Family ownership and management play a crucial role in mitigating agency costs, thereby enhancing governance effectiveness (Purkayastha, 2019) Additionally, creating incentives aligns managers' interests with those of shareholders, further promoting improved firm performance.
Different organizational structures influence how firms behave and make decisions The one-tier (unitary) board of directors, common in the Anglo-American tradition, features a single board that controls managerial discretion, streamlining decision-making processes Conversely, the two-tier board system, prevalent in many continental European countries like Spain and Italy, consists of a management board responsible for operational decisions and a supervisory board elected by shareholders that oversees management to protect stakeholder interests The one-tier model is primarily used in the United States, while most European countries adopt the two-tier system to ensure balanced oversight and governance.
Portugal) or the two-tier board model (ic Austria, Germany, the Netherlands}, In
Vietnam, listed company have to follow Lwo-lier syslem Nonolholess, bolh the eme-Hier and two-tier models exist in governance structure of Vietnamese company
Principal-principal conflict is defined as the conflict of interest among, shareholder proups in a corporalion Majorily of corporate govortumec-related papers mention principal— principal conflict In emerging economies principal-agent perspective may he restricted, because most ownership patlerns are family ownership or goverment, ownership (Young, ct al 2002) Therefore, it is likely to happen conflict between majority sharcholders (principals) and minority shareholders (principals) in these country Principal principal conllict may contribufe to ligh agency costs (Su et al., 2008) The Principal-principal problem may be worse when individual shareholders can lobby upper management for act in himself-interest
Stewardship theory relers to the silualion in which a person works to fulfill the roles and obligations they have been entrusted with It argues that people are collectve and pro- organizational rather than individualistic, and therefore work Lowards achieving mutual objectives Under the principle of stewardship, company executives defend the owners’ or shareholders' rights and make decisions on their behalf Their primary aim is to establish and sustain a profitable organization The differences between the stewardship and the agency are that the agency theory refer to extrinsic satisfaction that can be estimated by market value whereas the stewardship relate to intrinsic satisfaction such as motivation, achievement, or reputation Tn addition, a stewardship-orienled manager realizes thal the personal remuneration can be met by working hard to achieve good performance Additional new knowledge from this theory focuses not on monitoring and control but on the function of the system
Measuring corporate governance remains a contested issue, with various indices developed to assess its effectiveness Gompers et al (2003) created a Corporate Governance Index for 1,500 firms in the 1990s, based on 24 criteria, revealing that investing in companies with higher governance ratings can yield returns of up to 8.5% They found that firms with strong governance ratings tend to have higher firm value, income, and growth rates Bhagal and Bolton (2019) compiled an extensive set of governance measures from finance, accounting, and law literature, highlighting that director stock ownership is a key indicator positively correlated with future corporate performance Conversely, Li et al (2020) emphasized that board composition, ownership structure, and managerial characteristics may predict financial distress but show weak or no association with future performance in commercial indices In developing countries, corporate governance factors such as board size, composition, and CEO duality significantly impact firm performance (Benjamin, 2009; Akshila and Chandan, 2016; Saseela, 2018) In Vietnam, board gender diversity, audit quality, and state ownership are critical factors influencing the relationship between governance and firm performance (Thanh Binh and Huong Giang, 2012; Due and Thuy, 2013) The board of managers also plays a vital role in corporate governance, as managers determine transparency and responsibility (Bevviwa, Baldacchino, and Azzopardi, 2014) In this context, corporate governance is measured through variables such as board size, CEO duality, board composition, managerial and state ownership, and audit quality.