The purpose of this paper is therefore to ascertain the relationship between three factors: information asymmetry, corporate governance and operational efficiency in the same model, espe
Trang 11.1 Rationale
There has been a considerable amount of studies on corporate governance (CG) as
well as the relationship between CG and company’s performance or between CG and
information asymmetry
Each relationship has led to different results For example, Hermalin and Weisbach
(1998, 2003), Bhagat and Black (2002) pointed out that the increasing independence of the
board of directors has a positive relationship with firm’s performance, as it is chosen as a
measure of corporate governance But Bhagat and Bolton (2008) found an inverse relationship
between the independence of the board and operating results of the company, and the board
size also has an inverse relationship with the results of operations (Bhagat, Carey, and Elson,
1999)
Studies on the relationship between corporate governance and information asymmetry
showed the same results Theory suggests that the governance mechanisms in large complex
banking firms are influenced by information asymmetry (Raheja, 2005, Adams and Ferreira,
2007) Besides, the impact of corporate governance mechanisms appears to be industry specific
and relying on ‘one size fits all’ governance models might be misleading (Coles, Daniel and
Naveen, 2008) Therefore, understanding the role of information asymmetry, as well as the
relationship of information asymmetry and corporate governance mechanism, is critical to
develop appropriate governance mechanisms for companies from various different fields
Although considerable research has been devoted to the relationship between corporate
governance and corporate performance, or asymmetric information, rather less attention has
been paid to the relationship of all three factors in the same study
The purpose of this paper is therefore to ascertain the relationship between three factors:
information asymmetry, corporate governance and operational efficiency in the same model,
especially in the banking sector with many specific characteristics The research topic
"Information asymmetry, corporate governance and operational efficiency of commercial
banks in Vietnam" is selected
1.2 Research Objectives
The four main objectives of the study are the following:
Firstly, to verify the relationship between corporate governance and information
asymmetry in the system of joint-stock commercial banks in Vietnam
Secondly, to examine the relationship between corporate governance and
operational efficiency of joint-stock commercial banks in Vietnam
Thirdly, to ascertain the relationship between information asymmetry and
operational efficiency of joint-stock commercial banks in Vietnam
Finally, by examining these relationships and analyzing the situation of corporate
governance in joint-stock commercial banks, to make recommendations in order to
efficiency of joint-stock commercial banks in Vietnam
1.3 Research Questions
Starting from the above mentioned objectives, the following research questions arise:
- What elements of corporate governance affect information asymmetry in joint-stock commercial banks in Vietnam?
- What elements of information asymmetry affect operational efficiency of joint-stock commercial banks in Vietnam?
- What elements of corporate governance affect operational efficiency of joint-stock commercial banks in Vietnam?
1.4 Research Object and Scope
The research object is the relationship between corporate governance, information asymmetry and operational efficiency of joint-stock commercial banks in Vietnam Scope of research: Corporate governance, information asymmetry, operational efficiency of joint-stock banks listed on the Hanoi Stock Exchange (HNX) and the Ho Chi Minh City Stock Exchange (HOSE) from 2006 to 2014
1.5 Research Methods
- The thesis is based on quantitative research methods
- The sample includes 16 commercial banks listed on stock exchanges in Hanoi and
Ho Chi Minh City from 2006 to 2014
- The variables are divided into 04 groups: The first group includes 08 corporate
governance variables The second group consists of 02 information asymmetry variables The third group has 01 variable of operational efficiency of banks The fourth group includes 03 supervisory variables
- Data analysis methods: Using SPSS, Excel
1.6 Research Achievements
Firstly, building a form of research Secondly, examining the relationship between
three factors: corporate governance, information asymmetry and operation efficiency of
commercial banks Thirdly, making recommendations
1.7 Research Outline
Trang 2Chapter 2
operation
Chapter 3
Chapter 4
Chapter 5
1.8 Research m
H1: the relations
H2: the relations
H3: the relations
CHAPTER 2:
INFORMATIO
COMMERCIA
2.1 Overview of
2.1.1 Definition
Corporate
researchers often
According to Fin
relationship of a
Mulbert (2010)
process at the le
objectives of the
defined as a set
shareholders and
account to ensure
the interests of the
r 2: Literature review on corpora
onal efficiency of commercial ba
r 3: Research Methodology
r 4: Research Findings
r 5: Discussion and Recommend
model and hypotheses
nship between information asym
nship between corporate governa
nship between corporate governa
Figure 1.1:
2: LITERATURE REVIEW
ION ASYMMETRY AND
IAL BANKS
of Corporate Governance
n
e governance is defined in a
en divide the definition of corpora
Financial Times in 1997: "Corpo
a company to its shareholders or,
) defined corporate governance,
level of the board of directors a
e company and shareholders In r
set of relationships between a c
nd other stakeholders A proper co
re the operation of the board of dir
the company and its shareholders (
Corporate
governance
O effici
rate governance, information as banks
ndations
mmetry and operational efficien rnance and information asymmet rnance and operational efficiency
.1: Research model
W ON CORPORATE GOV OPERATIONAL EFFICI
a variety of ways by academic rate governance in the broad and rporate governance is defined na , more broadly, as its relationshi , in the broad sense, is the dec and senior managers in order to
n researchers’ opinions, corporate company's management, board orporate governance mechanism irectors and the management, in a
s (OECD, 2004)
Operational iciency of banks
Informatio asymmetry
asymmetry and
ency of banks
etry
cy of banks
VERNANCE, CIENCY OF
ics However,
d narrow sense
narrowly as the ship to society.”
decision-making
r to achieve the
te governance is
rd of directors,
sm is taken into
a bid to pursue
tion try
narrow and broad sense, there are similarities between these two approaches Firstly, the
management structure specifies the distribution of rights and responsibilities between different participants in the company Good corporate governance is distinguished by responsible interaction between the owners, the board of directors, the committees of the board of directors,
senior and mid-level executives, and operational staff Secondly, corporate governance
structure is concerned with ensuring the protection of the rights and interests of shareholders and other stakeholders; transparent and consistent reporting of information; as well as compliance with international accounting standards, organizational culture and ethical
standards Thirdly, corporate governance can be seen as one of the management tools to help
company’s owners control the activities of executives, supervisory board, the board of directors, and other members of the company
2.1.2 The Importance of Corporate Governance
The ultimate goal of corporate governance is to help the decision making process, through the development of a mechanism specifying the rights and responsibilities assigned to each body of a company Properly identifying what the roles in the corporation are allows decisions to be made that won’t have a negative effect on the overall corporation, and it means that the offender can be much more quickly identified and punished instead For example, the company's board of directors is ultimately responsible for its management evaluation If the company has poor management, then it is the fault of the board for not properly evaluating the manager
Another important aspect of corporate governance is mitigating or reducing the amount
of risk that is involved By knowing their roles and responsibilities, participants in the company can understand what they are held accountable for and take more responsibility for their actions Besides, in terms of business operations, a company with corporate governance will be widely accepted by the public This is due to the idea of disclosure and transparency in operations including financial issues, investment, as well as the company's vision and orientation
2.1.3 Corporate Governance Models around the world
Based on the characteristics of the financial system and the separation between ownership and management, researchers divided corporate governance into 3 models: (1) The 'Anglo-Saxon' corporate governance model (i.e the US and the UK); (2) The German corporate governance model; (3) The Japanese corporate governance model
Europe)
Japanese
Oriented towards
Considers
Shareholders’ property right
Shareholders’ property right and company’s relationships with its employees
Stakeholders’ interests (keiretsu)
Management Executive directors Board of Directors Board of Directors
Trang 3Europe)
Non-executive directors Supervisory Board Revision commission
Strengths Market discipline
High transparency
Multiple risk carriers Mutual benefits
Direct influence of owners
Growth Through organic growth, mergers and acquisitions
Financial
provision
- Low risk of debt distress
- Low debt-to-equity ratio
- Using complex financial
instruments
- High risk of debt distress
- High debt-to-equity ratio
- Using less complex financial instruments
Control and
management
- Separating between ownership
and management
- Reducing investors' motivation
to participate in the management
- Coordinating between control and management
- Managing by all of the parties involved (banks, corporations, shareholders)
Weaknesses
- Volatile
- Monopoly
- Managers may derive improper
personal benefit
- Slow reaction
- Potential conflicts of interest
Resistance to change
Table 2.1: The main features of corporate governance models
2.1.4 The differences in corporate governance between banking firms and other
companies
Corporate governance of banks differs from that of non-financial firms These differences
are largely caused by: (1) larger scale impact; (2) far higher leverage; (3) regulation; (4) more
complex capital structure; (5) more severe information asymmetry and adverse selection
problems; (6) the complexity of their business and structure
2.1.5 Theories of corporate governance and corporate governance measure
2.1.5.1 Agency Theory
“Agency theory” is part of the bigger topic of “corporate governance” According to the
theory of the relationship between principals (owners) and agents (managers) – principal-agent
theory – owners hires managers to run the firm on their behalf In this sense, corporate
governance is rooted in the private sector and concentrated on the relationship between
company and shareholders
However, OECD (2004) defines corporate governance in a broader sense This
organization reckoned that “corporate governance involves a set of relationships between
a company’s management, its board, its shareholders and other stakeholders.”
Accordingly, “corporate governance also provides the structure through which the
objectives of the company are set, and the means of attaining those objectives and
monitoring performance are determined.” Dao (2012) pointed out three primary
assumptions applicable to the agency theory including: normal/competitive markets; the
nexus of information asymmetry is the principal-agent relationship between managers and
owners; and optimal capital structure requires financial leverage
2.1.5.2 Stakeholder theory
Stakeholders can be divided into two categories: internal and external stakeholders External stakeholders include suppliers, customers, creditors, clients, intermediaries, competitors, society and government Internal stakeholders such as employees, owners, board
of directors and managers are directly involved with the operations of the business All of these parties participate in the process of monitoring the performance of the company either directly
or indirectly, but at different levels and with different objectives
Friedman (2006) suggested that an organization should be a grouping of stakeholders and its role should be to protect their interests, needs and viewpoints based on some ethical principle
There are three approaches of stakeholder theory: descriptive/empirical, instrumental, and normative found in the literature (Dao, 2012) However, Donaldson and Preston (1995) concluded that the three approaches to stakeholder theory, although quite different, are mutually supportive and that the normative base serves as the critical underpinning for the theory in all its forms
2.1.5.3 Stewardship theory
Stewardship reflects an ongoing sense of obligation or duty to others based on the intention to uphold the covenantal relationship According to Penner, Dovidio, Piliavin, & Schroeder (2005), stewardship behaviors are a type of prosocial action intended to have a positive effect on others Stewardship theory also states that managers seek other benefits besides financial ones, such as a sense of worth, altruism, a good reputation, a job well done, a feeling of satisfaction and a sense of purpose
The stewardship theory holds that managers inherently seek to do a good job, maximize company profits and bring good returns to stockholders They do not necessarily do this for their own financial interest, but because they feel a strong duty to the firm Stewardship theory also advocates managers who are free to pursue their own goals
2.1.5.4 Measure of Corporate Governance
Corporate governance has been measured in many different ways and variables Edward and Clough (2005) found that the most common proxies used in the corporate governance codes are: the size of the board of management; separation of Chairman and CEO (duality); independent board members; balance of directors' skills and competencies; and supervisory board and other board committees
Some other studies (Vo & Phan, 2013) used the presence of female board members and educational qualifications of board members as variables for corporate governance Le et al (2015) took the size of the board of directors, the duality between Chairman and CEO, the gender of CEO, independent board members and the size of the board of management to measure corporate governance variables
Dao et al (2012) considered board size, foreign ownership proportion and board characteristics and composition as corporate governance variables
Nguyen et al (2015) also selected ownership structure including state ownership and foreign ownership as corporate governance measures
Trang 4shareholders in corporate governance
In their studies, Adams and Fereira (2007); Doan and Le (2014) also developed corporate
governance measures with certain variables including the experience of the board of directors
Based on corporate governance measures stated above, the thesis will take into account
eight variables including: The size of the board of directors; The number of women in the
board; Educational attainment of the board; Work experience of the board; Number of
independent members of the board; Major shareholder; The proportion of state ownership and
foreign ownership
1 Bodsize Board size Total number of directors in the board of directors
2 Gender Female members of the board of
directors
Total number of female board directors
3 Edu Educational attainment of the
board
Members with postgraduate qualifications
4 Board Age Work experience of board
members
The average age of the board of directors
5 Block Major shareholders Dummy equal to 1 if shareholders hold more than 5%
otherwise
6 State State ownership Dummy equal to 1 if the company is state-owned and 0
otherwise
7 Fown Foreign ownership Percentage of shares owned by foreign investors
8 Outdir Outside directors in the board The participation of outside directors in the board (can
by total directors)
Table 2.3: Corporate governance measures in banks
2.2 Overview of information asymmetry
2.2.1 Definition
Information asymmetry is a condition in which information does not reflect timely,
accurately and comprehensively the market and its movements This means at least some
relevant information is known to some but not all parties involved Information asymmetry can
be caused by complex information from various sources, the time receiving information and
different level of processing information of each party It causes markets to become inefficient,
since all the market participants do not have access to the information they need for their
decision making processes
2.2.2 Types of information asymmetry
In financial markets in general and banking market in particular, information asymmetry
is presented in three types of risk: adverse selection, moral hazard and monitoring costs
2.2.3 The impact of information asymmetry in financial and banking system
"Adverse selection” occurs prominently in the financial markets in general and banks in
generally, without sufficient information, sold low-default-risk loans into the secondary market while retaining higher-default-risk loans in their portfolios This is considered to be one of the causes of a potential loss in liquidity of banks, contributing to the financial crisis Insufficient information made it difficult to control loans; hence, bad debts are unavoidable
In terms of "moral hazard", the case of two US corporations Fannie Mae and Freddie Mac can be considered a typical lesson Moral hazard is seen as the main cause for the excessive production and consumption of MBS financial products, leading to the loss of market efficiency Therefore, when the subprime mortgage market collapsed, Fannie Mae and Freddie Mac completely lost their liquidity
According to agency theory, the shareholders (called principals) who are the owners of the companies delegate day-to-day decision making authority in the company to the directors, who are the shareholders’ agents The agency problem occurs when the two parties have different interests and information, creating favorable conditions for high levels of information asymmetry (Pilbeam, 2010)
2.2.4 Research on information asymmetry
The theory of information asymmetry was developed by Akerlof (1970) in his paper Akerlof, Spence (1973) and Stiglitz (1976) proposed a number of recommendations on how to improve the information process According to the general theory of banking, the term information asymmetry can be replaced by "opacity" Flannery, Kwan and Nimalendran (2004) defined "opacity" as the lack of transparency when outside investors cannot value the asset very accurately, but insiders or specialists can
Morgan (2002) suggested that information asymmetry is associated with bank characteristics; and banks are generally more opaque than non-financial firms He attributed this to the specialized nature of banks’ underlying assets making it difficult for outsiders to assess risk Levine (2004) argued that outside investors cannot adequately monitor the loan quality in banking He said that banks can readily hide problems by extending loans to clients with high interest rates, causing the further loss of liquidity for clients, thereby affecting their repayment capacity and leading to the loss of bank capital
2.2.5 Information asymmetry variables
According to some studies, there is no generally accepted “best” measure of asymmetric information However, there are some factors that can represent information asymmetry variables such as: the number of researchers (Brennan and Subrahmanyam, 1995); the number
of shareholders (Allen, 1993); company size (Vermaelen, 1981); research and development costs (Barth and Kasznik, 1999); Tobin's Q index; financial leverage index (Bebchuk 2003) This research will examine two methods of measurement in which data is obtainable in Vietnam, including research and development costs (R & D) and financial leverage index (Leverage)
2.3 Overview of operational efficiency of banks and methods of measurement
Operational efficiency of a firm is very important to stakeholders such as shareholders,
Trang 5number of different indicators According to Bhagat and Bolton (2008), the most widely used
proxies for the results of operations of the company include: Return on total assets ratio (ROA);
Tobin'Q: calculated by Gom- pers, Ishii and Metrick(2003); Brainard and Tobin (1968); Profit
shares: mixed income in one year (including dividends); Financial leverage ratio: total debt
divided by total equity
Due to data limitations, research on this topic often use single criteria to reflect the
company's operating results, in which return on total assets ratio, profit before tax and
contributions on state budget are the most commonly used measures
In this thesis, return rate on assets ratio (ROA) will be applied as this indicator is publicly
available and examined in various studies in nationwide and worldwide
2.4 Overview of the relationship between information asymmetry, corporate
governance and operational efficiency of banks
2.4.1 The relationship between information asymmetry and operational efficiency of
banks
A number of previous studies have found a relationship between information disclosure
and corporate governance The typical studies of the relationship between information
asymmetry and operational efficiency are those of Lowenstein (1996); Abdul Rahman (2006);
Rizal Abdul Rahman and Salim (2010) These authors argued that transparency and disclosure
of information will contribute to increasing managerial and operational efficiency of banks
Two factors of information asymmetry variables including R&D and financial leverage
(leverage) are also associated with operational efficiency of banks Pandey (2010); Andy,
Chuck & Alison (2002) confirmed the relationship between financial leverage and operational
efficiency, while Sougiannis (1994); Canibano and Garcia-Ayuso (2000) affirmed the
relationship between R&D and operational efficiency
On the basis of these studies, the author proposes the following hypotheses:
H1.1: R&D costs have an impact on operational efficiency of banks
H1.2: Financial leverage index (Leverage) affects operational efficiency of banks
2.4.2 The relationship between corporate governance and information asymmetry
Although considerable research has been conducted on corporate governance, there has
been limited investigation of the relationship between information asymmetry and corporate
governance and the degree of asymmetric information
Shleifer and Vishny (1997), Perotti and Thadden (2003), Pawlina and Renneboog (2005)
and Florackis & Ozkan (2009) found that the presence of large shareholders can reduce
asymmetric information and improve long-term performance However, studies of other
authors showed the opposite result
Cai et al (2006), Hillier and McColgan (2006), Kanagaretnam et al (2007) and Holm
and Scholer (2010) pointed out that board independence is inversely related to asymmetric
information, while Chen and Nowland (2010) suggested that increasing board independence
Adams and Mehran (2005) found no solid evidence on the relationship between board size and firm performance (measured by Tobin’s Q), but Andres and Valleado (2008) demonstrated a non-linear relationship between board size and operating results of banks Bushman and Smith (2003) emphasized that financial accounting information play an important role as the main source of information for investors and lawmakers By reducing adverse selection and liquidity risk, financial accounting information not only mitigates information asymmetries between managers and outside investors but also help the board in their decision-making process Thereby it makes a considerable contribution to improving financial performance of banks and mitigating the risk of investing In addition, previous studies have shown a significant relationship between profits and operating results of senior managers
Healy and Palepu (2001) provided a wider perspective on voluntary disclosure theory Researchers discussed forces that affect managers’ disclosure decisions which are related to capital market transactions Managers in general have superior information to outside investors regarding the firm’s future prospects Hence, when anticipating making capital market transactions, managers have incentives to provide voluntary disclosure to reduce the information asymmetry problem, thereby reducing the firm’s cost of external financing Prior studies also focused on the relationship between voluntary information disclosure and corporate governance For example, Eng and Mak (2003) examined the impact of ownership structure and board composition on the extent of voluntary disclosure They found that lower managerial ownership and significant government ownership are associated with increased disclosure, and an increase in outside directors reduces corporate disclosure
In this paper, the author uses two indicators of information asymmetry including Leverage and R&D In so doing, the author constructs the following hypotheses in order to indirectly evaluate the effect of corporate governance mechanisms on information asymmetry
as follows:
- H2.1: There is an association between board size and R&D costs
- H2.2: There is an association between the number of female board members and R&D costs
- H2.3: There is an association between educational attainment of the board and R&D costs
- H2.4: There is an association between work experience of the board and R&D costs
- H2.5: There is an association between the number of independent board members and R&D costs
- H2.6: There is an association between major shareholders and R&D costs
- H2.7: There is an association between state ownership and R&D costs
- H2.8: There is an association between foreign ownership and R&D costs
- H2.9: There is an association between board size and financial leverage
Trang 6financial leverage
- H2.11: There is an association between educational attainment of the board and
financial leverage
- H2.12: There is an association between work experience of the board and financial
leverage
- H2.13: There is an association between the number of independent board members and
financial leverage
- H2.14: There is an association between major shareholders and financial leverage
- H2.15: There is an association between state ownership and financial leverage
- H2.16: There is an association between foreign ownership and financial leverage
2.4.3 The relationship between corporate governance and efficiency of banking
activities
Many studies have been conducted on the relationship between corporate governance and
firm performance The first measure is to have comprehensive evaluation on corporate
governance by using an index usually called Corporate Governance Index (CGI) The second
measure is to study the relationship between factors in corporate governance and firm
operational efficiency
2.4.3.1 The approach via Corporate Governance Index (CGI)
The study focused on the relationship between corporate governance (represented by
Corporate Governance Index) and the situation of firm performance Many studies used
correlation and regression to check this relationship The results obtained were quite varied due
to the dependence on factor of specific time collecting data and conditions of one country
Studies by Gompers, Ishii & Metrick (2003); Brown (2004) found out forward relationship
between corporate governance and firm performance (Tobin’Q); however, study by Epps and
Cereola (2008) did not find such relationship Similarly, Daines, Gow & Larcker (2009),
Vintila G and Gherghina (2012) conducted the study on experimental relationship between the
assessments on corporate governance and the situation of firm performance listed on US stock
exchange The study provided the result on inverse proportion between sub-indices on
corporate governance (Audit, Board Structure, Shareholder Rights and Compensation provided
by Institutional Shareholder Services) and the situation of firm performance
CGI has inversely proportional correlation with Degree of Financial Leverage (DFL),
Tobin’s Q but has directly proportional correlation with firm scale On the contrary, B, Jang
Hasung, Kim (2003) considered the effect of corporate governance on firm value in South
Korea The result showed the directly proportional relationship between corporate governance
and the percent of Market Value again Book Value In another study conducted by Anderson
A and Gupta P (2009), the comparison among countries on corporate governance (measured
by Corporate Governance Quotient) and the situation of firm performance, the result showed
that directly proportional and inversely proportional correlations depend on financial structure
of the country and its legal system
performance efficiency
The relationship between the number of board members and operational efficiency of banks
There are 2 different schools about the relationship between scale of board of directors (BOD) and firm performance The first school believes that the small scale the BOD is, the more contributions it will make for the success of the firm (Lipton and Lorsch, 1992; Jensen, 1993; Yermack, 1996) The second school follows that BOD working at larger scale will help boost firm performance Many studies have pointed out that large scale BOD will help support and consult firm management at more effective manner due to the complex of business environment and corporate culture (Klein, 1998) In addition, BOD at larger scale will collect and regroup more information Therefore, firm performance will be enhanced with large scale BOD (Dalton and ctg, 1999)
Study hypothesizes:
H3.1: With the impact of BOD scale on banking performance efficiency
The relationship between female member of BOD and banking performance efficiency
Female members of BOD will be the object to usually present in many experimental studies They reflect the specific features and diversity of BOD (Dutta and Bose, 2006) Moreover, according to study conducted by Smith et al (2006), there are 3 main reasons: (1) Female members usually have broader and deeper knowledge about the market in comparison
to male members, which, therefore, will increase the efficiency in BOD’s decisions; (2) the presence of female members in BOD will create more beautiful image of the firm towards the community and positively contribute to efficiency of the firm performance; (3) other BOD members will be enhanced with knowledge about business environment in case female members are assigned
Study hypothesis: H3.2: With the impact of the number of female members in BOD
on banking performance efficiency
The relationship between the level of BOD and banking performance efficiency
The main role of BOD is internal management of the firm (Fama, 1980) BOD is the management apparatus of the firm (Fama và Jensen, 1983) Right decision made by BOD will heighten its corporate efficiency In order to attain this, BOD members shall be equipped adequately with knowledge in fields of finance, accounting, marketing, system information, law and other fields related to management process These requirements mean that each member in BOD will make a significant and positive contribution to corporate governance and firm efficiency, or in other words, firm performance efficiency depends on specification qualification and level of BOD members (Adams and Fereira 2007) (Nicholson and Kiel, 2004; Fairchild and Li, 2005; Adam and Ferreira, 2007)
Study hypothesis:
H3.3: With the impact of education/ academic level of BOD on banking performance efficiency
The relationship between working experience of BOD and banking performance efficiency
There are many viewpoints that member of BOD with senior experience will have more
Trang 7more drastic and dictatorial Other characteristics of BOD members will decide the success or
failure of the corporate (Carlson and Karlsson, 1970) BOD members with higher average age
will have to face with higher pressures in changing working environment, which will impede
the execution of strategic decisions (Child, 1975) Although there are many arguments on the
relationship between the experience of BOD and firm efficiency, in theory on resource
restriction, member with many experiences will handle better in business environment by
working in group effectively, having positive contributions to firm efficiency (Wegge et al
2008)
Study hypothesis:
H3.4: With the impact of working experiences of BOD on banking performance
efficiency
The relationship between independent member of BOD and banking performance
efficiency
The higher independence of BOD is realized as monitoring mechanism and plays an
important role in limiting and controlling matter of representative Study results by McKnight
and Mira (2003) and Henry (2004) also showed that representative cost will be lower if the
number of independent members in BOD is higher Study by Fama và Jensen (1983) identified
that as BOD internal members have more information, they usually collude with the governors
to have decisions against shareholders Therefore, BOD with external members will increase
monitoring capacity, thus will basically eliminate the matter of representative Bhagat and
Black (2002) used the ratio of independent members to subtract to ratio of internal members as
representative variable and results showed that the level of independence of BOD has positive
and meaningful correlation towards the efficiency in short time
Study hypothesis: H3.5: With the impact of the number of independent members in
BOD on banking performance efficiency
The relationship between big shareholders and banking performance efficiency
Experimental studies on big shareholders by Shleifer and Vishny (1997) concluded that
big shareholders have significant impacts on corporate running and management: (1) Small
shareholders will have to suffer from severe consequences from abuse of power during
corporate operation; (2) Strict management of big shareholders group can impede the activity
of the corporate The running and management will not change to timely adapt to the change in
business environment Though many arguments on the impact of big shareholders on firm
performance arose, many studies recognized their importance In detail, big shareholders play
weighty roles in corporate management as they have sufficient skills, time and can closely
follow corporate activities Denis and McConnell (2003), Becker et al (2011) judged that
management power more on the group of big shareholders basically will have positive impact
on the corporate
Study hypothesis: H3.6: With the impact of the factor of big shareholders on
banking performance efficiency
The relationship between state ownership on banking performance efficiency
State shareholders are the same as other shareholders, they also have conflict of interest
but they still have to ensure performance efficiency for the State Moreover, corporates with
state shares often start from State owned capitalized companies and are more preferential than
other joint stock companies such as more favorable incentives from state policies, having more
properties, having more relations with the banks, which helps to approach external capitals
performance is ex Study hypo
performance effi
The relatio
Foreign sha and prevent actio study by Vinh (20 are more interes ratio against equ investors are opportunities M management cap support the corp Study hyp
banking perform
2.5 Study mode
3.1 Resea
3.1.1 Meth
The quanti
3.1.2 Rese
3.1.2.1 Ov
The overal exchanges
(VN-on the OTC mar
Corporate Gov (CG)
- Scale of CG
- Number of fe members in B
- Education le BOD
- Experience o
- Number of independent
of BOD
- Major shareh
- State owners
- Percentage o ownership
expected to be higher
pothesis: H3.7: With the impact fficiency
tionship between foreign owners
shareholders are usually professio tions that can cause damages for sh (2010) on foreign ownership on H ested in the investment on big c quity ratio and low debt ratio
more interested in big, st Moreover, as foreign investo apacity and relationship in the rporate more effectively
ypothesis: H3.8: With the impa rmance efficiency
del
CHAPTER 3: ME earch design
ethodology
ntitative methodology was applie
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ct of the factor of state ownershi
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ional investors with up-to-date sk
r shareholders by the manager Ac
n HOSE from 2007 to 2009, fore
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o Further, Jeon et al (2010) said stable companies with more stors usually have governance
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ETHODOLOGY
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defined as the banks listed on t joint-stock banks which are allo
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Banking rformance fficiency
l variable
r of study
k property scale
r of operation
Trang 8banks of Vietnam, from 2006 to 2014
- The number of bank:
By the end of 2015, the number of banks studied is 15 (HabuBank was merged so
number of sample fell to 15 from 16) out of 28 banks, about 53.57% of the total number
of banks of the whole system
- About the scale of total assets, the samples account for about 69.56% of total
assets of all banks
- About the scale of charter capital, the samples account for 63.15% of total charter
capital of all banks
- About the number of state-owned commercial banks: By the end of 2015, there are
04 state-owned banks left Out of these, data was collected from 03 banks; Agribank was
excluded for not being equitized Thus, the number of state-owned commercial banks in
the samples account for 75% of the sampling
Hence, it is safe to confirm that the sample is highly representative, eligible for
inclusion in the research
3.2 Quantitative research
3.2.1 Research purpose
- Using a multiple regression analysis to test the hypotheses H1.1 and H1.2, while
assessing the impact of the variables representing the asymmetric information and the
controlling variables to the efficiency of the bank
- Using a multiple regression analysis to test the hypotheses H2.1, H2.2, H2.3, H2.4,
H2.5, H2.6, H2.7 and H2.8, while assessing the impact of the corporate governance
variables to the dependent variable which is R&D
- Using a multiple regression analysis to test the hypotheses H2.9, H2.10, H2.11,
H2.12, H2.13, H2.14, H2.15 and H2.16, while assessing the impact of the corporate
governance to the dependent variable which is Leverage
- Using a multiple regression analysis to test the hypotheses H3.1, H3.2, H3.3, H3.4,
H3.5, H3.6, H3.7 and H3.8 while assessing the impact of the corporate governance
variables and controlling variables to the dependent variable which is the efficiency of
commercial banks in Vietnam
3.2.2 Methodology
After being collected, data was filtered, cleansed, coded, input and analyzed by
SPSS v.18
Next, cleansed data was a key in software The research will:
(1) Analyze the relationship between: firstly, independent corporate governance
variables and dependent variables representing asymmetric information Secondly,
corporate governance variables and controlling variables with dependent which are the
efficiency of the bank measured by Return on total Assets ratio (ROA) Thirdly,
asymmetric information variables and controlling variables with dependent variables,
which are the efficiency of the bank, measured by ROA
(2) Analyze the multiple regression model:
In order to analyze the impact of the independent to the dependent variables, 04
multiple regression models were analyzed:
category to dependent variables representing asymmetric information which is R&D Model 2 considers the impact of all factor variables of the corporate governance category to dependent variables representing asymmetric information which is Leverage Model 3 considers the impact of asymmetric information and all the controlling variables to the affected variables which is the efficiency of the bank
Model 4 considers the impact of all factors of the corporate governance category and controlling variables to dependent variables which is the efficiency of the bank measured by ROA
CHAPTER 4 RESEARCH RESULTS 4.1 Overview of corporate governance in commercial banks
The problems existing in the administration of the commercial banks in Vietnam are
displayed via the following points First, the risk management is not well conducted The
NPL ratio, cross-ownership, the intervention of the central and local government and in the lending activities of banks, the bank inspection do not accurately reflect the actual
operation of the financial markets Vietnam Second, at the commercial banks, the
independent members are missing or resonant with the limited capacity of the operator
which leads to low efficiency Third, the non-transparent relationship between the
Director Board, Executive Board and the Control board leads to the lack of objectivity,
especially the independence when performing their function Fourth, current management and structural model still show many drawbacks Fifth, internal governance
of the commercial banks has not been given proper attention Sixth, banking activities are
currently regulated by the Law of Credit Institution, State Bank of Vietnam and Enterprise Law However, in terms of actual law implementation, some documents under the current law are being inappropriately applied, which leads to the safety and efficiency
goals in banking operation not being met Seventh, the current governance framework cannot protect shareholders’ rights; especially minor shareholder Eighth, corruption is still
an issue Ninth, state ownership issue in the bank Some researches also point out that the
biggest factor in preventing the establishment of a corporate governance in banks in Vietnam is the state ownership issue
4.2 Statistical description the studied banks
4.2.1 Statistical description of the characteristics of the commercial joint stock banks in the thesis
- In terms of total assets, the samples account for about 69.56% of the total assets of all banks, which is divided into two distinct groups:
The first group is the 3 big banks of which assets account for more than half (52.27%) of the total assets of the samples, and 36.36% of the whole system, all three are state-owned joint stock commercial bank
The second group is the 12 banks left, with assets account for less than half (47.73%) of the total assets of the samples and 33.2% of the whole system All these banks were established later and the government does not have any stakes in them
- In terms of charter capital, the samples account for about 63.15% total charter capital of all banks Similar to the assets, the sampled banks are also divided into two groups:
Trang 9banks, and 30.91% total charter capital of the whole system
The second group is the 12 banks left with charter capital account for more than half
(51.05%) of the total charter capital of the sampled banks and 32.24% total charter capital
of the banks in the whole system
- Regarding proprietary of the banks, the state-owned joint stock commercial banks
account for 75% of the samples The other banks (12 banks) which are joint stock
commercial banks account for 50% of the total 24 joint stock commercial banks all over
the system
4.2.2 Statistical description of the independent variables which are the factors in
corporate governance and the tested distribution form of independent variable scales
The result of the statistical description shows that, in the period from 2006 to 2014:
- The number of the Director board member ranges from 4 to 11, mostly in the
range of 4 to 7
- The number of female members in the board ranges from 0 to 4, mostly in the
range of 0 to 1, many banks do not have any female board member at certain times
- The education level of the board members ranges from 0 to 9, the majority of the
the board members at the sampled banks in this period do not have any professional
qualification on banking from a university
- The average age of the board member ranges from 39.8 to 57
- The number of independent board members ranges from 0 to 3, mostly under one,
many banks, at certain times, do not have any independent board members
- In terms of major shareholders in the bank, most sampled banks have major
shareholders at different times, only a few exceptions
- Regarding ownership of foreign investors, most sampled banks do not have the
active participation of foreign investors
Skewness and Kurtosis test shows that independent scales have normal distribution,
which ensures the inspection and analysis requirements in the next part
4.2.3 Statistical description of dependent variables
Most sampled banks at most times have the return on assets (equal to 0.010208)
under average (0.01088) calculated by %
Skewness and Kurtosis test shows that dependent variables have normal
distribution, which ensures the inspection and analysis requirements in the next part
4.3 Inspection of the correlation coefficient between the variables of corporate
governance with the variables of asymmetric information and between variables of
asymmetric information with the efficient variable of the bank
4.3.1 Inspection of the correlation coefficient between the variables of corporate
governance and variables representing asymmetric information which is R & D
There are 03 variables which have correlation value between independent and
dependent variables at 99% and reverse correlation which is the variables: the number of
board directors, the number of independent board members and the percentage of foreign
ownership A correlation relationship is not seen between the remaining independent and
dependent variables
4.3.2 Inspection of the correlation coefficient between the variables of corporate
There are 02 variables which have a direct relationship with Leverage variable at 99% which are: Educational level of the board members and state proprietary variable, the variable of the average age of the board members has the direct relationship with Leverage at 95%
4.3.3 Inspection of the correlation coefficient between the variables of corporate governance and the controlling variables with the efficiency variable of the bank
There are two variables that correlate with the dependent variable which are the number of the board directors and the number of independent members at 95% of reliability, the controlling variable Research Year has 99% of correlation There is a very tight correlation between independent variable which is the active years of the bank and the state proprietary with correlation value at 0.815** This is a sign of multicollinearity phenomenon, so in the later process of testing regression results, the multicollinearity phenomenon will be tested to remove the multicollinearity variable if any
4.3.4 Inspection of the correlation coefficient between the variables representing asymmetric information and controlling variable with the efficiency of the bank
Asymmetric information variable and controlling variable which is the Research Year both have reverse correlation with the dependent variable at 99% reliability
4.4 Inspection of the hypothesis and regression analysis to determine the relationship between corporate governance, asymmetric information and efficiency
of the banks
4.4.1 The result of the regression analysis under the first model, the impact of the corporate governance factors to the variables representing asymmetric information is R&D
Table 4-9 displays that the value of the adjusted coefficient R2 is 0.202 This shows that the independent variables in the model explains the 20.2% variation of the R&D variable and the model is appropriate (F = 5,443***) Variance inflation factor VIF of the independent variables analyzed in the first model is < 10, it is concluded that there is no multicollinearity phenomenon between the independent variables
Table 4.9: Regression results and the evaluation of the degree of coherence of
model 1
Variable
Model 1 (Beta)
N = 250 ; a p ≤ 0.1; * p ≤ 0.05; ** p ≤ 0.01; *** p ≤ 0.001 All correlation coefficients were standardized
(Source: author’s research)
The number of the independent board members and the percentage of foreign
Trang 10which is R&D with Sig < 0.05
The biggest factor affecting asymmetric information is the percentage of foreign
ownership, with Beta = -0.243, therefore, when the percentage of foreign ownership
increase by 1 standard deviation unit, R&D will decrease by 0.243 standard deviation unit
and lower the asymmetry of information In fact, foreign investors tend to have high
requirement on the transparency of information while investing or buying shares from
banks, therefore when the percentage of foreign ownership increases, the demand of
transparency of information also rises, which leads to the decrease in asymmetry of
information
The next factor which has an impact on asymmetric information is the number of
the independent board members, with Beta = -0.235, which means when the number of
independent board members increases 1 standard deviation unit, R&D will decrease 0.235
standard deviation unit which lead to a decrease in the asymmetry of information This
can be explained that, when the number of independent board member increases, the new
members tend to be banking experts, researchers or managers, their specialized
knowledge makes monitoring information transparently easier; inaccurate information,
which is the cause of asymmetric information, will be heavily administered, hence lower
the asymmetry in information
4.4.2 The result of regression analysis under the second model which determines
the impact of corporate governance factors on variable representing asymmetric
information is Leverage
Table 4-11 displays the value of the adjusted coefficient R2 is 0.281 This proves
that the independent variable in the model explained the 28.1% variation of Leverage
variable The model is appropriate (F = 7.829***) and there is no multicollinearity
phenomenon between the independent variables
Table 4.11: : Regression results and the evaluation of the degree of coherence of
model 2
Biến
Model 2 (Beta)
The educational level of the board members -.013
The number of independent board members 223***
N = 250 ; ap ≤ 0.1; *p ≤ 0.05; **p ≤ 0.01; ***p ≤ 0.001
All correlation coefficients were standardized
standardized Beta = 609, this is reflected when the state ownership increases by one standard deviation unit, Leverage will increase by 0.609 standard deviation unit, which increases the asymmetry of information Many experts have pointed out the ineffectiveness of the state involvement in companies in general, and banks specifically In many circumstances, the board members representing the state capital does not have the expertise in banking, together with the fact that the state acts as an owner and management body at the same time Therefore, the managers tend to share less information as well as less accurate information, which leads to the increase of asymmetry in information in banks that have state ownership
The next factor which affects the asymmetric information is the number of board members with Beta = 0.223, which means if the number of board members increases by 1 standard deviation unit, Leverage will increase by 0.223 standard deviation unit, which leads to the increase of asymmetric information
In this case, greater board independence increases information asymmetry This is mainly because independent board members have always been regarded as outsiders compared to the inside board members They do not own shares and are not involved in the inner workings of the company Even a few independent board members work in management agencies, standing in contrast to the interests of banks This leads to low information disclosure as a number of banks do not provide information to independent directors, causing the increase of asymmetric information within these banks
4.4.3 The result of the regression analysis under the third model, the impact of the corporate governance factors and supervisory variables to the operation efficiency
of banks
Result of multicollinearity and variance inflation factor VIF of state ownership variables is = 11.671 > 10 Based on correlation check, the author omits operations time variables Variance inflation factor of the third model after variable omission is < 10 Since there is no sign of multicollinearity of independent variables in the model, variables
in the model is acceptable
Adjusted R2 of Model 3a is 0.283, supervisory variables can explain 28.3% the change of dependent variables Adjusted R2 of model 3b is 0.413, variables of model 3b can explain 41,3% the change of operational efficiency of banks The model F is appropriate (F =28.609***)
Table 4.15: Regression results and the evaluation of the degree of coherence of model 3
Variables
Model 3a (Beta)
Model 3b (Beta) Supervisory Variables
Main Variables
The number of the board members