Summary of PhD thesis: Enhancing information transparency of state-owned enterprises in Vietnam

Thesis is based on reasoning of information transparency of SOEs, evaluating the situation of information transparency of SOEs, in order to propose solutions to enhance information transparency of SOEs.

MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

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SUMMARY OF PHD THESIS

ENHANCING INFORMATION TRANSPARENCY

OF STATE-OWNED ENTERPRISES IN VIETNAM

Field: Business Major: Business Administration Code: 62.34.01.02 (New code: 9340101)

NGUYEN THI HAI VAN

Ha Noi - 2019

The thesis is completed in Foreign Trade University

Supervisor: Assoc.Prof.Dr Le Thi Thu Thuy

LIST OF ARTICLES

1 Nguyen Thi Hai Van (2018), Enhancing information transparency

of state-owned enterprises in Vietnam, Review of Finance No2 (691) October 2018, pages 42 – 45

2 Nguyen Thi Hai Van (2018), Enhancing the roles of Government in order to ensure information transparency of state-owned enterprises in Vietnam, Asia – Pacific Economic Review No527 (October 2018), pages 62 – 64

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TABLE OF CONTENTS

INTRODUCTION 2

CHAPTER 1 LITERATURE REIEW OF INFORMATION TRANSPARENCY OF STATE-OWNED ENTERPRISES 3

1.1 General theory of information transparency of enterprises 3

1.2 Theories of information transparency: 5

1.3 Overview of State-owned enterprises and information transparency of enterprises 5

1.4 Experience of information transparency of SOEs in some countries 8

CHAPTER 2 ANALYSIS OF INFORMATION TRANSPARENCY OF SOES IN VIETNAM 9

2.1 Overview of SOEs in Vietnam 9

2.2 Status of regulations on information transparency at SOEs 14

2.3 Status of information transparency of SOE in Vietnam 14

2.4 Analysis of financial factors affecting information transparency in SOEs 17

2.5 Assessment of status of information transparency at SOEs 19

CHAPTER 3 SOLUTIONS FOR ENHANCING INFORMATION TRANSPARENCY OF SOES IN VIETNAM 20

3.1 Orientation of information transparency of SOEs in Vietnam 20

3.2 Solutions enhancing information transparency of SOEs 20

3.3 Proposals for State ownership representative agencies 21

3.4 Proposals for State management agencies and other related parties 22

CONCLUSION 23

State-owned enterprises (SOEs) in the broadest sense are also the type of public corporation with ownership belonging to the entire population However, people's ownership rights are entrusted to the Government for enforcement Therefore, strengthening publicity and transparency will lend a helping hand for state agencies as well as the whole society to monitor the activities of SOEs, avoid frauds and inefficient use, loss and waste of national resources; thereby putting pressure on these enterprises to operate more efficiently and at the same time, creating an initial database for state agencies to develop timely and effective governance policies

Nonetheless, so far, many Vietnamese state-owned enterprises have not strictly complied with the regulations on publication and transparency of the issued information The situation of SOEs without information disclosure, slow, incomplete disclosure is quite common The question

is how to impulse the equitization process of SOEs, accelerate the enterprises restructuring process towards better operational efficiency, more sustainably developing so as to be worthy of the economic pillar Part of the answer lies in enhancing information transparency of SOEs Meanwhile, in Vietnam, research on information transparency of SOEs is quite limited Stemming from that situation, the author selected the topic "Enhancing information transparency

of state-owned enterprises in Vietnam" to implement the PhD thesis

2 Purpose, thesis question and research duty

Thesis is based on reasoning of information transparency of SOEs, evaluating the situation

of information transparency of SOEs, in order to propose solutions to enhance information transparency of SOEs

To achieve objectives above, there are three thesis questions as follows:

1) How was the situation of information transparency of SOEs in Vietnam? Is there any difference of information transparency between unlisted SOEs and listed SOEs in Vietnam? 2) Which factors impacts on information transparency of SOEs and to which degree?

3) How to enhance information transparency of SOEs in Vietnam in the coming time?

Venue scope: The thesis does not go into the information transparency of a specific SOE but only evaluate the overall information transparency of SOEs on the basis of surveyed information which is published by SOEs via channels such as website of enterprises, information portal about SOEs of Ministry of Planning and Investment, information portal of state-owned shareholder representative agencies and other media

According to information transparency of SOE in a number of countries, the thesis selected two countries neighboring to Vietnam that have advance in the implementation of information transparency of SOEs such as South Korea and Malaysia and lessons applicable to Vietnam

Time scope:

- Regarding the performance of SOEs, the thesis uses data from 2010

- Regarding to survey of information transparency, the author mainly surveyed in the last 2 years as 2016 and 2017 to provide the most updated assessment of information transparency of SOEs in Vietnam

5 Research methodology:

Research methodology includes two main steps: Overall research by qualitative method and verification research by quantitative method

The thesis examines legal documents, regulation and instructions of information transparency at enterprises, collecting secondary data from reports, research results of information transparency of SOEs in the world and Vietnam

The study collects secondary data of financial information of SOEs to assess level of impact of those factors on information transparency of SOEs through running multiple regression model on STATA

6 New contribution of the study

Besides inheriting previous studies, the thesis had new contribution as follows:

- As one of the first thesis to synthesize theoretical and practical issues on information transparency of SOEs, including definition, characteristics, content, evaluation criteria and factors influencing transparent information at SOEs

- The study analyzes and evaluates the status of information transparency of SOEs in Vietnam in the past, thenceforth, outlines the shortcomings and causes

- The study conducts quantitative analysis of financial factors affecting information transparency of unlisted and listed SOEs and draws conclusions that large size SOEs and have good business results tend to be more transparent

- The thesis proposes orientations and solutions to enhance information transparency of SOEs in Vietnam, including solutions for SOEs and recommendations for State shareholder representative agencies, State agencies and stakeholders

CHAPTER 1 LITERATURE REIEW OF INFORMATION TRANSPARENCY OF

STATE-OWNED ENTERPRISES 1.1 General theory of information transparency of enterprises

1.1.1.2 Enterprise information

Enterprise information is understood as a collection of data, news, data reflecting the situation of enterprises operation, related to enterprises, enabling users to make decisions to achieve desired goals

1.1.1.3 Information transparency:

Information transparency in the market is understood as that economic entities (people, businesses or governments) can update market information in a complete, reliable, timely and available way and access easily (Vishwanath and Kaufmann, 1999) In a report published by WB

on information transparency in financial sector, Tara Vishwanath and Daniel Kaufman (1999) introduced the concept of information transparency as: "Information transparency describes the flow of political, social, and economic information published reliably, timely In contrast, lack of

4information transparency is the intention that someone do not want information to be accessed or falsify information or not ensure that the provided information is appropriate and qualified”

From an enterprise perspective, Busman et al (2004) introduced the concept of financial information transparency as the availability of specific enterprise information for investors and

outside shareholders From above analysis, the author understands that: "Information

transparency is the information disclosed appropriately, reliably, promptly and in a way that the public can access."

Stemming from the above understanding of transparency, enhancing information transparency is understood as measures to increase the appropriateness, reliability, timeliness and accessibility of published information of the business The measures here include activities related to corporate governance, building information systems within the enterprise or any activity that increases the relevance, reliability, timeliness and accessibility of published

information of the business

1.1.2 Categorizing enterprise information

1.1.2.1 As content of information:

i Financial information:

Financial information is information related to cash flow, business results and financial status of enterprises in a particular period Financial information can be historical or predictive, often in the form of monetary unit (Nivra, 2008)

ii Non- financial information:

Non- financial information is predictive information about management plans, opportunities, risks, factors that enhance ability that create values in the long term for enterprises Non- financial information includes transactions with related parties, non-commercial objectives and policy commitment, ownership structure and governance structure, risk exposure, risk management (WB 2014)

1.2.2.2 As the mandatory nature of the information

i Mandatory information

Mandatory information is the one required by law to be published according to content and schedule Content of mandatory disclosure information includes financial information, information about the Board of Directors and the Board of Management, transactions with related parties shown in annual reports, interim reports , prospectus

ii Voluntary information

Voluntary information is optional information published by the law that enterprises voluntarily announce for the sake of prestige, corporate image, relations with investors, to supplement the insufficience of required information to satisfy users’ needs Voluntary information content is much diversified

1.1.3 The role of information transparency in the economy

1.1.3.1 To enterprises

i Information transparency helps increase access to external financial resources, thereby reducing cost of capital use and increase asset value for businesses ii Information transparency contributes to increase the efficiency of enterprise operation iii Information transparency will reduce the impact of crises on enterprises

1.1.3.2 To the stakeholders

Information transparency will help shareholders and investors understand the operational efficiency of enterprises, assess management standard of the Board of Directors and the Board of Management; thereby improving the ability to make reasonable economic decisions to reduce risks and protect their rights

5Information transparency also helps creditors, suppliers, customers and employees evaluate their position, adapt to changes and shape their relationships with businesses

1.1.3.3 To state agencies and the national economy

Information transparency helps state agencies perform the function of managing and monitoring the market more easily and effectively; promptly have appropriate solutions to limit and prevent misbehavior Information transparency contributes to increasing asset value and improving business performance, ensuring efficient use of national resources; thereby promoting growth and development of the economy Information transparency also contributes to minimizing the negative impacts of world economic crises on the national economy

1.2 Theories of information transparency:

1.2.1 Theory of asymmetry:

Asymmetry is the state when parties participating in transactions with different level information; one party with more information, more accurate information and easy or earlier access than the other, thenceforward, takes advantage of acquired information The situation when information is not sufficient, promptly, accurate, reliable and when there is an asymmetric access of people participating in financial market is a way of non-transparent information

Asymmetric information will lead to two most common consequences that is reverse selection and moral hazard This will distort decisions of economic subjects to enter the market, may even lead to market failures Since then, Michael Spence (1973) proposed the signaling hypotheses and Joseph Stiglitz (1975) introduced a screening mechanism to reduce this asymmetric information

1.2.2 Theory of agency

According to research by Michael C Jensen and William H Meckling in the “Theory of the firm: the Managerial behavior, agency costs and ownership structure” (1976), the theory of owner - representative (called as agency theory) define a proxy relationship as a contract whereby one or more individuals (principal) commit to another individual (agents) on their behalf to do certain jobs including delegating economic decision-making to a representative Therefore, there

is a conflict about the goals and interests between owners and managers, the status of asymmetric information between owners (less information) and managers (more information)

Agency theory is often used to explain information transparency or increase voluntary interpretation of enterprise executives (Robert Bushman and Smith, 2001) Behavior of the agent (manager) in the issue of increasing the level of disclosure or transparency of information when considering between benefits and costs of information disclosure

1.2.3 Relevance theory

According to Relevance theory, financial information is established based on assumptions: there is always an asymmetric information between the financial statements makers and the users; the demand of users for accounting information should be determined through factual evidence; satisfying users’ information is done through parties with interests related to the financial situation of the enterprise; the relevance of information needs assessing in the benefit-cost correlation Information transparency, especially financial information, is built on the basis of relevance of financial information for people who use information of businesses

1.3 Overview of State-owned enterprises and information transparency of enterprises 1.3.1 Definition of State-owned enterprises:

In the world, there are many ways to define state-owned enterprises According to the World Bank, SOEs are economic entities owned or controlled by the State that generate income majorly from the provision of goods and services (WB, 1995) According to OECD (2005),

"state-owned enterprises are used to refer to enterprises where the state has whole, majority or important minority control."

concept, the thesis understands that state-owned enterprises are enterprises that the state

enforces ownership or controls through owning 50% above of the shares that have voting rights and over; works to implement commercial goals or public policy objectives or both 1.3.2 Capital management model in SOEs

The capital management model in SOEs is quite diversified in different countries According to OECD (2017), there are main models for managing capital in SOEs as follows:

- Decentralized model: State capital is managed by specialized ministries and regulations corresponding to each sector The countries that maintain this model are Malaysia and Pakistan

- The decentralized model has a coordination agency: According to this model, there is a consensus in the management through that the Government establishes a centralized agency to build and control the implementation of corporate governance and information transparency

- The model concentrates on the form of a state-owned company: Bhutan and Kazakhstan maintain this model and allow the establishment of Druk Holding and Investments (Bhutan) and SamrukKazyna (Kazakhstan) to manage State capital at enterprises

- Centralized model under a State agency or Ministry: Typically such as Korea and Thailand, these countries set up a specialized agency to implement ownership rights in SOEs

1.3.3 Characteristics of information transparency of state-owned enterprises

Information transparency of SOEs and other types of businesses in the economy has something in common Yet, derived from SOEs' specific characteristics, information transparency

of SOEs also has its own characteristics

1.3.3.1 SOEs have quite abstract owners who are the State, or actually the whole people Many State parties can affect SOEs as follows:

Figure 1.1 SOEs-related management parties

Source: OECD (2005)

7Therefore, the responsibilities and motives involved in disclosing information will be more limited than other businesses

1.3.3.2 Representatives in SOEs are also more complex than private enterprises

Representative costs related to information transparency are also higher in SOEs

1.3.3.3 Managing conflicting objectives

Governance of conflicting goals (profit and non-profit goals) is also a challenge in corporate governance of SOEs, which makes corporate governance SOEs and information transparency is much more complicated

1.3.3.4 In many countries, SOEs cannot change the Board of Directors by acquiring or voting proxy contest and most are not bankrupt

This reduces the motivation of board members and managers in information transparency (the issue of benefits and costs of information disclosure) and non-bankruptcy also creates a soft budget constraint in information transparency

1.3.4 Content of information transparency of SOEs

1.3.4.1 Mandatory information transparency:

Mandatory information is information that law requires enterprises to disclose Mandatory information transparency often includes:

- Disclosing periodic information of enterprises

- Disclosing abnormal information

- Disclosing information as requested’

- Disclosing information relating

1.3.4.2 Voluntary information transparency

Disclosing information voluntarily is based on economic theory “reasonable behavior of economists”, when managers consider the relation between benefit and cost of disclosing, if voluntary disclosing has benefit over cost, they will conduct disclosing, or else they will not conduct voluntarily (Yu Tian, 2009)

OECD Corporate Governance Standards (2015) recommend that state-owned enterprises should disclose the following information:

i Business objectives and results achieved (for enterprises owned entirely by the state, this content must include all tasks assigned by the state-owned agency)

ii Financial and operational results of the enterprise, including costs and fund for public policy objectives (if any)

iii Material risks can be anticipated and risk management

iv All financial support, including guarantees received from the state; commitments made

on behalf of the enterprise, including contractual commitments and obligations arising from public-private partnership projects

v Issues related to employees and other stakeholders

1.3.5 Criteria for evaluating information transparency of state-owned enterprises

1.3.5.1 Relevance

According to Céline Michailesco (2010), relevance means that the subject disclosing information must always pay attention to the needs of users to provide the most appropriate information Moreover, appropriate information is information that can make a difference in users’ decision making In order to meet that, the information must have a predictive value or a valid value or both

1.3.5.2 Reliability

Reliability is guaranteed when quality information is verifiable; complying with accounting standards as well as relevant laws and regulations, financial information must be audited by reputable independent organizations According to Céline Michailesco (2010),

8reliability can be measured through prestige, brand, scale, market share and years of experience of an independent auditing company

1.3.5.3 Timeliness

Timeliness means that information must be available to the users' decision making before

it loses its value and ability to influence those decisions Obsolete the information is, the lower usefulness is Therefore, information must be updated and published regularly

1.3.5.4 Accessibility

Accessibility is an important criterion because even when information is submitted to regulatory agencies on time, the usefulness of information is limited if there is only a limited number of users access to this information

1.3.5.5 Responsibilities of the disclosure party

The information disclosure party is responsible for complying with the laws on information disclosure, enhancing the application of recommended international standards; accountable for published-information explanation Information disclosure party should have a specialized department with sufficient human, material and financial resources to ensure an effective and transparent information disclosure system

1.3.6 Factors influencing information transparency of SOEs

In order to ensure transparency of information, there must be a combination of factors, including: appropriate legal environment; the role of the State; activities of independent auditing; governance capacity of SOEs

1.3.6.1 Factors outside SOEs

i Legal environment

The legal framework related to information disclosure and transparency includes legal documents governing enterprise activities; accounting standards, auditing standards; a set of corporate governance rules in general; obligations for information disclosure of enterprises in particular; guide documents about corporate governance practices, disclosure and transparency of enterprise information

ii The role of the State

The State establishes the legal framework, regulations and policies on information disclosure and transparency in enterprises At the same time, the State monitors and promotes law compliance, standards and regulations on information disclosure and transparency; encouragement for good application of practices, compliance with regulations on disclosure and transparency of enterprise information within the scope of their responsibilities

iii Independent audit

1.3.6.2 Factors inside State enterprises

i Management capacity of enterprises includes: Scale, structure of the Board of Directors / Board of members; Responsibilities of the Members' Council / Board of Directors; Internal control environment; The level of equity concentration

ii Financial characteristics of State-owned enterprises include: Enterprise size; Financial leverage; Business efficiency; Pledged assets; Effective use of assets

1.4 Experience of information transparency of SOEs in some countries

- Enforce a system of legal regulations and detailed and complete practices guide on

information disclosure and transparency of SOEs

In Korea, the legal framework for publicity and information transparency of SOEs was completed in 2007 after the Inter-ministerial Steering Committee was established This framework is designed to improve SOEs’ performance All public organizations, including SOEs, must disclose governance information in accordance with the Law on Public Organization Management SOEs (as well as other public organizations) have duty to publicize their data according to 34 standardized contents of financial and non-financial information (initially there are only 20 content to be public)

9Malaysia's GLCs and GLICs have a much-diversified structure, and must comply with information disclosure and transparency regulations in the following documents: Listing Requirements; Companies Act 1965 and Legal Agency Act 1980 or Law 240 Each law contains guidelines for reporting and does not have any exemption in reporting of SOEs in Malaysia

- Establishing an open information system for public organizations on the internet platform allows people to access information easily and smoothly

In an effort to reform the overall SOE and to facilitate public access to information, an open internet-based information system of public organizations was created in 2005 (called as ALIO, refer to www.alio.go.kr) This system provides information of all public organizations in Korea, including SOEs

- Sanctioning mechanism when SOEs fail to comply with the law on information disclosure and transparency

Under the Law on Public Organization Management, SOEs must disclose standardized information on the ALIO website and have penalty policy if the information is not made public Since 2009, the Korean Government has asked the Ministry of Finance and Strategy to inspect and verify the accuracy of information published by SOEs, and has the authority to impose fines regarding to dishonest cases

- Enhancing the role and responsibility of state management agencies in public information disclosure

For the public, although the Malaysian government does not provide an annual synthesis report on the performance and results of all SOEs, the Ministry of Finance is responsible for making an annual report on the financial situation of a number of SOEs (GLCs) that play an important economic role The content of published information includes general payments, operating costs, development items (investments) and balance sheets

Companies Commission of Malaysia - CCM under the Ministry of Domestic Trade, Cooperatives and Consumer Malaysia, is the agency that performs the function of state management

on business registration The Companies Commission of Malaysia provides services on business establishment and registration as well as information disclosure of companies One of the important functions and tasks of CCM is to strengthen and promote the provision of enterprise information in accordance with the law; to build and develop databases, through which any information about business received by the Commission can be analyzed and provided to the public;

In addition, the investment public can access information about SOEs through the website

of the GLCs Conversion Program or Government Investment Fund Khazanah National Annually, the Government Investment Fund Khazanah National of Malaysia announces the investment portfolio, investment strategy, information on the financial efficiency of the portfolio, social responsibility initiatives

- Applying a specialized agency model to act as the representative in SOEs

Korea has established an Inter-ministerial Committee and Public Organization Management for better coordination of SOE ownership An Inter-ministerial Steering Committee (CPIM) (replacing the same supervisory agencies) supervises the ownership function of SOEs since 2007

In Malaysia, Khazanah is Malaysia's state-capital investment organization with a structure consisting of a parent company (Khazanah Nasional Berhad), subsidiaries and companies with shares and capital contributed by the parent company This model also supports more transparent information implementation in SOEs

CHAPTER 2 ANALYSIS OF INFORMATION TRANSPARENCY OF SOES IN

VIETNAM 2.1 Overview of SOEs in Vietnam

2.1.1 Role of SOEs in Vietnam

SOEs in Vietnam have been established with the development of the state economic component for 50 years Until now, SOEs still play an important role in national economy and Congress XI claims main role of State economy

2.1.2 Innovation progress of SOEs

10According to Trần Du Lịch, innovation progress can be divided into 4 stages:

1 1991-1993 stage: reforming and restructuring production and business of the state economic sector; overcome the phenomenon of establishing a state-owned enterprise extensively in industries and localities during the period 1986-1990

2 1994-1997 stage: establishing SOEs force into State corporation - play a key role of SOEs;

at the same time rearranging, diversifying ownership of small size SOEs; eliminating gradually superior management regime of SOEs

3 1998-2001 stage: Continuing to enhance and rearrange SOEs following the spirit of the Central Resolution 3 (Term VIII), the highlight of this period is the strong implementation

of the process of SOE privatization

4 2001-now stage: organizing a model of state financial investment corporation, continuing

to equitize SOEs and the highlight is the policy of piloting state-owned economic groups (from 2005 to 2010)

Source: General Statistics Office 2017

In the Government Report (2017), by the end of 2016, there were 583 SOEs owned by the State with 100% charter capital (including 7 economic groups, 67 State-owned corporations, 17 one-member limited liability companies that operate according to the model of parent company - subsidiary company, 492 independent enterprises of ministries and localities; 273 enterprises have shares and contributed capital of the State (including 34 corporations, holding companies and 239 independent joint stock companies)