Voluntary Disclosures and Corporate Governance Characteristics: Evidence from Vietnam

Voluntary Disclosures and Corporate Governance Characteristics: Evidence from Vietnam Phuong Le Linh Nguyen International University, Vietnam National University HCMC, Vietnam Abstrac

Voluntary Disclosures and Corporate Governance Characteristics:

Evidence from Vietnam

Phuong Le Linh Nguyen

International University, Vietnam National University HCMC, Vietnam

Abstract

Voluntary disclosure practice has become more important especially in developing markets where there is

a lack of studies on voluntary disclosure and its determinants This research is conducted with the aim to provide a better understanding of voluntary disclosure and its relationship with corporate governance characteristics in Vietnam Our study is based on a sample of 100 largest market capitalization companies during a three- year period starting from 2014 to 2016 Analysis indicates a moderate extent of voluntary disclosure compared to other countries in different studies Foreign ownership is found to have a significantly positive link with the volume of voluntary disclosure The study also reveals significant relations between board independence, CEO separation, audit committee existence, audit quality and the extent of sub-categories of voluntary disclosure Interestingly, there are significantly positive links between audit committee presence, audit quality, foreign ownership and voluntary disclosure in the following year Our findings are expected to contribute to literature on voluntary disclosure in Vietnam They can be helpful for policy makers

to gradually improve the voluntary disclosure practice as well as information asymmetry in Vietnam market

Keywords: Voluntary Disclosure, Corporate Governance, Vietnam, VN100

1 Introduction

After some worldwide accounting and financial reporting scandals like Enron, WorldCom, and Paramalat

in 2012, scholars have raised ideas about the concept “corporate governance” The governance of a corporation

is said to be the sum of actions forming its regulations which are complied with legislation, ownership and control (Cannon, 1994) According to Apostolou & Nanopoulos (2009), poor corporate governance was blame for most world crises In this thesis, it focuses on transparency and disclosure aspect, one of five pillars of good corporate governance Companies prove their transparency by disclosing as much information as possible through mandatory and voluntary disclosure Mandatory disclosure is to comply with laws and regulations, therefore all companies have to disclose all information required However, voluntary disclosure is based on the willingness of the managers, so it is needed to be studied more in accounting field

Companies are encouraged to voluntarily supply additional information because it generates many benefits Corporations can lower their cost of capital when raising capital outside (Francis, Nanda, & Olsson, 2008) Firms can make their value increased by disclosing more information to the public (Healy & Palepu, 1993) It gives a good effect on companies’ reputation, attracts more investors, and lowers cost of capital when companies give out more information as doing this will distinguish companies form other competitors in the industry (Hawashe & Ruddock, 2014)

It is not companies who benefit from voluntary disclosure, but investors and other stake holders gain benefits as well Disclosures increase market transparency which is considered as basic mechanism to reduce

the information asymmetry among the participants in the market (Bleck & Liu, 2007) Investors always have uncertainty about the quality of firm as well as their securities, so they need adequate information value the firms, judge the opportunities and riskiness of their investments to come up to best investing decisions (Al-Janadi, Rahman, & Omar, 2013; Meek, Roberts, & Gray, 1995) Moreover, voluntary disclosure is believed to provide a clearer view about business’ sustainability, reduce agency conflicts between managers and investors (Boesso & Kumar, 2007; Healy & Palepu, 2001)

The association between corporate governance and optional disclosures has become headlines in many journals in recent years There are many studies conducted in developed countries and most of them give mixed results S S Ho & Wong (2001) found that the existence of audit committee is significantly and positively related to the level of voluntary disclosure of listed firms in Hong Kong A significant association between some corporate governance variables and voluntary disclosure of Swedish companies was found by (Cooke, 1989) It is found that board composition and the extent of voluntary disclosure of information in annual reports of 181 Australian companies had positive relation (Lim, Matolcsy, & Chow, 2007) There have been other scholars who found positive results, such as (Chau & Gray, 2002; Chen & Jaggi, 2001; Forker, 1992,; Haniffa & Cooke, 2002; Klein, 2002), etc However, there are many studies which found negative relation like (Barako, Hancock, & Izan, 2006; Eng & Mak, 2003; Gul & Leung, 2004; Haniffa & Cooke, 2002)

Although this topic has been considered as an increasingly important topic in the accounting field in recent years, there are a few studies on this topic that are conducted by Vietnamese scholars Vu (2012) through her thesis findings suggested that corporate governance can be considered as an effective monitoring method to increase the voluntary disclosure practice Hieu & Lan (2015) found that board size had a positive link with the extent of voluntary disclosure, while board independence, role duality, and type of auditors were found

to have no significant associations

In recent years, corporate governance practice has attracted more and more attention Vietnam has jointed ASEAN corporate governance scorecard since 2011 Moreover, decree 71/2017 NĐ-BTC about corporate disclosure took effect in 2017

In summary, the shortage of research on the relationship between corporate governance attributes and optional disclosure together with the importance of corporate governance in today business motivate for conducting this research

This study is conducted to mainly examine the association between corporate governance mechanisms and voluntary disclosure practice in the case of VN100 companies listed in Ho Chi Minh stock exchange from 2014

to 2016 In the process, the author also observes the voluntary disclosure index of these companies Research questions are formed based on mentioned objectives:

 To what extent do listed firms in Vietnam voluntarily disclose?

 What is the relationship between corporate governance characteristics and the extent of voluntary disclosure

of listed firms in Vietnam?

2 Literature Review

2.1 Definitions of Voluntary Disclosure

Voluntary disclosure is defined as an enlargement and supplement of compulsory disclosure (Tian & Chen, 2009), which is not affected by any authority body (Scaltrito, 2015)

Financial Accounting Standards Board (FASB) defines that the information that is disclosed by listed firms rather than to be obligated to disclose by laws, standards and regulations of authority committees

2.2 Relevant Theories

2.2.1 Vietnam Corporate Governance Regulations

“Listed company” is defined as company whose shares are listed on one stock exchange Listed companies are regulated by Law on Enterprise 2005 (with the revision on 2014), and Corporate Governance Code 2007 (with the amendments on 2012) issued by Ministry of Finance

The Law of Securities 2016 applied main standards for listed companies to practice better corporate governance These standards are:

 Internal governance structure

 Rights of shareholders

 Conflicts of interests and related parties’ transactions

 Information disclosure and transparency

Circular No 52/2012/TT-BTC took effect on 1st June 2012 This circular provides each type of entity in Vietnamese market with requirements and guidelines in disclosing information, such as: what information must be publicized, who is authorized to do, and which forms are appropriate to use

Circular No 71/2017/TT-BTC was issued in July, 2017 to amend the circular 52 in public companies’ section only The new requirements are related to general shareholders, board of directors, board of advisory, related parties’ transactions, and information disclosure

Moreover, all listed companies have to follow listing rules of stock exchanges that they are listed on In Vietnam, there are two largest stock exchanges which are Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX)

2.2.2 Agency Theory

Agency theory, which is widely used to study on accounting and finance literature, was developed by (Jensen & Meckling, 1976) The key concept of this theory is the agency relationship that is said as a contract between the principal and the agent In the contract, principal gives the agent an authority to perform some tasks on behalf of them In the organizational context, the principal is shareholders and the agent is managers The authorization leads to the separation between ownership and control, which is the main cause of information asymmetry Information asymmetry is the situation that the managers possess more information about company than the shareholders Having information advantages, agents may act as their own interests instead of principals’ interests if principals cannot effectively monitor the managers’ behaviors Agency problems can be categorized as moral hazard and adverse selection

 Moral hazard or hidden cost: It is a situation that the principal cannot access the agent’s performance directly but only based on the outcome In this case, the agents can have abilities to give themselves more benefits.(Folkare & Andersson, 2015)

 Adverse selection: It is the situation that the principal is able to observe the agent’s behaviors, but unable to determine whether these behaviors are the most appropriate ones (Subramaniam, 2006) Agency problems cause some costs for corporations to mitigate them and these costs are generally named agency costs Agency costs can be classified into three kinds:

 Monitoring costs: These costs are incurred with the aim to monitor the agent’s behaviors For example: audit costs

 Bonding costs: These costs are related to incentives that given to agents to align their interests to principals’ interests For example: stock options

 Residual costs: These costs are arisen when there are conflicts of interests between principal and

agent despite monitoring and bonding processes

In general, agency problem can be minimized by two main and common strategies: monitoring-related and incentive-focused strategies In monitoring-related strategies, voluntary disclosure can be considered as a

mechanism to reduce information asymmetry This mechanism suggests that the agent voluntarily discloses a significant amount of information to the principal, mostly under many kinds of repots

2.2.3 Signaling Theory

Signaling theory was first suggested in solving information asymmetry in labor market by Spence (1973)

However, the theory is used in corporate financial reporting by Ross (1977) In his study, Ross uses signaling theory to explain for voluntary disclosure Following him, there have been more and more researchers that use signaling theory as a literature review when studying on voluntary disclosure

Disclosing more information to outside on voluntary basis is considered as a signaling mechanism as a firm can give a signal that it is performing better than other competitors in the industry (Campbell, Shrives, &

Bohmbach-Saager, 2001)

Signaling theory suggests that voluntary disclosure can be considered as a signal to improve the company’s image or reputation, and relevant relationship with many other stakeholders (Hawashe & Ruddock, 2014)

2.2.4 Capital Need Theory

Listed companies commonly finance their capital by borrowings or equity Capital need theory says that voluntary disclosure can help companies to finance capital at a low cost (Choi, 1973) This idea can be explained based on information asymmetry The cost of capital of a firm includes a premium for investors’ uncertainty about information given by the firms The more uncertain the investors feel, the higher the cost of capital If managers who possess more reliable information are willing to share a significant amount of this information to investors, investors do not face with information asymmetry and they are confident when investing to companies As a result, the cost of capital is reduced (Financial Accounting Standards Board, 2001)

According to the theory, the increase in voluntary disclosure can help companies to attract more new investors, which helps maintain a healthy demand for companies’ shares Moreover, companies with higher degree of disclosure tend to gain higher stock price in the long run (Cooke, 1989)

2.2.5 Legitimacy Theory

Magness (2006) suggests that legitimacy theory is a contract between a company and the society in which

it is operating Coebergh (2011) gives out an opinion that low legitimacy may cause the firms to discontinue operations if firms do business under the expectations of the society in which firms are operating In his study,

he suggests that investors should be well informed about on-going situation of firms Therefore, managers should disclose more information to outside investors to protect companies’ legitimacy

The annual report is said as a main source of legitimation (Cadiz Dyball, 1998) Legitimation can comes from both mandatory disclosure and voluntary disclosure (Magness, 2006)

2.3 Corporate Governance Characteristics (Board Independence, CEO Separation, Audit Committee Existence, Audit Quality, and Foreign Ownership) and Voluntary Disclosure

First, the study will review how board independence is related to level of voluntary disclosure Board independent is characterized as the percentage of outside members to total members of the board A board of directors consists of two main kinds of members: inside members and outside members Outside directors, independent directors, are defined in circular 121/2012/TT-BTC as following:

 Not hold any position in management board (non-executive)

 Not a member of board, CEO, managers of subsidiaries, associated companies

 Not a large shareholders or related persons of the companies’ major shareholders

 Not working for organizations providing legal advisory services, audit organization for company

in the most recent two years

 Not a relevant partner or partners who have an annual value of transactions with companies

accounted for 30% or more of total revenue or total value of products purchased by company the most recent two years

If dependent members have specialized skills, valuable experiences in industry in which the firm is operated, and deep knowledge about firm’s activities, independent members play a controlling role to monitor actions of executive members (Jensen & Meckling, 1976) Another study Fama & Jensen (1983) suggests that independent directors act as check and balance mechanism in enhancing the effectiveness of monitoring system Moreover, Adams & Hossain, 1998; Klein (2002) both say that high rate of independent members can reduce accounting fraud and earnings management

H1: There is a positive relation between board independence and the extent of voluntary disclosure CEO duality is a situation that one person holds two positions CEO and Chairman simultaneously There

is a high likelihood that conflicts of interests between these two positions may cause agency problem to increase The chairman is expected to represent the shareholders to oversee the CEO’s performance In the case of leadership duality, the CEO may put his interests on first priority, which may violate the shareholders’ interests Therefore, Gul & Leung (2004) suggest that one person cannot hold two positions at the same time, and by separating roles, chairman can have more power to have CEO disclose more information on the firm

to reduce information asymmetry between shareholders, the principle, and managers, the agent Dalton & Kesner (1987); Davidson III, Worrell, & Cheng (1990) are in favor of this idea in their studies

H2: There is a positive relation between CEO separation and the extent of voluntary disclosure

Internal audit has been raised more concerns since the accounting scandals of WorldCom and Enron Accounting fraud is believed to be less likely to happen if there is a collaboration between internal and external audit Because of this reason, the Sarbanes Oxley Act of (2002) has required that companies must establish and maintain an audit committee that have independent directors as members and at least one member among them has financial expertise

Circular 71 of Vietnam Ministry of Finance has recommended that each company should have an audit committee having minimum of three members and maximum of five members Members in audit committee are required not to be employees working financial departments of company or employees of an auditing firm that have conducted financial audit for company within three consecutive years There are two main responsibilities for audit committee: overseeing the financial performance of firm and assisting board of directors in making financial statements

The presence of audit committee improves internal control system and increases the quality of reports thereby increases transparency of corporation (Collier, 1993; Forker, 1992; S S Ho & Wong, 2001)

H3: There is a positive relation between audit committee existence and the extent of voluntary disclosure

“Corporate disclosure is affected by differences in type of auditing firms.”(Vu, 2012) Similarly, Surendra

S Singhvi & Desai (1971) explain that big audit firms put their reputation at first, so they always want to co-operate with client companies who provide adequate information to be sure about good audit quality Therefore, most of big auditing firms encourage their clients to disclose information as much as possible Agency theory says that the choice of auditors is a mechanism to reduce the conflicts of interest between managers and shareholders (Jensen & Meckling, 1976) Bushman, Piotroski, & Smith (2004) agree that external audit indicator is a confirmation measure of how reliable disclosures are

Moreover, big auditing firms have many clients, so they are not sensitive to the economic loss if they miss some clients; they care for the audit quality instead It is the reason why there is a difference in disclosure level between choosing a big auditing firm and a smaller one

Many studies have provided positive relation between audit quality and the level of voluntary disclosure, such as: (Bonson & Escobar, 2006; OGWE, 2014; Patton & Zelenka, 1997; Qu, 2011; Raffournier, 1995; Wallace

& Naser, 1995)

H4: There is a positive relation between audit quality and the extent of voluntary disclosure

Haniffa & Cooke (2002) find out the positive link between foreign ownership and the volume of voluntary disclosure in Malaysia They reason that foreign owners want to have more information to gain more control over the local management Similarly, Surendra Singh Singhvi (1968) suggests that companies whose majority

of shares are owned by foreigner present a higher disclosure quality than locally owned by Indian companies There are some other scholars who have the same research results with mentioned scholars, and some names can be mentioned:(Barako, 2007; Xiao et al., 2004)

H5: There is a positive relation between foreign ownership and the extent of voluntary disclosure

3 Research Method

3.1 Sample

Secondary data is collected through consolidated, audited firms’ annual reports which are gathered from companies’ website and other public, reliable websites (vietstock, vndirect, or cophieu68) for three financial years 2014-2016 Our sample includes firms in the list of VN100 which are 100 largest companies in terms of market capitalization Following Vu (2012), we exclude:

 Bank, finance, and insurance listed firms because of differences in reporting regime

 Firms whose annual reports are unavailable for any of three years 2014-2016

 Firms that miss any information about independent or control variables

 Firms that have financial reporting period longer or shorter than 12 months

 Firms that listed after January 01, 2015 as listing duration variable cannot be measured

3.2 Measurements

In the Vietnamese literature, Vu (2012) has been considered to be one of the first scholars who study about voluntary disclosure She constructed her checklist that consists of 84 items with 5 categories Following her and some other scholars, Hieu & Lan (2015) constructed their own checklist This checklist was updated with changes of Circular 52/2012 TT-BTC about how to disclose information on Stock Exchange The final checklist has 42 items with 4 categories of information: strategy, finance, future, social activities In this study, the authors employ the checklist from the study of Hieu & Lan (2015) Following Hieu and Lan (2015), VDI is calculated as follow:

 Each firm is given “1” score for 1 item disclosed within the checklist, and “0” otherwise

 The total disclosure score that a firm achieves by disclosing items within the checklist is computed

by adding all item-scores

 The total disclosure score is divided by total voluntary disclosure score

The formula to calculate the VDI of one firm is adapted from many other studies: (Hieu & Lan, 2015; Soliman, 2013; Vu, 2012), etc

𝑛 𝑖=1

Where:

VDI𝑖 = Voluntary disclosure index for 𝑖𝑡ℎ firm;

𝑛𝑖 = Voluntary disclosure item applicable to 𝑖𝑡ℎ firm (n ≤ 42 items);

𝑋𝑖 = “1” for disclosed item and “0” otherwise; so that: 0 = VDI𝑖 ≤ 1

This study utilizes the unweighting approach when calculate the VDI, which means that it assumes all information is equally important to the users (Chow & Wong-Boren, 1987; Vu, 2012) proved that it made no significant differences between two approaches

The authors also employ the same formula when investigating sub-categories separately

Independent and control variables are measured as presented in table 1

Table 1: Summary of Variables Measurements

Dependent Variables:

Voluntary Disclosure Index 𝑉𝐷𝐼𝑖= ∑ 𝑋𝑖

𝑛 𝑖=1 𝑛𝑖

(Hieu & Lan, 2015; Soliman, 2013; Vu, 2012)

VDI-CSI, VDI-FCMI, VDI-FLI,

VDI-SIR 𝑉𝐷𝐼(𝑠𝑢𝑏 − 𝑐𝑎𝑡𝑒𝑔𝑜𝑟𝑦)𝑖= ∑𝑛𝑖=1𝑋𝑖

(Hieu & Lan, 2015; Soliman, 2013; Vu, 2012)

Independent Variables:

Board Independence (BI) The proportion of independent members

on board of directors

(Al-Janadi et al., 2013; S S

Ho & Wong, 2001) CEO Separation (CEOSEPAR)

Dummy variable: code “1” if there is a separation between these two positions, otherwise code “0”

(Al-Janadi et al., 2013)

Audit Committee Existence

(ACE) Dummy variable: code “1” if the company has audit committee, otherwise code “0” (Hieu & Lan, 2015)

Audit Quality (B4) Dummy variable: coding “1” if the company is audited by one of “Big 4”

auditing firm, otherwise coding “0”

(Al-Janadi et al., 2013)

Foreign Ownership (FOROW) The total the percentage of equity shares owned by foreign investors (Al-Janadi et al., 2013)

Control Variables:

Listing Duration (LIST) Natural logarithm of years listed (Kim et al., 2005)

Firm Size (FSIZE) Natural logarithm of total assets (Vu, 2012)

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Vu (2012)

3.3 Model Specifications

Model 1 exams the relationship between voluntary disclosure index and corporate governance variables

In most of previous studies, multiple regression was employed with a large sample size (data was collected in one year) This study cannot follow them as data is not large enough if data is examined in one year Instead,

we apply panel regression with a 3-year period This falls into the same situation with study from Barako, Hancock, & Izan (2006)

Model 1: Corporate governance characteristics and voluntary disclosure

𝑉𝐷𝐼𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝐼𝑖𝑡+ 𝛽2𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡+ 𝛽3𝐴𝐶𝐸𝑖𝑡+ 𝛽4𝐵4𝑖𝑡+ 𝛽5𝐹𝑂𝑅𝑂𝑊 𝑖𝑡+ 𝛽6𝐿𝐼𝑆𝑇𝑖𝑡+ 𝛽7𝐹𝑆𝐼𝑍𝐸𝑖𝑡+

𝛽8𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡+ 𝑖𝑡

The relations between 4 sub-categories of voluntary disclosure and corporate governance variables are investigated from model 2 to model 5

Model 2 𝑉𝐷𝐼 − 𝐶𝑆𝐼𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝐼𝑖𝑡+ 𝛽2𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡+ 𝛽3𝐴𝐶𝐸𝑖𝑡+ 𝛽4𝐵4𝑖𝑡+ 𝛽5𝐹𝑂𝑅𝑂𝑊𝑖𝑡+ 𝛽6𝐿𝐼𝑆𝑇𝑖𝑡+ 𝛽7𝐹𝑆𝐼𝑍𝐸𝑖𝑡+ 𝛽8𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡+ 𝑖𝑡

Model 3 VDI − FCMIit= β0+ β1BIit+ β2CEOSEPARit+ β3ACEit+ β4B4it+ β5FOROWit+ β6LISTit+

β7FSIZEit+ β8PROFITit+ it

Model 4 𝑉𝐷𝐼 − 𝐹𝐿𝐼𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝐼𝑖𝑡+ 𝛽2𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡+ 𝛽3𝐴𝐶𝐸𝑖𝑡+ 𝛽4𝐵4𝑖𝑡+ 𝛽5𝐹𝑂𝑅𝑂𝑊 𝑖𝑡+ 𝛽6𝐿𝐼𝑆𝑇𝑖𝑡+ 𝛽7𝐹𝑆𝐼𝑍𝐸𝑖𝑡+ 𝛽8𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡+ 𝑖𝑡

Model 5 – 𝑉𝐷𝐼 − 𝑆𝐼𝑅𝑖𝑡 = 𝛽0+ 𝛽1𝐵𝐼𝑖𝑡+ 𝛽2𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡+ 𝛽3𝐴𝐶𝐸𝑖𝑡+ 𝛽4𝐵4𝑖𝑡+ 𝛽5𝐹𝑂𝑅𝑂𝑊𝑖𝑡+ 𝛽6𝐿𝐼𝑆𝑇𝑖𝑡+

𝛽7𝐹𝑆𝐼𝑍𝐸𝑖𝑡+ 𝛽8𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡+ 𝑖𝑡

Model 6 is conducted to see whether the effects of corporate governance variables on voluntary disclosure with one-year lag

Model 6 𝑉𝐷𝐼𝑖𝑡= 𝛽0+ 𝛽1𝐵𝐼𝑖𝑡−1+ 𝛽2𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡−1+ 𝛽3𝐴𝐶𝐸𝑖𝑡−1+ 𝛽4𝐵4𝑖𝑡−1+ 𝛽5𝐹𝑂𝑅𝑂𝑊𝑖𝑡−1+ 𝛽6𝐿𝐼𝑆𝑇𝑖𝑡−1+

𝛽7𝐹𝑆𝐼𝑍𝐸𝑖𝑡−1+ 𝛽8𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡−1+ 𝑖𝑡

Where:

i, t: Indices for companies and time, respectively

𝑉𝐷𝐼𝑖𝑡: Voluntary disclosure index – calculated as total disclosure items score over possible maximum disclosure items in year t

𝑉𝐷𝐼 − 𝐶𝑆𝐼𝑖𝑡, VDI − FCMIit, 𝑉𝐷𝐼 − 𝐹𝐿𝐼𝑖𝑡, 𝑉𝐷𝐼 − 𝑆𝐼𝑅𝑖𝑡 :Voluntary disclosure index (sub-categories) – calculated as total disclosure items score over possible maximum disclosure items in sub-group in year t

directors in the year t and t-1, respectively

𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡, 𝐶𝐸𝑂𝑆𝐸𝑃𝐴𝑅𝑖𝑡−1 : CEO separation – calculated by dummy variable, respectively in the year t and t-1

𝐴𝐶𝐸𝑖𝑡, 𝐴𝐶𝐸𝑖𝑡−1: Audit committee existence - calculated by dummy variable, respectively in the year t and

t-1

𝐹𝑂𝑅𝑂𝑊𝑖𝑡, 𝐹𝑂𝑅𝑂𝑊𝑖𝑡−1 : Foreign ownership – calculated by the total the percentage of equity shares owned

by foreign investors, respectively in the year t and t-1

𝐿𝐼𝑆𝑇𝑖𝑡, 𝐿𝐼𝑆𝑇𝑖𝑡−1 : Listing duration – calculated by natural logarithm of numbers of years listed in the year t and t-1

𝐹𝑆𝐼𝑍𝐸𝑖𝑡, 𝐹𝑆𝐼𝑍𝐸𝑖𝑡−1 : Firm size – calculated by natural logarithm of total assets in the year t and t-1

𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡, 𝑃𝑅𝑂𝐹𝐼𝑇𝑖𝑡−1 : Profitability – calculated as Net income divided by total assets in the year t and t-1

4 Results

4.1 Voluntary Disclosure

The figure 1 presents the level of voluntary disclosure index and its sub-categories from 2014 to 2016 The average voluntary disclosure index of companies in VN100 is 0.47 with a large range from 0.23 to 0.71 The index is higher than those calculated by (Hieu & Lan, 2015; Vu, 2012) The mean VDI of 0.47 is lower than in the studies by M Akhtaruddin & Haron (2010) in Malaysia (0.58); Rouf & Harun (2011) in Bangladesh (0.48) and is higher than studies by S S Ho & Wong (2001) in Hong Kong (0.29); Eng & Mak (2003) in Singapore (0.22) It is shown from above analysis that voluntary disclosure score of Vietnamese listed companies is in the middle level compared to other countries

In analyzing the sub-categories disclosure, it is found that companies disclose information on social reporting activities by far the most (the score goes form 0.62 in 2014 to 0.70 in 2016), which is consistent with the study by Hieu & Lan (2015) and inconsistent with the study by Vu (2012) In her study, Vu (2012) found that companies disclosed least information on this category in 2012 However, in 2015, Hieu & Lan (2015) found the opposite result and it is the same with the finding in this thesis in three years from 2014 to 2016 This case indicates that firms more and more pay attentions to reporting social activities with the purpose of showing their sustainable growths which are an increasingly focus of the society By doing that, companies can increase the attractions from much people in society, which may benefit their productions

Table 2: Voluntary Disclosure and Its Sub-Categories

Figure 9 Mean Voluntary Disclosure and Its Categories

(Note: VDI stands for voluntary disclosure index; CSI stands for corporate strategy information; FCMI stands for financial capital and market information; FLI stands for forward looking information; SRI stands for social reporting information)

Table 3 summarizes the descriptive analysis results and correlation matrix of independent and control variables The correlation values range from r=-0.15, p<0.1 to r=0.29, p<0.1, which means that the correlation problem cannot cause biased results as all values are less than 0.9

Table 3: Mean, Standard Deviation, and Pearson’s Correlations for the Variables

Mean

(St.d)

Min (Max) BI CEOSEPAR ACE BIG4 FOROW LIST FSIZE PROFIT

BI

0.32 (0.18)

0.00 (0.80) 1.00 CEOSEPAR (0.45) 0.72 (1.00) 0.00 0.08 1.00

ACE

0.13 (0.34)

0.00 (1.00) -0.05 -0.08 1.00 BIG4

0.59 (0.49)

0.00 (1.00) 0.06 0.07 -0.01 1.00 FOROW (0.17) 0.21 (0.59) 0.00 -0.10* 0.09 0.09 0.26*** 1.00

LIST

1.77 (0.62)

-2.48 (2.77) -0.05 -0.01 0.10* 0.17*** 0.15*** 1.00 FSIZE

28.80

(1.09)

25.48 (31.92) -0.15*** 0.04 0.05 0.28*** 0.11** 0.0016 1.00 PROFIT (0.06) 0.08 (0.28) -0.36 -0.10* 0.11* 0.0009 -0.01 0.29*** -0.02 0.21*** 1.00

*,**,*** Correlation is significant at 10%, 5%, and 1%

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

Mean Voluntary Disclosure Level And Its Categories.

In this study, the authors employ Variance Inflation Factors (VIF) to test the multicollinearity between independent variables All the VIF values are less than 10 (table 4), which can come to the conclusion of no presence of multicollinearity

Table 4: Multicollinearity Test

4.2 Regression Results

4.2.1 Corporate governance variables and voluntary disclosure index (model 1)

Table 5 presents detailed results on model 1 Fixed-effect model (FEM) is employed after F-test and Hausman test Two more additional tests are conducted, which reveals that data suffers autocorrelation, but not heteroscedasticity In conclusion, the final regression is run again by FEM with cluster standard errors to remove autocorrelation

Table 5: Corporate Governance Characteristics and Voluntary Disclosure (Model 1)

FEM with Cluster robust SE Coefficient Robust SE Sig

Independent variables

Control variables

*,**,*** Correlation is significant at 10%, 5%, and 1% Source: the author

It can be seen from table 5 that the model 1 is highly significant (F=2.41 and p=0.02) and the model explains 15% of the variations in the voluntary disclosure (R-sq within=0.15)

H5 is supported by the result from panel 1 In the panel, a positive and significant relation is found between foreign ownership and the level of voluntary disclosure at 10% level with (β=0.05, p=0.08) This finding is similar to (Bonson & Escobar, 2006; OGWE, 2014; Patton & Zelenka, 1997; Qu, 2011; Raffournier, 1995; Wallace

& Naser, 1995)

The finding can be explained based on the high average proportion of foreign owners In the sample, more firms have 21% of their shares owned by foreigners, which means that these foreign shareholders are powerful