Corporate governance structures and financial performance: A comparative study of publicly listed companies in Singapore and Vietnam
Nguyen, T. V. (2015). Corporate governance structures and financial performance: A comparative study of publicly listed companies in Singapore and Vietnam (Thesis, Doctor of Philosophy (PhD)). University of Waikato, Hamilton, New Zealand. Retrieved from https://hdl.handle.net/10289/9437
Permanent Research Commons link: https://hdl.handle.net/10289/9437
This study uses a dynamic modelling approach to investigate the relationship between corporate governance structures and financial performance of publicly listed companies in Singapore and Vietnam. The dynamic modelling approach facilitates answering the first research question: whether the relationship between corporate governance structures and firm financial performance persists in the Singaporean and Vietnamese markets when the relationship’s dynamic nature is taken into account. Moreover, by focusing on two different types of national governance systems in the Asian region (well-developed vs. under-developed), this study observes how the relationship between corporate governance structures and firm performance is moderated by each country’s national governance quality. By carrying out this observation, this study answers the second research question: whether the corporate governance–firm performance relationship varies according to the quality of national governance systems in which firms operate. Two samples – including a total of 379 publicly listed non-financial companies covering a four-year period from 2008 to 2011– are examined through the use of a two-step system generalised method of moments estimator. This estimation technique allows for potential sources of endogeneity inherent in the corporate governance–firm performance relationship, including dynamic endogeneity, simultaneity, and unobserved time-invariant heterogeneity across firms. The results suggest that the performance effect of corporate governance structures persists in both markets even after the dynamic nature of the corporate governance–firm performance relationship is taken into consideration. For the Singaporean market, the results also show that the three corporate governance structures (board diversity, board size and ownership structures) appear to have statistically significant effects on firm performance. For both markets, it is observed that there is a statistically significantly positive relationship between ownership concentration and financial performance. This finding supports the prediction of agency theory regarding the efficient monitoring effect of large shareholders in markets with highly concentrated ownership. For the Vietnamese market, the results show that board gender diversity has a positive effect on firm performance. Remaining robust even after the alternative proxies for gender diversity are employed, this finding is consistent with the perspectives of agency theory and resource dependence theory. The number of female directors in the boardroom also matters, supporting the view that if female board representation affects firm outcomes, this effect is more pronounced when the number of female directors increases. However, the marginal positive performance effect of board gender diversity ceases when the percentage of female directors reaches a breakpoint of about 20%. This finding suggests that there is perhaps a potential trade-off between the costs and benefits of board gender diversity. Importantly, the results indicate that the relationship between the current performance and one-year lagged performance is statistically significantly positive in both markets, and robust when alternative estimation methods and models are employed. In line with Wintoki, Linck, and Netter (2012), among others, this finding suggests that the corporate governance–firm performance relationship should be investigated in a dynamic framework. This means that past firm performance should be considered as an important independent variable to control for potential effects of unobserved historical factors on current corporate governance structures and performance. Furthermore, the results show that better national governance quality has a positive effect on firm performance, and that the performance effect of ownership concentration is contingent upon national governance quality. The results suggest that ownership concentration appears to have a stronger positive effect on performance of companies in Vietnam where the national governance system is underdeveloped. In contrast, concentrated ownership tends to have a weaker effect on financial performance of firms in Singapore where the national governance system is well-established. This finding is consistent with the argument that ownership concentration is an efficient corporate governance mechanism which can substitute for weak national governance quality. In the absence of effective national governance mechanisms, ownership concentration is likely to be an important corporate governance strategy for Vietnamese firms to control potential agency problems. On the contrary, in Singapore, where national governance quality – such as legal protection of shareholders – is much better, the role of ownership concentration in determining performance seems to be weaker. This study is novel in that it is the first to explore the corporate governance–firm performance relationship using a dynamic modelling approach for the Vietnamese and Singaporean markets. The findings of this study significantly contribute toward a better understanding of international diversity on corporate governance by providing robust empirical evidence from the emerging and mature markets in the Asian region. This study also extends the corporate governance literature by enriching the understanding of the interaction between corporate-level and national-level governance mechanisms.
University of Waikato
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