Luận văn thạc sĩ UEH family ownership, strategy risks and firms performance

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

FAMILY OWNERSHIP, STRATEGIC RISKS

AND FIRM’S PERFORMANCE

BY

NGUYEN SON KIEN

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, November 2015

LUAN VAN CHAT LUONG download : add [email protected]

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

FAMILY OWNERSHIP, STRATEGIC RISKS

AND FIRM’S PERFORMANCE

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN SON KIEN

Academic Supervisor:

VO HONG DUC

HO CHI MINH CITY, November 2015

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | i

Declaration

“I certify the content of this dissertation has not already been submitted for any degree

and is not being currently submitted for any other degrees.

I certify that, to the best of my knowledge, any help received in preparing this

dissertation and all source used, have been acknowledged in this dissertation.”

Signature

Nguyen Son Kien

Date: November 23th, 2015

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | ii

Acknowledgement

Foremost, I would like to express my sincere gratitude to my supervisor Dr. Vo Hong

Duc, for his patience, motivation, enthusiasm, sympathy, altruism, immense knowledge,

and for giving me valuable opportunities. His guidance helped me at all the time of research

and writing of this thesis. I could not have imagined having a better advisor and mentor for

my study.

In addition my advisor, I would like to thank Dr. Pham Khanh Nam who has his

expertise view with me, the valuable experience in research, and Dr. Truong Dang Thuy

who has provided the practical econometric technique, a valuable knowledge in research.

Furthermore, I would also like to thank all lecturers and staff at the Vietnam

Netherlands Program and my VNP 20 classmates.

Last but not the least, I would like to acknowledge an unconditional love from my

family to me over the last 25 years. A special thank is to my parents for their support

throughout my life, to my sixth aunt and her husband for valuable and memorable support

during my studies.

And, a special girl has come to this world and changed my life. She can only be one

person – a very special person. She is Diep.

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | iii

Abstract

A corporate governance framework is required for a successful operation of firms.

This framework is generally known to include various aspects of corporate governance,

including ownership structure, characteristics of the board of directors and the strategic

risks (including both systematic and non-systematic risk) of the firms. And the list of

factors included in this corporate governance framework does not stop there.

This study is conducted to consider the potential impact of the following two

fundamental issues on firm’s performance: (i) family ownership, together with other

corporate governance factors; and (ii) strategic risk. Firm’s performance is proxied by each

of three dimensions of measurement: (i) the market factor (Tobin’s Q); (ii) the accounting

factor (ROA); and (iii) the risk of bankruptcy factor (Z-Score). Data were collected from

289 listed companies in the Ho Chi Minh stock exchange in 2013. This study employs

multivariate analysis to identify the effect from family ownership on firm’s performance

whereas generalized structural equation model is utilized to investigate the possible link

between strategic risk and the performance of listed firms via both direct and indirect

channels,

Findings from this study indicate that family ownership (the ownership and family

involvement in the board of directors; presence of relatives to the founders in the company;

and family members being the CEO) could negatively affect firm’s performance which

then results in a lower level of firms’ performance (lower ROA) and a higher risk of

bankruptcy (higher Z-score). In addition, the relationship between the strategic risks and

firm’s performance is presented in both direct and indirect channels.

Findings from this study also provide an empirical evidence to confirm the positive

effect on firm’s performance from the experienced directors and foreign investors.

However, this study fail to support the link between a number of corporate governance

factors such as: (i) the board size; the duality (being a chairman and the CEO), the diversity

(a presence of female directors in the board structure) and outside directors to firm’s

performance. These findings are somewhat consistent with the conclusions from various

reports published by the IFC; the State Securities Commission Vietnam (2006, 2010); and

International Finance Corporation (2012), in relation to weak applications of the standard

corporate governance framework in the Vietnam’s corporate environment. In addition,

while there is a significant positive effects of capital expenditure on firm’s performance,

the effect is negative for impact of increasing more debt on firm’s performance.

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | iv

Key words: Corporate governance framework; Family ownership; Strategic risks;

Multivariate analysis; GSEM; Treatment effects model; Listed firms; Ho

Chi Minh City.

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | v

Declaration........................................................................................................................... i

Acknowledgement .............................................................................................................. ii

Abstract.............................................................................................................................. iii

Chapter 1: Introduction........................................................................................................1

1.1. Problem statement.....................................................................................................1

1.2. Research objectives...................................................................................................3

1.3. Research questions....................................................................................................3

1.4. Research scope..........................................................................................................4

1.5. The thesis structure ...................................................................................................4

2.1 The theoretical literature ...........................................................................................5

2.1.1. Perspectives of family’s effect ..........................................................................5

2.1.1.1 Why is family ownership different from other concentrated ownership?..5

2.1.1.2 Potential benefits of family ownership.......................................................6

2.1.1.3 Potential costs of family ownership ...........................................................7

2.1.2. Theoretical background of corporate governance .............................................8

2.1.2.1 The perspective of “Legalistic” theory.......................................................8

2.1.2.2 The theory of “Resources dependence” ...................................................10

2.1.2.3 The theory of “Hegemony” ......................................................................11

2.1.3. Corporate governance framework ...................................................................11

2.1.3.1. The conceptualization of the “Corporate Governance” ...........................11

2.1.3.2. Why does corporate governance matter for the company? ......................12

2.1.4. Vietnam’s corporate governance and institutional background ......................12

2.1.4.1. The adoption of corporate governance standards in Vietnam’s context ..12

2.1.4.2. Legal framework in Vietnam ...................................................................13

2.1.5. Strategic risk and performance ........................................................................15

2.1.5.1. The initial approach..................................................................................15

2.1.5.2. The perspective of “risk behavior” theory ...............................................16

2.1.5.3. The perspective of “prospect” theory.......................................................16

2.1.5.4. The perspective of “Behavior” theory......................................................17

2.1.5.5. The strategy of “diversification” ..............................................................18

2.1.6. Idiosyncratic (unsystematic) risk and family’s business.................................18

2.1.6.1. The reinforcement of the family’s power.................................................18

2.1.6.2. The respondent strategy for the threat......................................................19

2.1.6.3. The diversification, risk, and family’s decision .......................................19

2.2 Empirical studies.....................................................................................................20

TABLE OF CONTENTS

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | vi

2.2.1. Empirical evidence of family effect on firm’s performance ...........................20

2.2.2. Empirical evidence of corporate governance on firm performance ................21

2.2.3. Empirical evidences of strategic risk on firm’s performance..........................23

2.2.4. Empirical evidences of idiosyncratic risk on family’s business......................25

2.3 Hypothesis construction and the conceptual framework ........................................26

2.3.1. The family’s effect and the firm performance.................................................26

2.3.2. The corporate governance factors and the firm performance..........................26

2.3.2.1. The role of board size...............................................................................26

2.3.2.2. The role of diversity and independent directors.......................................27

2.3.2.3. The role of duality....................................................................................27

2.3.2.4. The role of board’s experience.................................................................27

2.3.2.5. The role of foreign ownership..................................................................28

2.3.3. The strategic risk, family’s effect and firm performance ................................28

2.3.3.1. The strategic risk and firm performance ..................................................28

2.3.3.2. The idiosyncratic (unsystematic) risk, family and firm performance ......29

2.3.4. The various facets of firm performance ..........................................................29

2.3.5. The conceptual framework ..............................................................................31

3.1. Data sources............................................................................................................32

3.2. Research methodology............................................................................................32

3.2.1. Multivariate analysis........................................................................................32

3.2.1.1. The constructed model .............................................................................32

3.2.1.2. Multivariate analysis of variance .............................................................34

3.2.1.3. Multivariate regression model..................................................................36

3.2.2. The Generalized structural equation model (GSEM)......................................38

3.2.2.1. The recursive (causal) structural models..................................................38

3.2.2.2. The path diagrams and the system of equation ........................................39

3.2.2.3. Model specification..................................................................................41

3.2.2.4. The measurement of risk..........................................................................41

3.2.3. The sensitive analysis of sample selection model ...........................................42

4.1. Data descriptions.....................................................................................................44

4.1.1. Descriptive statistics........................................................................................44

4.1.2. The descriptions by groups..............................................................................45

4.1.3. The variable correlation...................................................................................51

4.2. The family’s effects, corporate governance, and firm performance .......................53

4.2.1. Multivariate analysis of covariance (MANCOVA).........................................53

4.2.2. Multivariate regression model.........................................................................54

4.2.2.1. The family’s involvement, corporate governance and firm performance 54

4.2.2.2. The founding family, corporate governance and firm performance ........55

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | vii

4.2.2.3. The family CEO, corporate governance and firm performance...............55

4.3. The strategic risk, family’s effects, and firm performance .....................................59

4.3.1. The strategic risk, family’s involvement, and performance ............................59

4.3.2. The strategic risk, founding family, and performance.....................................59

4.3.3. The strategic risk, family CEO, and performance ...........................................60

4.4. The sensitive analysis .............................................................................................64

5.1. Concluding remarks................................................................................................69

5.2. Policy implications..................................................................................................72

5.2.1. The implications for the companies.................................................................72

5.2.2. The implications for the Vietnam’s authority and government.......................73

5.3. The limitation and further researches .....................................................................74

REFERENCES ..................................................................................................................75

APPENDIX....................................................................................................................84

Appendix A. The overlap map of family’s aspects........................................................84

Appendix B. The perspective of ownership concentration............................................85

Appendix C. The perspective of the OECD principals..................................................87

LUAN VAN CHAT LUONG download : add [email protected]

P a g e | viii

Table 1: Descriptive statistic................................................................................. 45

Table 2: Correlation .............................................................................................. 52

Table 3: Multivariate analysis of variance............................................................ 53

Table 4: Multivariate regression model of family’s involvement ........................ 56

Table 5: Multivariate regression model of founding family................................. 57

Table 6: Multivariate regression model of family CEO ....................................... 58

Table 7: The strategic risk, family’s involvement, and firm performance ........... 61

Table 8: The strategic risk, founding family, and firm performance.................... 62

Table 9: The strategic risk, family CEO, and firm performance .......................... 63

Table 10: The adjusting selection bias in the family’s involvement .................... 66

Table 11: The adjusting selection bias in the founding family............................. 67

Table 12: The adjusting selection bias in the family CEO ................................... 68

LIST OF TABLES

LUAN VAN CHAT LUONG download : add [email protected]