Luận văn thạc sĩ UEH the impact of corporate governance disclosure on the financial performance of

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

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Vu Thi Thu Van

THE IMPACT OF CORPORATE GOVERNANCE

DISCLOSURE ON THE FINANCIAL

PERFORMANCE OF SSI30 COMPANIES

MASTER THESIS

In Banking

Ology code: 60.31.12

Supervisor:

Dr. Pham Huu Hong Thai

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Ho Chi Minh City, 2011

Acknowledgements

Hereby, the writer would like to express her heartfelt thanks to Dr. Pham Huu

Hong Thai for his great instruction to complete this thesis, to the professors & the

teachers for building up her understanding & her good acting and to her loved

ones for their contribution to meaning of her life.

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Abstract

Experience in countries with large and active equity markets shows that disclosure

can also be a powerful tool for influencing the behavior of companies and for

protecting investors. A strong disclosure regime can help to attract capital and

maintain confidence in capital markets. Insufficient or unclear information may

hamper the ability of markets to function, may increase the cost of capital and result

in a poor allocation of resources. However, in Vietnam, Corporate governance is

still a new concept. And The World Bank asses that investor protection is

inadequate; related-party transactions are pervasive; compliance with accounting

standards is insufficient; and disclosure and transparency are limited. Therefore, this

paper is motivated to give in further detail at what level the quality of annual reports

in Vietnam is by using the Standard & Poor‟s scorecard to rate and to investigate

the impact of corporate governance disclosure on the financial performance in order

to illustrate why the pursuit of better corporate governance practices can be of

genuine and practical benefit to companies themselves. As a fact, the annual reports

viewed in this study are mainly with introduction, advertising, financial statement,

balance sheet …., not reporting about corporate during the year as it is. With

correlation, relationships between financial performance and corporate governance

disclosure expected are not seen from the samples.

Keywords: Corporate Governance, Corporate Governance disclosure score, annual

reports, financial performance.

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Table of content

Chapter 1. Introduction............................................................................................... 4

Chapter 2. Literature review on corporate governance in general and on disclosure

of corporate governance in particular.......................................................................... 8

2.1. Theoretical Literature Review................................................................... 8

2.2. Empirical Literature Review ................................................................... 10

Chapter 3. Research methodology ............................................................................ 20

3.1. The sample ............................................................................................. 20

3.2. Research methodology............................................................................ 20

Corporate Governance Disclosure Scorecard............................................ 20

Financial Performance.............................................................................. 21

Correlation ............................................................................................... 22

Chapter 4. Findings & Discussion ............................................................................ 23

4.1. Corporate governance disclosure scores.................................................. 23

4.2. Financial performance............................................................................. 31

4.3. Correlation.............................................................................................. 32

Chapter 5. Conclusion .............................................................................................. 36

References................................................................................................................ 43

Appendix 1. CG Disclosure Scorecard (Standard & Poor's)...................................... 48

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Appendix 2. List of Tables ....................................................................................... 56

Appendix 3. List of Figures...................................................................................... 57

CHAPTER 1

INTRODUCTION

Statement of problems

The corporate governance issue has beccome of great interest those days.

Both Asian countries and international organizations launched some initiatives to

enhance corporate governance. For example, the Organization of Economic

Cooperation and Development (OECD) issued a document entitled „Principles of

Corporate Governance‟ in 1998 and a revised version in 2004 (OECD, 2004)

according to which Corporate governance is a key element in improving economic

efficiency and growth as well as enhancing investor confidence. The presence of an

effective corporate governance (CG) system, within an individual company and

across an economy as a whole, helps to provide a degree of confidence that is

necessary for the proper functioning of a market economy. As a result, the cost of

capital is lower and firms are encouraged to use resources more efficiently, thereby

supporting growth. The Cadbury Committee (1992) advocated, first of all,

disclosure as “a mechanism for accountability, emphasizing the need to raise

reporting standards in order to ward-off the threat of regulation. Improved

disclosure results in improved transparency, which is one of the most essential

elements of healthy CG practices.” Communication via corporate disclosure is self￾evidently a very important aspect of CG in the sense that meaningful and adequate

disclosure enhances good CG. For instance, Whittington (1993) states: “Published

annual reports are used as a medium for communicating both quantitative and

qualitative corporate information to shareholders, potential shareholders (investors)

and other users”. Although publication of an annual report is a statutory

requirement, companies normally voluntarily disclose information in excess of the

mandatory requirements. Company management recognizes that there are economic

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