Thinh, Nguyen Duc

CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EVIDENCE
FROM FINANCIAL INSTITUTIONS IN VIETNAM
In Partial Fulfillment of the Requirements of the Degree of
MASTER OF BUSINESS ADMINISTRATION
In Finance
by
Mr. Nguyen Duc Thinh
ID: MBA02036
International University - Vietnam National University HCMC
September 2012
CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EVIDENCE FROM

FINANCIAL INSTITUTIONS IN VIETNAM
In Partial Fulfillment of the Requirements of the Degree of
MASTER OF BUSINESS ADMINISTRATION
In Finance
by
Mr. Nguyen Duc Thinh
ID: MBA02036
International University - Vietnam National University HCMC
September 2012
Under the guidance and approval of the committee, and approved by all its members, this thesis
has been accepted in partial fulfillment of the requirements for the degree.
Approved:
---------------------------------------------Chairperson
--------------------------------------------Committee member
---------------------------------------------Committee member
---------------------------------------------Committee member
List of abbreviations
CGI
Corporate Governance Index
DPR
Dividend Payout Ratio
FI
Financial Institution
GROW
Growth Rate
GSO
General Statistics Office
HNX
Hanoi Stock Exchange
HOSE
Ho Chi Minh Stock Exchange
LEVR
Financial Leverage
MOF
The Ministry of Finance
OECD
Organization for Economic Co-operation and Development
RISK
Business volatility
ROA
Return on Assets
ROE
Return on Equity
SBV
The State Bank of Vietnam
STAT
Status (Dummy variable)
VCGI
Vietnam Corporate Governance Index
Acknowledgements
First of all, I am very grateful to my advisor - Dr. L Vnh Trin for his great support and helpful
guidance during the time we conduct this thesis.
We also would like to say thanks to all teachers in MBA Faculty and the Managing Board of
Directors of Ho Chi Minh International University for all your kind support to facilitate our best
to implement and complete this thesis.
Ho Chi Minh City, September 2012
ii
Plagiarism Statements
I would like to declare that I am strictly complied with the regulations of Ho Chi Minh
International University with regard to plagiarism. Honestly, this thesis was conducted by me. I
am conscious that this thesis is my own work and does not contain or use any materials, ideas,
languages previously published by other person. In this paper, any published and unpublished
sources or references were clearly quoted and acknowledged. Otherwise, it will be treated as
plagiarism and I am totally responsible for the discipline in accordance with guidelines of Ho
Chi Minh International University Vietnam National University Ho Chi Minh City. I also
would like to commit that this thesis has not been submitted to any other MBA programs or other
school of business at any levels.
iii
Table of Contents
List of abbreviations ........................................................................................................................ i
Acknowledgements ......................................................................................................................... ii
Plagiarism Statements .................................................................................................................... iii
Table of Contents ........................................................................................................................... iv
Abstract ......................................................................................................................................... vii
CHAPTER ONE: INTRODUCTION ............................................................................................ 1
1.1.
Introduction .......................................................................................................................... 1
1.2.
Rationale .............................................................................................................................. 3
1.3.
Problem statement ................................................................................................................ 5
1.4.
Research objective ............................................................................................................... 9
1.5.
Scope and limitation ............................................................................................................ 9
1.6.
Implications of the study.................................................................................................... 11
1.7.
Structure of the study ......................................................................................................... 12
CHAPTER TWO: LITERATURE REVIEW ............................................................................... 14

2.1.
Corporate governance: a theoretical review ...................................................................... 14
2.2.
Results of empirical research ............................................................................................. 17
2.3.
Hypotheses ......................................................................................................................... 21
CHAPTER THREE: RESEARCH METHODOLOGY .............................................................. 25

3.1.
Data collection ................................................................................................................... 25
3.2.
Research Methodology ...................................................................................................... 25
3.3.
Model to measure and variables ........................................................................................ 29
3.3.1.
Model to measure variables ........................................................................................ 29
3.3.2.
Dependent variables ................................................................................................... 30
iv
3.3.3.
Independent variables ................................................................................................. 31
3.3.3.1.
Company size (SIZE) .......................................................................................... 31
3.3.3.2.
Company growth (GROW) ................................................................................. 32
3.3.3.3.
Company leverage (LEVR) ................................................................................. 33
3.3.3.4.
Business volatility (RISK) .................................................................................. 33
3.3.3.5.
Capital intensity ratio (CAIR) ............................................................................. 34
3.3.3.6.
Industry dummy variable (STAT) ....................................................................... 34
3.3.4.
Variable definitions .................................................................................................... 35
3.3.5.
Analysis process ......................................................................................................... 35
CHAPTER FOUR: DATA ANALYSIS AND FINDINGS ......................................................... 36

4.1.
Descriptive statistics .......................................................................................................... 36
4.1.1.
The VCGI ................................................................................................................... 36
4.1.2.
The dependent variables and independent variables .................................................. 46
4.1.3.
The correlation matrix of variables in the model ....................................................... 50
4.1.4.1.
The VCGI ............................................................................................................ 52
4.1.4.2.
Firm size (SIZE) .................................................................................................. 52
4.1.4.3.
Financial leverage (LEVR) ................................................................................. 52
4.1.4.4.
Total asset growth rate (GROW) ........................................................................ 53
4.1.4.5.
Business volatility (RISK) .................................................................................. 53
4.1.4.6.
Capital intensity ratio (CAIR) ............................................................................. 53
4.1.4.7.
Industry dummy variable (STAT) ....................................................................... 54
4.1.4.
4.2.
The sub-indices correlation matrix ............................................................................. 54
The results of regression analysis ...................................................................................... 56
4.2.1.
The association between the VCGI and ROE (Model 1) ........................................... 56
4.2.2.
The relationship between the VCGI and ROA (Model 2) .......................................... 58
4.2.3.
The relationship between the VCGI and DPR (Model 3) .......................................... 61
4.2.4.
ROE, ROA and dividend payout regressions ............................................................. 64
4.2.5.
Regression with four sub-indices and dependent variables ROE, ROA, DPR........... 65
4.2.6.
Regression with dummy variable (STAT).................................................................. 67
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ......................................... 70

5.1.
Conclusions ........................................................................................................................ 70
5.2.
Recommendations .............................................................................................................. 73
References ..................................................................................................................................... 76
Appendices .................................................................................................................................... 81
List of Tables ............................................................................................................................. 81
List of Figures ........................................................................................................................... 93
The VCGI in details .................................................................................................................. 98
List of Financial Institutions included in this study ................................................................ 101
vi
Corporate Governance and Firm Performance: Evidence from Financial Institutions

in Vietnam
Abstract
This study is to analyze and evaluate the corporate governance practices in financial institutions
(FIs) in Vietnam, including 37 Commercial Joint Stock Banks, 16 Insurance Corporations and
7 Finance Joint Stock companies. Of the 60 financial institutions, 17 are listed. Using a similar
approach with Garay and Gonzlez (2008) with considering specific characteristics of Vietnam
economy, we have established the Vietnam Corporate Governance Index (VCGI) for 60
financial institutions on the basic of publicly disclosed information. We use multiple regressions
to test and investigate the association between corporate governance practices and performance
of FIs in Vietnam.
The empirical results show that the VCGI is positively associated with ROE and ROA and the
correlation is statistically significant at the 0.01 level. This suggests that in Vietnam, FIs with
higher corporate governance scores have higher performance in term of ROE and ROA. The
results also indicate that the VCGI is positively related to dividend payout ratio (DPR) and its
correlation coefficient is statistically significant at the 0.01 level. That is, financial institutions
with better corporate governance practice tend to allocate more cash earnings to shareholders,
reflected by a higher dividend payout ratio.
Keywords: Financial institutions, corporate governance index, firm performance, the board of
directors, the executive board, Vietnam.
vii
Corporate Governance and Firm Performance: Evidence from FIs in Vietnam

CHAPTER ONE: INTRODUCTION
In this chapter, we commence with corporate governance issues not only in Vietnam but also
around the world. We come up with the reason why corporate governance is so important for
FIs in Vietnam and why corporate governance practices attract more attention from investors,
shareholders, and the government etc. in recent years. The necessity for conducting this study
is also discussed in the context of Vietnam. We then present the structure of this study.
1.1. Introduction
In recent years, corporate governance has been widely researched in respect of process
of decision making of the company especially after the sudden increase in the number of
scandals. For the sake of investors and firms themselves, many firms have started paying
more close attention to corporate governance. According to Claessens, Djankov, Fan and
Lang (2002), firms with good corporate governance practices were in a better position to
approach external funding, save cost of capital and increase their operating performance.
They found that a stronger operating performance of a firm was reflected by the effective use
of capital resource on the basic of better operation control. The above authors also showed
that effective corporate governance practices could mitigate risks and strengthen shareholders
connection with firm. Therefore, good and transparent corporate governance practices are
essential for firms in general and financial institutions in particular.
There are many studies undertaken not only in developed countries but also in
developing countries. For example, Black (2001) did a research in Russia, and Chong, Lpezde-Silanes (2006) examined the case of Mexico. Lefort and Walker (2005) conducted a
research in Chile while Garay and Gonzlez (2005) studied firms in Venezuela. These studies
argued that firm corporate governance practices were positively related to firm market value
as well as firm accounting performance. In the recent study, Garay and Gonzlez (2008)
1

established a corporate governance index (CGI) based on information of 46 listed firms in the
Caracas Stock Exchange in Venezuela and investigated the relationship between corporate
governance and company performance. They provided strong evidence arguing for the
association between corporate governance quality and share market price and dividend payout
of listed companies in the context of a developing market (i.e. Venezuela). They found that
corporate governance performance was positively associated with market price to book value,
Tobin Q and dividend payout ratio. The result is consistent with theoretical models
previously proposed by La Porta, Lopez-de-Silanes, Shleifer and Vishny (2002) and La Porta,
Lopez-de-Silanes, Shleifer and Vishny (2000b). Moreover, Klapper and Love (2004)
examined corporate governance practices in merging countries and argued that there was a
positive relationship between corporate governance score and firm market performance. The
authors implied that companies with higher corporate governance scores could have stronger
efficiency in operation compared to firms with lower corporate governance scores.
In addition, Durnev and Kim (2005) accessed the sample sizes of 859 big companies in
27 countries to investigate whether corporate governance score could predict firm market
price or firm market value. Empirically, they demonstrated that corporate governance with
regard to disclosure score was positively related to Tobins Q.
In the context of Vietnam, however, there is a lack of quantitative studies on the
relationship between corporate governance practices and firm share market price or firm
performance. Instead, the studies mainly use qualitative method to describe, evaluate and
analyze corporate governance practices of listed companies and consider whether the quality
of corporate governance practices to be improved in comparison with previous time and how
corporate governance practice is complied with international standards prescribed in
Organization for Economic Co-operation and Development (OECD) principles of corporate
2

governance. Following the approach of Garay and Gonzlez (2008), this study collects data
and builds the Corporate Governance Index (CGI) for 60 financial institutions in Vietnam and
uses Ordinary Least Squares (OLS) to investigate the association between corporate
governance practices and performance of FIs in Vietnam in terms of return on equity (ROE),
return on assets (ROA) and dividend payout ratio (DPR).
1.2. Rationale
Since joining the World Trade Organization (WTO) in 2006, companies of Vietnam
have officially entered the global play-ground where they compete not only with Vietnamese
enterprises from all sectors of the economy such as state owned companies, private companies
but also with foreign companies in various industries such as service, production, trade,
finance, insurance etc. Competitive pressures to survive and develop are forcing Vietnamese
enterprises ceaselessly improve and strengthen themselves to meet the changes and rapid
development of the world economy. Recently, improving corporate governance performance
has emerged as an important means for firms in Vietnam and around the world to compete.
Good corporate governance helps firm to attract capital at the lower cost and use its capital
source more efficiently (Gompers, Ishii, and Metrick, 2003). In particular, effective corporate
governance increases market confidence in firms and therefore helps them to obtain lower
cost of capital from investors in the market. As a result, firms have many opportunities to
obtain more long term capital both in domestic and in international markets. Better corporate
governance also promotes market discipline on the basic of proper disclosure and the
transparency of the firm. Moreover, effective corporate governance assures firms to develop
steadily, to decrease potential risks arising in their operations and to facilitate their sustainable
growth (Claessens, 2002).
In addition, Black, Jang and Kim (2006) showed that firms had effective corporate
3

governance practices were in a better position to attract lower cost of capital. In financial
banking industry, corporate governance matters have become more stringent to be supervised.
Especially, since the global financial crisis happened in 2008, corporate governance practices
have become an issue of serious concern for enterprises in general and FIs in particular.
Shareholders, debt holders, government are supervising, implementing corporate governance
practices in firms and requesting modifications in corporate governance practices to
strengthen the disclosure process. The transparency, accountability and efficiency of firms
have become firms objectives. Moreover, financial industry is a special sector in the
economy having an intimate connection with the rest of the economy of the country.
Corporate governance practices in FIs, therefore, play an important role for a stable operation
and safe growth, contributing to stable financial banking system and the whole economy of
the country.
Therefore, this study is to investigate corporate governance practices of FIs in Vietnam,
including 37 commercial banks, 16 insurance companies and 7 financial joint stock
corporations both listed and unlisted companies. The main objective of the study is to analyze
and evaluate the corporate governance practices of FIs in Vietnam. In particular, this study
attempts to examine the interaction between corporate governance practices and performance
of FIs in Vietnam. Based on the findings obtained by data, the study furnishes useful
implications to managers, directors of those companies, policy makers for appropriate actions.
In this study, we would like to answer the following questions:
1. Do corporate governance practices impact on performance of financial institutions in
Vietnam?
2. How can effective corporate governance practices help financial institutions to improve
their performance?
4

1.3. Problem statement
Since 1986, Vietnam has implemented a new policy recognizing the economy with
multiple business sectors. The changes have facilitated business growing in Vietnam. A
number of enterprises from various industries, including productions and services have
developed and become large companies, groups, financial groups such as Hoa Phat Group,
Hoang Anh Gia Lai Group, Asia Commercial Joint Stock Bank - ACB, Sai Gon Thuong Tin
Bank - Sacombank, Vietnam Technological and Commercial Joint Stock Bank Techcombank. Indispensably, corporate governance of firms in Vietnam has to be upgraded
to match with the international standards because almost all economies are interrelated.
On the other hand, FIs play an important role in the economy of Vietnam. With the role
as intermediaries, FIs furnish a series of financial services in the financial markets,
connecting capital suppliers to capital users. Indeed, FIs, as span of bridge, connect investors
who need capital with capital suppliers such as depositors, funds in the financial market.
Based on capital allocation to the economy, investors can use source of capital to invest,
produce goods or trade commodities. As a result, FIs become a very important part in
developing the economy of Vietnam. Due to their specific characteristics, FIs may cause a
serious impact on the economy and the failure of FIs can lead to the collapse of the whole
financial system and even the economy. Asymmetric information may cause problems to
firms irrespective of financial or non-financial industries. However, Furfine (2001) found that
asymmetric information in banks was more serious than in other business sectors in the
economy. More specifically, credit lending is the main activity and this activity generates
more earnings in total income of commercial banks. The quality of bank loan, however, is not
easy to monitor and credit risk is potentially concealed in a long time. In the case of high bad
debt ratio, a commercial bank may significantly face with difficulties in term of solvency and
5

liquidity and even may be failed or collapsed in the case of bankruptcy. And the failure or
collapse of a bank may cause a domino effect and lead to the collapse of a financial system of
a country. Then, the consequence is to become more serious for the whole economy of the
country. As a result, the financial banking industry often draws closer attention from the
government, investors, shareholders and all stakeholders in general.
In recent years, the collapse of big financial companies in the world such as Enron
Group, WorldCom and more recently Lehman Brothers, Bear Stearns etc. in the 2008 global
financial crisis has shown why corporate governance has drawn more attention from many
firms, shareholders, debt holders, employees and policy makers in many countries around the
world.
To protect the rights and interest of investors or shareholders properly, many countries
have issued guidelines with regard to corporate governance to direct firms. To adapt with the
business environment and to create a legal corridor for enterprises to implement accordingly,
Vietnam has also built the legal framework underlying corporate governance regulations in
accordance with the requirements in the context of Vietnam and principles of corporate
governance under international standards of OECD.
Currently, besides the Law on Enterprise in 2005 with effect from the 1st July 2006,
Decision No. 12/2007/Q-BTC of the Ministry of Finance on 13th March 2007 was
promulgated to govern corporate governance activities of listed companies in Vietnam. The
Ministry of Finance prescribes regulations in accordance with the Law on Enterprises, Law on
Securities as well as applies international practices of corporate governance in the context of
Vietnam appropriately, ensuring a sustainable development of the stock market and a healthy
economy as well.

Decision No. 12/2007/Q-BTC comprises of a list of basic principles with regard to
corporate governance practices to protect the rights and interest of investors, shareholders and
related people. Besides, Decision 12 also sets the codes of conduct and ethics of related
members who have rights and interest to manage listed companies in Ho Chi Minh Stock
Exchange (HOSE) and Hanoi Stock Exchange (HNX). In particular, related members are
included as the board of directors, the executive board, the control board and managers or
directors who directly involve in the companies. Under the current regulation, unlisted
companies also refer to this as a guideline on corporate governance to enhance the quality of
corporate governance and ensure companies to be operated in safe and stable ways and attract
more investors.
However, like other developing countries where investor right protection legal is rather
weak, corporate governance practices of firms in Vietnam generally are still limited and weak
compared to the international standards (IFC, 2010).
In financial banking industry, there is a lack of studies on the relationship between
corporate governance and performance or market value of FIs both in Vietnam and around
the world. In the context of Vietnam, the recent study carried out by IFC (2010) to make a
survey for 100 listed companies in both Ho Chi Minh Stock Exchange (HOSE) and Hanoi
Stock Exchange (HNX) found that corporate governance scores in respect of the
responsibilities of the board of directors and information disclosure and transparency of listed
companies were rather low1, with 36.1% and 43.2% respectively. The survey also pointed out
According to Vietnam Scorecard project 2011 (IFC), page 14, corporate governance score in respect of
responsibilities of the Board and information disclosure and transparency were 36.1% and 43.2% respectively.
The survey also reported the average corporate governance score of financial firms was 44.7%, a decrease of 1%
compared to the year 2009.

that many listed firms should tend to be complied with regulations rather to voluntarily
enhance their corporate governance practices.
Of the 100 listed companies both in HOSE and HNX, 35 financial firms were to be
included in the survey. The survey showed that the average corporate governance score of
financial firms was 44.7%, a decrease of 1% compared to the previous year. This survey
indicated that corporate governance practices of Vietnamese companies, especially regarding
the responsibilities of the board of directors and information disclosure and the transparency
in operations were rather low. However, this study is to evaluate how corporate governance
practices in Vietnamese companies are consistent to international practices. The most recent
related study has been conducted by Le Vinh Trien and Nguyen Duc Thinh (2012) on
corporate governance in 60 financial institutions in Vietnam (i.e. our work has just been
accepted for publication). This research is one of the very few first empirical studies on
corporate governance in financial institutions in Vietnam.
Besides, there is also limited study examining the association between corporate
governance practices and FIs operating performance or market value. Empirical studies
undertaken in recent years on corporate governance of FIs around the world mainly focus on
the regulators by conducting a survey (Umer Chapra and Habib Ahmed, 2002) or addressing
to bank failure issue (Desrochers and Fischer, 2002). The other studies were conducted on the
effects of laws, regulations, and monitoring policies on corporate governance of banks in
developing countries (Ross Levine, 2003), or theories of the company and its corporate
governance (Christian Harm, 2007), corporate governance practices after financial crisis 2008
(Peter O. Mlbert, 2010) etc.
In sum, there is a dearth of studies exploring the relationship between FI corporate
governance and its performance in terms of share market value, ROE or ROA not only in
8

Vietnam but also around the world. Moreover, in a qualitative piece of research conducted by
Millar, Eldomiaty, Choi and Hilton (2005), these authors suggest a further quantitative study
on the factors with regard to the transparency of the financial institution and its association
with performance or market value. Based on this gap, the study attempts to investigate the
association between corporate governance practices and performance of FIs in Vietnam on
the basic of collecting firm data.
1.4. Research objective
This study is to investigate the impact of corporate governance practices on almost all
Joint Stock FIs both unlisted and listed in HOSE and HNX in Vietnam, including 37
Commercial Banks, 16 Insurance Corporations and 7 Finance Companies. The main objective
of this study is to analyze and evaluate corporate governance practices of FI in Vietnam and
its relationship with performance. More specifically, this study investigates the impact of
corporate governance on performance of FIs in Vietnam and attempts to propose measures to
improve performance of these FIs in terms of corporate governance practices.
1.5. Scope and limitation
The scope of this study includes 60 Joint Stock Financial Institutions in Vietnam. This
study selects almost all Joint Stock FIs both unlisted and listed in HOSE and HNX in
Vietnam, including 37 Commercial Banks, 16 Insurance Corporations and 7 Finance
Companies. Time for sampling is defined for the year 2009 as the beginning time and 2011
as the year end of this study. In 2011, the number of commercial banks was decreased to 37
commercial banks from 39 commercial banks due to the merging of First bank and Vietnam
Tin Nghia bank to Saigon Commercial Joint Stock Bank.
As a result, an unavoidable issue of this study is the sample size. The sample size for
the study is not large, in which 60 FIs in Vietnam are included and 56 FIs are satisfactory
9

with the study (4 FIs are excluded due to lack of information). Given the small sample size,
this is potentially caused to less power in explanatory variables in the model, exhibiting a
small adjusted R-Square. On the other hand, the results and findings of the study may be
different when a larger sample size is included to test the impact of corporate governance on
performance of FIs in Vietnam.
Another issue is information collection. Because Vietnam's stock market is still rather
young2 and due to the specific characteristics of Vietnam economy, the information provided
is still limited3. The study therefore will not avoid the defects because in some cases
10

limitation for this study.
Finally, there are only 17 listed companies among the sample of 60 FIs both in HOSE
and HNX. Therefore, this study could not get enough information regarding FI share market
price or FI market value to apply Tobins Q as dependent variable for the study to evaluate
the association between the CGI and the stock price or firm market value more
comprehensively and objectively. Market price may reflect firm performance more
accurately while accounting performance can be subjectively influenced by firms by using
techniques to report. Thus, further studies are recommended to include Tobins Q as
dependent variable to have a deeper and comprehensive analysis on the relationship between
corporate governance performance and the market price or market value of FIs in Vietnam.
1.6. Implications of the study
Due to the limitation of studies on corporate governance and FIs performance in
Vietnam as well as in other developing countries, we address Vietnam is a useful case to
conduct to investigate how corporate governance practices impact on FIs performance and
dividend payout ratio. The results of this study show the impact of corporate governance
practices on performance in term of ROE and ROA and dividend payout of FIs in the context
of Vietnam where investor right protection is still weak. Empirically, our findings furnish
evidence that FIs with good corporate governance practices have better performance in term
of ROE, ROA and dividends paid to shareholders are also higher in such a weak legal
environment.
The findings support the theoretical models, in which effective corporate governance is
associated with better performance. The finding of this study is also in agreement with the
outcome of agency problems and dividend policies proposed by La Porta et al. (2000b), in
which firms with good corporate governance should allocate more dividends to shareholders.
11

Therefore, our study result may be applicable to corporate governance practices of FIs not
only in Vietnam but also in other developing countries with weak investor right protection.
This study implies that from the perspective of directors, policy makers of FIs in
Vietnam, they should voluntarily enhance their guidelines or policies on corporate governance
to ensure FIs are effectively governed. In such weak investor right environment, improving
corporate governance practices become more important for firms to strengthen investor
confidence (Klapper and Love, 2004). Thus, by adopting effective corporate governance it
may help FIs to be clearly recognized in an unstable environment like Vietnam to save cost
of capital and increase their operating performance significantly. Besides, this study also
suggests a quantitative method for investors, shareholders as well as other related persons to
keep it as useful reference for entering FIs in Vietnam.
1.7. Structure of the study
This study consists of five Chapters. Starting with Chapter one, we begin with the
research topic on corporate governance and its relation to firm performance. We come up with
the reason why corporate governance is so important for FIs in Vietnam and the reason why
corporate governance practices attract more attention from investors, shareholders, and the
government etc. especially in recent years. The necessity for conducting this study is also
discussed in the context of Vietnam.
In Chapter two, we present the theoretical basis about the concept Corporate
Governance and report the results of the studies previously conducted by the authors in many
countries around the world. Based on the theoretical models and the findings of empirical
studies, combining with the assessment of the context of Vietnam, we establish hypotheses to
test and investigate the association between corporate governance practices and performance
of FIs in Vietnam.
12

In Chapter three, we present how data and research methodologies used for this study.
This study approaches not only in quantitative but also in qualitative method. We present how
to collect and process data and test the association between corporate governance practices
and FIs performance. We also show steps and contents to establish the VCGI for 60 financial
institutions in Vietnam.
In Chapter four, after running test we report the descriptive statistics of variables in the
model and the results of multiple regressions. Based on the results we analyze, evaluate the
correlations between dependent variables and independent variables. Finally, we report the
findings obtained from the data.
In the last Chapter, we summarize the key contents discussed in the study as well as the
findings obtained by the data and we then conclude the study. Based on the findings
supported by the data, we suggest recommendations to managers or directors of FIs in
Vietnam and related parties for their consideration and implementation to improve corporate
governance practices of their FIs in Vietnam. Moreover, future research is also recommended
to conduct regarding corporate governance in general and the relationship between corporate
governance and firm performance in particular.
13

CHAPTER TWO: LITERATURE REVIEW
In this chapter, we present the theoretical basis about the concept Corporate Governance
and report the results of the studies previously conducted by the authors in many countries
around the world. Based on the theoretical models and the findings of empirical studies,
combining with the assessment in the context of Vietnam, we establish hypotheses to test and
investigate the association between corporate governance practices and performance of FIs in
Vietnam.
2.1. Corporate governance: a theoretical review
In recent years, the concept of Corporate Governance has become more popular in
many nations all over the world, especially after the sudden increase in the number of
scandals. More recently, the 2008 financial crisis4 caused the falling down of many big
companies, especially many big financial companies such as Lehman brothers, Bear Stearns
in USA and in other countries. For this reason, corporate governance henceforth is to become
more popular and to attract more attention from related people who have rights and interest of
the company. They are both inside and outside parties, including shareholders of the
company, employees, debt holders, suppliers, customers as well etc.
There are numerous definitions on corporate governance. According to Andrei Shleifer
and Robert Vishny (1997, p. 737), corporate governance refers to a process in which investors
make sure to collect money back after making their investments. In addition, CaramanolisCtelli (1995) suggests that corporate governance is identified through the equity allocation
between one party as insiders and other party as outsiders.
4
The global financial crisis was taken placed in the U.S derived from sub-prime lending and then spread to
Europe and the world. The financial crisis in 2008 has caused difficulties and even bankruptcy of financial
institutions in general as well as oldest giant financial institutions in particular such as Lehman Brothers, Morgan
Stanley, Citigroup, and AIG etc.
14

Cadbury Committee (1992) denotes that corporate governance is a set of rules used to
direct and manage firms effectively while Zingale (1997) interprets that corporate governance
includes a series of restrictions that form the ex-post bargaining over the quasi-rents
created by a company.
Furthermore, La Porta et al. (2000) suggest that corporate governance practices consist
of mechanisms in which outside parties attempt to save themselves from the expropriation of
inside parties. The inside parties are referred as the controlling shareholders, directors or the
board of directors of the company. The expropriation can be undertaken by selling the assets
or properties of the company that insiders have controlling rights to the other firms under their
ownership with lower price. The expropriation is also conducted through sending their family
members to manage the firm.
According to OECD principles of corporate governance (2004), corporate governance
consists of a series of interactions of related people who have rights and interest in the
company. These interactions are relationships between inside parties of the company,
including the board of directors, the board of managements, the control board, employees,
shareholders and the other outside parties such as suppliers, creditors, investors. In other
words, corporate governance is a process in which a company manages to protect
shareholders and investors from the conflicts of interest caused in decision making of the
executive board in the operations of the company.
To be in accordance with international standards on corporate governance practices, the
authorities in Vietnam have issued guidelines regarding corporate governance to direct firms,
in which listed firms are directly governed to apply corporate governance practices in
accordance with the regulations prescribed in Decision No. 12/2007/Q-BTC dated 13 March
2007 of the Ministry of Finance. In particular, Decision No. 12/2007/Q-BTC defines that
15

corporate governance comprises of a series of rules to ensure the company to be operated and
managed safely and effectively as well as to assure shareholders and related people of the
company to be properly protected in term of rights and benefits. The key principles5 of
corporate governance include the following contents:
i)
The rights of shareholders of the company are guaranteed to be executed (e.g.

shareholders are freely to transfer their shares, the company should reserve for
shareholders to vote effectively in the general meeting etc.).
ii) Shareholders are equally treated in the company (e.g. common share should be
treated as one share one vote, minor shareholders are properly protected from the
appropriation of larger shareholders etc.).
iii) The role of related people in the company (e.g. suppliers, creditors, employees etc.
are created conditions to access firms properly. They also have rights to receive
necessary information promptly and in a good manner etc.).
iv) An effective governance structure of the company (e.g. the number of the board
members, the number of independent members in the board compositions, number
of non-executive board members or a balanced board etc.).
v) An effective management and control of the board, the executive board and the
control board of the firm (e.g. how rights and obligations of the board members are
clearly described by firms, how often members participate in the meetings etc.).
vi) Transparency in operations of the company (e.g. firms are required to disclose
information in respect of finance, the board members, the remuneration of the
board, transactions related to the board members, directors of firms etc.).
According to Article 2, Decision No. 12/2007/Q-BTC dated 13 March 2007 of the Ministry of Finance of
Vietnam promulgating the regulation on corporate governance for listed companies in Stock Exchange.
16

Despite numerous definitions on corporate governance in studies conducted around the
world, there are some common points to be addressed. Accordingly, the authors mainly point
out that there are the conflicts of interest between involved parties in the company, which are
between insiders and outsiders. Therefore, corporate governance is a tool set by firm to
mitigate the conflicts of interest between involved parties in the firm.
In sum, corporate governance emphasizes the latent conflicts between people who are in
the company such as the board of managements with the boards of directors or employees, or
the conflicts of interest between majority shareholders with minority shareholders or the
conflicts of interest between the outside such as suppliers, debt holders and inside party. In
other words, corporate governance is the process of managements ruled by the firm to ensure
the equilibrium for latent conflicts of interest between related parties (insiders and outsiders),
directing toward an efficient and stable management of the firm.
2.2. Results of empirical research
Good corporate governance brings about many benefits to firms. Claessens et al. (2002)
demonstrated that good corporate governance practices would help firms in term of easier
approach to external financing and enjoying cheaper capital. Saving cost of capital contributes
to better firm performance. In addition, good corporate governance practices would help firms
to control risks more effectively. Claessens et al. (2002) also assumed that corporate
governance of a company had a positive relationship with its performance. In other words, the
more the corporate governance scores are the better the return firm gains. Claessens et al.
(2000a, 2000b) examined the link between ownership structures and market price of East
Asian firms. These authors demonstrated that cash-flow rights were positively related to firm
market value. Accordingly, the results of these authors showed that there were conflicts of
interest between minority shareholders and controlling shareholders. In the firms where there
17

were the controlling ownerships, small shareholders were unfavorably affected by policies
causing from decision making of large investors.
Recent researchers have attempted to build the CGI on the basic of information on
finance, accountability and laws to evaluate and analyze corporate governance and its
association with firm performance not only in developed countries but also developing
countries. Among of them, Gompers, Ishii and Metrick (2003) built the CGI to investigate the
relationship between the CGI and firm performance on the basic of 24 governance provisions
for 1,500 huge companies in USA. They argued that there was a strongly positive interaction
between the quality of corporate governance and company performance. In other words,
companies with good corporate governance had better performance compared to the other
companies in USA. Some other studies were carried out to examine the relationship between
corporate governance and company value or share market price. In particularly, Black, Jang
and Kim (2006) conducted a research for 525 of the 560 listed companies in Korea. These
authors concluded that corporate governance was a vital element reflecting the market price of
Korean firms. Basically, they argued that there was a significant relationship between Korea
Corporate Governance Index and company market price. Moreover, results of studies in
Russia conducted by Black (2001) and Black, Love and Rachinsky (2006b) demonstrated that
CGI was positively related to the market price of Russian companies.
Nevertheless, these studies have mainly undertaken in developed nations. In addition,
some studies draw attentions to corporate governance issues with regard to the structure or the
compositions of the board of directors of firms, the exercise of shareholders rights as well. In
particular, Klapper and Love (2004) examined corporate governance practices in 14 merging
countries and concluded that there was a positive relationship between corporate governance
score and firm market performance. The findings of the empirical study of these authors
18

implied that companies with higher corporate governance scores had stronger efficiency
compared to firms with lower corporate governance performance.
Klapper and Love (2004) also found that there was a large differentiation on corporate
governance practices among countries they conducted. Typically, corporate governance
practices in countries with under-developed legal system to protect investors were far less
than in countries with developed legal system. The finding of these authors implied that firms
might differentiate themselves from other firms by improving corporate governance and
strengthening investor confidence in such a weak investor protection environment. In the
other empirical study carried out by Black, Jang and Kim (2006), these authors created the
CGI for 515 listed firms in South Korea to evaluate and examine whether corporate
governance could foretell the share market price of Korean companies listed in Korea Stock
Exchange. Empirically, they confidently demonstrated that corporate governance was the key
element in interpreting the market price of public companies listed in Korea Stock Exchange.
These authors reached to the conclusion that there was an increase in firm performance or
firm market value when the Korea corporate governance index (KCGI) ameliorated. The
findings of Black, Jang and Kim (2006) implied that there was a positive relationship between
the Korea corporate governance index and the share market price of listed companies in the
context of Korea. More specifically, they found that an effective enhancement in Korea
corporate governance index could estimate an increase of 0.47 in Tobins Q. This result is
conjunction with the findings of Klapper and Love (2004) who found that higher corporate
governance was strongly related to higher market valuation or Tobin Q.
In addition, the empirical studies undertaken in Latin America gave the similar results
with the findings reported by Klapper and Love (2004), Black, Jang and Kim (2006), Black
(2001) and Black, Love and Rachinsky (2006b) as well as the results of Gompers, Ishii and
19

Metrick (2003). The studies conducted in Latin America are of Chong and Lpez-de-Silanes
(2006), Lefort and Walker (2005), Garay and Gonzlez (2005) and Leal and Carvalhal-daSilva (2005). These authors conducted the researches to examine corporate governance
practices in Mexico, Chile, Venezuela and Brazil respectively. They came to the conclusion
that firm performance had the same related direction with the CGI. In other words, there was
a positive association between firm performance and corporate governance score of listed
companies in Latin America.
In the further study carried out in Venezuela, Garay and Gonzlez (2008) established the
CGI based on the information of 46 listed firms in the Caracas Stock Exchange to investigate
the association between corporate governance practices and company performance.
Empirically, these authors provided a strong evidence to conclude that corporate governance
performance was significantly interacted with share market price and dividend payout of
listed companies in the context of Venezuela. The result of these authors is compatible with
theoretical models previously proved by not only La Porta, Lopez-de-Silanes, Shleifer and
Vishny (2002) but also La Porta, Lopez-de-Silanes, Shleifer and Vishny (2000b). According
to the theoretical model presented by La Porta, Lopez-de-Silanes, Shleifer and Vishny (2002),
firms with effective and more transparent corporate governance practices is interpreted by the
stronger investor confidence. The findings of La Porta, Lopez-de-Silanes, Shleifer and Vishny
(2000b) also indicated that firms in countries with developed legal system to protect investors
had higher Tobins Q than firms in countries with under-developed legal system. The
outcome agency model regarding dividend payment policy of La Porta et al. (2000b)
showed that firms with stronger corporate governance practices should allocate more earnings
to shareholders, reflected a higher cash dividend payout than firms with lower corporate
governance performance.
20

2.3. Hypotheses
According to the results of the studies conducted by Klapper and Love (2004) as well as
Durnev and Kim (2005), corporate governa
21

information on mergers and acquisitions of commercial banks. Furthermore, the price of other
banks such as Sacombank, Eximbank was continuously increased in the market with the same
reason. In the context of the increase of bank shares price, the market created a certain
momentum to investors. However, rumors have negatively affected shares price of companies
in the banking industry. Hence, the rights and interest of investors in financial banking
industry are significantly affected.
In the context of weak shareholder protection legal environment like Vietnam,
asymmetric information problems are more pronounced. Therefore, firms in general and FIs
in particular perceive that good corporate governance practices help firms to overcome
challenges in the environment of Vietnam economy where the reputation of firms in general
and FIs in particular as well as the psychology of investors is important to raise funds. In
Vietnam, FIs specially pay attention to enhance the quality of corporate governance, in part
because of their natural characteristics which are essential and sensitive for the economy.
Therefore, they are more closely supervised by the government and they also get more public
attention (i.e. investors, shareholders, creditors etc.).
On the other hand, FIs attempt to enhance their corporate governance to increase the
efficiency in operations, reduce risk to grow stably and safely as well as increase the investor
confidence. Good corporate governance practices strongly support to strengthen the image of
FIs in the awareness of investors, customers as well as partners in the market. Indeed, FIs
with effective corporate governance and transparency in operation may be more highly
appreciated by creditors and investors. Hence they are easier to access capital market and
attract cheaper capital, then use this source of capital in an effective way on the basis of a
tight monitoring mechanism and generate more profits.
22

Based on the above arguments and the characteristics of Vietnam economy, we would
like to hypothesize that:
H1: corporate governance performance will be positively associated with return on
equity and return on assets of financial institutions in Vietnam.
In overall, there is unclear association between corporate governance and dividends paid
to shareholders of the firm in studies around the world. Representatively, the studies
examined by Black, Jang and Kim (2006), Garay and Gonzlez (2008) gave different results
for the relation between corporate governance and dividend payout of the firm. Empirically,
the former authors argued that they had not enough evidence to conclude that firms with
higher corporate governance should pay more dividends to shareholders than firms with less
effective corporate governance score in the context of Korea. Latter authors reached the
conclusion that the CGI had a positive relationship with dividend payout ratio of firms (e.g. in
the context of Venezuela). This result is consistent with the findings of the study performed in
Brazil by Leal and Carvalhal-Da-Silva (2003). That is, firms which have good quality of
corporate governance practices normally define to contribute more earnings to shareholders
by setting a higher dividend payout ratio in their dividend policies. Besides, La Porta et al.
(2000b) also found that firms in countries with strong legal protection system to investors or
shareholders set a higher dividend payout ratio compared to firms in countries with weak
legal protection system. In addition, Johnson and Shleifer (2001) demonstrated that firms set
higher dividend payout in their policies as the way to properly protect minority investors or
shareholders from the expropriation of the controlling shareholders. According to the agency
model and dividend payment policy developed by La Porta et al. (2000b), the board decides
to disburse cash dividends to shareholders as the way they treat minor investors with respect
because by doing this way they may fund equity easier from shareholders afterwards.
23

Due to unaffordable conditions from wars, Vietnam switched to oriented market
economy only from 1986. Besides, Vietnam capital market has been developing. The stock
market in Vietnam is rather young in comparison with other developed countries. The number
of enterprises joined as members is limited and the value of market is still modest. In the
context of Vietnam where legal system is still not enough strong to protect investors or
shareholders, the rights of shareholders especially small investors are not protected as they are
in developed countries and agency problems as well as asymmetric information become more
serious. More specifically, due to an under-developed capital market, this should easily lead
to an unfair competition between large investors and small investors, in which small investors
are vulnerable to price pressure, rumors or insider trading while the punishments for these
kinds of behaviors are still not strictly executed. Therefore, better corporate governance firms
in general and FIs in particular tend to use dividend policy as an important method to
decrease agency problems and asymmetric information to protect minority shareholders from
the expropriation of large shareholders and increase investors confidence as well.
Thus, setting higher dividend payout is of the effective mean to ensure the interest of
minority shareholders to be appropriately protected. This is also one of the means that FIs in
Vietnam use to make them clearly recognized in the market to attract more shareholders and
investors. By maintaining higher dividend payout, FIs in Vietnam confidently send a good
message to the market that they potentially grow and may gain higher return in the future.
Paying higher dividend is also the way they treat their small investors with respect to increase
investors confidence then they are in a better position to fund equity afterward. Therefore,
the second hypothesis is:
H2: corporate governance performance will be positively associated with dividend
payout ratio of financial institutions in Vietnam.
24

CHAPTER THREE: RESEARCH METHODOLOGY
In this chapter, we present how data and research methodologies used for this study. This
study approaches not only in quantitative but also in qualitative method. We present how to
collect and process data and test the association between corporate governance practices and
FIs performance. We also show steps and contents to establish the VCGI for 60 financial
institutions in Vietnam.
3.1. Data collection
Our sample of 60 financial institutions includes both listed FIs and unlisted FIs in
Vietnam. Due to the limitation of the board size as well as other relevant information, limited
entities or sole member limited FIs are not applicable and excluded from this study. Hence
we only focus on Joint Stock financial entities accordingly. Therefore, our sample does not
consist of either limited FIs or sole member limited FIs as well as FIs which lack of
necessary information. To mitigate the potential issue given small sample size in the limited
time, we attempt to increase observations by sampling in three years from 2009 to 2011. On
the other hand, of the total sample of 60 FIs in Vietnam 56 FIs or 168 observations are
satisfactory to be included, accounting for up to 93.33%. This percentage is rather high to be
representative for the whole population of FIs in Vietnam.
We collect data based on publicly available information disclosed by FIs on their
websites as well as other relevant websites (i.e. websites of security companies, the State
Bank of Vietnam (SBV), the Ministry of Finance (MOF), and General Statistics Office etc.).
3.2. Research Methodology
This study approaches both quantitative and qualitative method to analyze and evaluate
corporate governance practices of FIs in Vietnam.
25

For quantitative method, we collect data based on the publicly available information
disclosed by FIs on their websites or information delivered by security companies to access
FIs information. The main documents collected for the study include financial statements,
annual reports, the meeting minutes, the resolutions of the General Assembly of Shareholders,
FI charters, the profit distribution plans etc. Based on the firm level data obtained, then, we
use OLS to test and examine the relationship between corporate governance scores and
performance of FIs in Vietnam. Based on the regression results, we conduct to analyze,
evaluate and draw conclusions about the association between the CGI and performance of
FIs in Vietnam.
In qualitative approach, we design a list of 17 questions to set up the Vietnam corporate
governance index (VCGI) for 60 FIs from 2009 to at the end of 2011. In the similar spirit of
Leal and Carvalhal-Da-Silva (2005) and Garay and Gonzlez (2008), this study borrows the
ways of these authors to establish the VCGI for 60 FIs, in which we create the checklist
consisting of 17 questions constructed on the basic of regulations and international standards
on corporate governance to evaluate corporate governance practices of these FIs. More
concisely, we carefully checks and gives points to either yes or no for each of FIs in
Vietnam on the basic of public information disclosed by FIs or other public sources in the
market (i.e. websites of security companies, the SBV, MOF, and GSO etc.).
Financial banking industry is the specific sector and for this reason, the government
specially pays more attention to its operations to ensure a safe and stable growth of financial
system as a whole, contributing to a sustainable economic growth in the country. As a result,
the operations of financial banking sector are stringently supervised and regulated by the
government not only in Vietnam but also in many countries around the world. Therefore, the
contents of questions regarding corporate governance in the checklist are established also
26

based on the main principles of Law on credit institutions in 2010, Law on enterprises, and
Law on securities and Law on amendments 2010 of Law on securities, principles of OECD
and Decision No. 12/Q-BTC of the Ministry of Finance as well as other current relevant
regulations of the Vietnamese government.
Basically, this study separates the VCGI into 4 sub key indices as prescribed in Decision
12/2007/Q-BTC of the Ministry of Finance and in OECD principles as well to build the
VCGI for 60 FIs in Vietnam.
The four sub-indices are as follows:
Sub-indices
The VCGI
Sub-index 1
The structure, components of the board of directors
Sub-index 2
The rights of shareholders
Sub-index 3
The transparency in operations of the company
Sub-index 4
The responsibility of the board of directors
The study measures the VCGI as an average of all four sub-indices. The contents of 17
questions are detailed as follows:
THE CHECKLIST TO CONSTRUCT THE VCGI
We ourselves carefully check and give points to either yes or no for each of FIs in
Vietnam. In particular, for yes answer we give 1. Otherwise, 0 is added for no answer.
To obtain necessary information in establishing the VCGI, we refer to the main documents
such as the meeting minutes, the resolutions of the General Assembly of Shareholders, annual
reports, financial statements, the board reports, the profit distribution plans, FI charters,
internal regulations etc. disclosed by FIs or other public sources (i.e. websites of security
companies, the SBV, MOF, and GSO etc.).
27

The questionnaire to establish the VCGI
No.
Contents
Affirmative Yes
percentage
No
VCGI
Sub-index The structure, components of the board of
1
directors
1
Does firm have the board independent member?
Does firm have an "independent chairman"?6
Is there any the standing committee of the board or

the permanent member of the board of directors in
the firm?
Does firm hire an outside CEO?
Does firm have any foreign members of the board of

directors?
Sub-index The rights of shareholders

2
1
Is a clear report presented to the General Assembly

of Shareholders to describe performance of the
board?
Does firm post any regulations or guidelines to

organize the General Assembly of Shareholders?
Does firm reserve for shareholders to vote efficiently

in the meeting? (E.g. information, time to access
relevant contents such as financial evaluation report,
profit distribution plan, the B.O.D remuneration,
delegation etc.)
Is there foreign strategic ownership in firm?
Sub-index Transparency in operations

3
1
Do shareholders gain access to full information on

firm website?
We based on principle VI in OECD (2004), current relevant regulations (Decision 12/2007/Q-BTC, Law on
credit institution in 2010, Law on securities etc.) to check and find the evidence of independence. According to
these documents, independent chairman is not either a large shareholder or a representative for large
shareholder who owns at least 5% stakes and has not any close relationship with the firm.
28

2
Did the firm deliver or post quarterly and semiannual reports of the previous years on firm website?
Does firm deliver audited financial statement reports

promptly?7
Does firm hire highly internationally recognized

audit company?8
Did firm disclose any transactions related to the

board members, managers etc.?
Sub-index The responsibility of the board of directors

4
1
Is there any evidence that firm has a balanced board

of directors?9
Is there any mechanism for evaluating the board

members?
Are the board members of the firm totally nonexecutive managers?
Total questions: 17
3.3. Model to measure and variables
3.3.1. Model to measure variables
Y = 0 + n Xn + e
Where:
Y: denotes the dependent variable
X: denotes the independent variable
e: denotes the random error
7
Firms are requested to disclose information in accordance with Circular 09/2010/TT-BTC and other relevant
regulations (Law on accountant, Law on credit institutions in 2010 etc.)

8
We referred to the list of audit companies annually approved by the State Securities Commission of Vietnam to
check and find the evidence of highly internationally recognized audit company.
9
A balanced board of directors: A balanced between the executive and non-executive board members in the
board of directors (OECD, 2004).
29

0: denotes constant
n: denotes the coefficient of the explanatory variable.
3.3.2. Dependent variables
Dependent variables are particularly included and denoted as follows:
Return on equity (ROE), return on assets (ROA) and dividend payout ratio (DPR)
represent as Vietnam FIs performance. In many studies carried out around the world, firm
performance is measured based on two categories, which are accounting and market
performance. ROE and ROA are widely used to measure firm accounting performance i.e.
Baysinger and Butler (1985) and Kiel and Nicholson (2003). In addition, ROE and ROA are
included as dependent variables in the study of Chong, Lpez-de-Silanes (2006) to measure
operating performance of firms in Mexico. Price to book value (PBV) and Tobins Q are
commonly included in many empirical studies to measure market performance of firms, i.e.
Barnhart, Marr and Rosenstein (1994), Garay and Gonzlez (2008), Black, Jang and Kim
(2006) etc. Dividend payout ratio is also used as performance indicator in empirical studies,
e.g. Black et al. (2006), Garay and Gonzlez (2008) and Chong and Lpez-de-Silanes (2006).
Latter authors both found that better corporate governance was associated with higher
dividends paid to shareholders in Venezuela and Mexico respectively. This find is consistent
with the outcome agency model of the authors La Porta et al (2000b) regarding dividend
payment policy, in which firms with stronger corporate governance should allocate more
dividends to shareholders. However, former authors did not have strong evidence to show that
firms with good corporate governance paid more dividends to investors in the context of
Korea. Due to market information limitation of many FIs in Vietnam, market performance in
term of price to book ratio and Tobins Q could not be included in the study.
30

3.3.3. Independent variables
Independent variables consist of the VCGI and other control variables. Control variables
used in the study are company size (SIZE), company growth (GROW), company leverage
(LEVR), business risk (RISK), capital intensity ratio (CAIR) and dummy variable (STAT)
indicating the status of which FIs are listed or unlisted. These control variables might impact
the dependent variables and these variables were formerly recognized and chosen in the
previous studies. More specifically, Klapper and Love (2004) tested the link between the CGI
and firm performance by including control variables such as firm size, growth and capital
intensity ratio etc. Similarly, Black, Jang and Kim (2006) also dealt with the solution with
firm size, leverage, growth and other variables included in their study. Moreover, Leal and
Carvalhal-da-silva (2005) also used control variables such as size, leverage, growth, and risk
and current assets/total assets ratio as firm liquidity to run the test on corporate governance
and its relation to firm performance in their research. Garay and Gonzlez (2005) included
control variables i.e. size, leverage, growth, ROA and business volatility in their study while
Garay and Gonzlez (2008) also for Venezuela employed size, leverage, ROA as control
variables to conduct a test.
3.3.3.1. Company size (SIZE)
SIZE variable is measured as the logarithm of the book value of assets at the end of
period.
Firm size might influence its corporate governance practices because larger firms are
more intricate and thus they often get more public attention. Because of their large scale of
business, larger firms also may cause serious problems than smaller firms in the market. As a
31

With regard to the firm size, Leal and Carvalhal-da-silva (2005) as well as Garay and
Gonzlez (2008) identified that the firm size was positively related to the CGI. That is, larger
firms normally trend to improve their performance in term of corporate governance in
comparison with the smaller firms. Thus, larger firms have stronger corporate governance
performance than smaller firms. The results of Garay and Gonzlez (2008) indicated that
although firm size was negatively interacted with price to book ratio and Tobins Q,
correlation coefficients were not statistically significant at any level. The result also indicated
that the relationship between size and dividend payout was not statistically significant.
Whereas, the results reported by Garay and Gonzlez (2005) showed that size was negatively
associated with price to book value. Moreover, the study of Leal and Carvalhal-da-silva
(2005) also showed that there was a positive relationship between size and the firm market
valuation in Brazil. In other words, larger firms had higher market performance in the context
of Brazil.
3.3.3.2. Company growth (GROW)
GROW variable is calculated as the percentage of change of total assets.
Firm growth might impact firm performance and its corporate governance practices.
Durnev and Kim (2005) demonstrated that firm with faster growth should tend to seek for
more external capital to finance its growth. Thus, effective corporate governance practices
could help firm to increase its image in the market, and then firm might approach external
capital more easily. Therefore, faster growth firm could reflect its image through better
corporate governance performance to attract outside funds to finance its growth. The results
presented by Garay and Gonzlez (2005) showed that growth was negatively related to three
performance measures (e.g. Tobins Q, price to book value and dividend payout), but not
statistically significant at any level.
32

3.3.3.3. Company leverage (LEVR)
LEVR variable is calculated as total debts divided by total assets.
Leverage might impact not only on firm performance but also on firm corporate
governance. However, the relationship between leverage and firm performance is not
consistent in the literature. Jensen and Meckling (1976) and Myers (1977) found that leverage
was negatively related to firm performance. They argued that firms with higher financial
leverage could face with higher agency costs because shareholders and debt holders might
have different interests. Whereas, Jensen (1986) implied that firms with higher debt
proportion in their capital structure should encourage strengthening their performance.
Leverage was included as control variable in the study conducted by Leal and
Carvalhal-da-silva (2005) in Brazil and in Chile. These authors showed that leverage was
positively interacted with firm corporate governance practices. They reported that firms with
better corporate governance performance would finance with more debts because debts might
decrease agency problems. Similarly, Black, Jang and Kim (2006) found that firm leverage
was positively related to the CGI of listed firms in the context of Korea. According to Garay
and Gonzlez (2005), leverage was significantly positively related to price to book value.
However, there was no statistical evidence to show that leverage was statistically significant
at any level with Tobins and dividend payout.
3.3.3.4. Business volatility (RISK)
RISK variable is calculated as the quotient between the percentage change of EBT and
the percentage change of net sale.
The theory of financial distress demonstrates that firms with higher business risk have
higher probability of financial distress. Empirically, Black, Jang and Kim (2006)
demonstrated that firm risk was positively related to the CGI. That is, the riskier a firm is the
33

stronger it is governed. On the contrary, Leal and Carvalhal-da-silva (2005) found that
business risk was negatively associated with the CGI. They demonstrated that higher risk
firms exhibited lower corporate governance quality. According to Garay and Gonzlez
(2005), although the coefficient of business volatility was positive to firm market performance
(i.e. Price to book ratio and Tobin Q) and negative to firm dividend payout ratio, the results
were not statistically significant at any level.
3.3.3.5. Capital intensity ratio (CAIR)
CAIR variable is calculated as the quotient between total assets and net sale.
Klapper and Love (2004) tested the relationship between the CGI and firm performance
by including capital intensity ratio besides other control variables such as firm size, growth
etc. Empirically, Klapper and Love (2004) found that capital intensity ratio was negatively
interacted with firm performance. In other words, firms with lower capital intensity ratio
reflected by higher intangible assets had better Tobins Q in 25 emerging countries.
3.3.3.6. Industry dummy variable (STAT)
We add a dummy variable (STAT) indicating the status of which FIs are listed or
unlisted in both HOSE and HNX. If FI is listed, dummy value will be 1. Otherwise, dummy
value is 0.
Models to measure variables:
Model 1:
ROE = 0 + 1.VCGI + 2.LEVR + 3.GROW+ 4.SIZE + 5.RISK + 6.CAIR + 7.STAT + e
Model 2:
ROA = 0 + 1.VCGI + 2.LEVR + 3.GROW+ 4.SIZE + 5.RISK + 6.CAIR + 7.STAT + e
Model 3:
DPR = 0 + 1.VCGI + 2.LEVR + 3.GROW+ 4.SIZE + 5.RISK + 6.CAIR + 7.STAT + e
34

3.3.4. Variable definitions
More specifically, variables are defined in the following table:
Variables
Definitions
DPR
Defined as cash dividends divided by net earnings
ROE
Defined as net income divided by book value of equity
SIZE
Defined as the logarithm of the book value of assets at the end of period
ROA
Defined as net income divided by total assets
GROW
Defined as percentage of change of total assets
LEVR
Defined as total debts divided by total assets
RISK
Defined as the quotient between the percentage change of EBT and the
percentage change of net sale.
CAIR
Defined as the quotient between total assets and net sale.
STAT
If financial institution is listed, dummy value will be 1. Otherwise,

dummy variable is 0.
3.3.5. Analysis process

The analysis process of this study comprises of the following steps:
First of all, we conduct multiple regressions tests on the basic of all factors, including
the VCGI, leverage, total asset growth rate, business volatility, capital intensity ratio and size
of FIs as independent variables on three measures of FIs performance such as ROE, ROA,
dividend payout ratio (DPR) to investigate the association between the dependent variables
and independent variables. We focus to examine the association between the VCGI with FIs
performance in term of ROE, ROA and DPR.
In the next steps, we add a dummy variable (STAT) which indicates FI is listed in the
Stock Exchange to test, investigate and analyze whether listed FIs are significantly different
from unlisted FIs on performance in the condition of unchanged VCGI.
35

CHAPTER FOUR: DATA ANALYSIS AND FINDINGS
In this chapter, after running test we report the descriptive statistics of variables in the model
and the results of multiple regressions. Based on the results we analyze, evaluate the
correlations between dependent variables and independent variables as well as dummy
variable in the model. Finally, we report the findings obtained from the data.
4.1. Descriptive statistics
4.1.1. The VCGI
Table 1: The VCGI and its sub-indices 2009 - 2011
No
Contents
2009
2010
2011
VCGI
41.67%
45.05%
48.74%
Sub- The structure, components of the board of

index1 directors
20.71%
24.64% 32.86%
19.64%
26.79%
51.79%
3.57%
3.57%
3.57%
Does firm have an "independent chairman"?
Is there any standing committee of the board or the

permanent member of the board of directors in the
firm?
46.43%
39.29%
42.86%
12.50%
25.00%
32.14%
Does firm have any foreign members of the board

of directors?
21.43%
28.57%
33.93%
53.13%
52.23% 56.25%
73.21%
64.29%
67.86%
Sub- The rights of shareholders

index2
1
Is a clear report presented to the General Assembly

of Shareholders to describe performance of the
board?

42.86%
41.07%
44.64%
Does firm reserve for shareholders to vote

efficiently in the meeting? (E.g. information, time
to access relevant contents such as financial
evaluation report, profit distribution plan, the
71.43%
73.21%
76.79%
36

B.O.D remuneration, delegation etc.)
4
Sub- Transparency in operations

index3
25.00%
30.36%
35.71%
50.00%
52.14% 52.86%

firm website?
26.79%
23.21%
26.79%
Did the firm deliver or post quarterly and semiannual reports of the previous years on website?
48.21%
48.21%
46.43%
Does firm deliver audited financial statement
71.43%
80.36%
78.57%
reports promptly?
4
Does firm hire highly internationally recognized

audit company?
76.79%
80.36%
82.14%
Did firm disclose any transactions related to the

board members, managers etc.?
26.79%
28.57%
30.36%
42.86%
51.19% 52.98%
Sub- The responsibility of the board of directors

index4
1
Is there any evidence that firm has a balanced

board of directors?
69.64%
76.79%
78.57%

members?
53.57%
57.14%
53.57%
5.36%
19.64%
26.79%
Source: the author calculates based on publicly available information. Following the
approach of Garay and Gonzlez (2008), the questionnaire was constructed for FIs in
Vietnam.
The VCGI was established on the basic of publicly available information in Vietnam. Of
the 60 FIs surveyed, 56 FIs were satisfactory to be checked and pointed, accounting for
93.33%. Four FIs were excluded due to lack of information. The results of the VCGI are
reported as follows:
37

The results (Table 1) showed that the overall VCGI score was gradually increased over
the year from 2009 to 2011 with 41.67%, 45.05% and 48.74% respectively. This demonstrates
that FIs are incessantly improving their corporate governance practices to adapt with the
business environment. Once the 2008 financial crisis was broken out, the Vietnamese
government and investors have paid a close attention to firms especially banking financial
firms due to the important role of these firms to the economy. These firms, therefore, should
improve their quality of corporate governance practices to meet the requirements of both the
authorities and related parties such as investors or shareholders, creditors, suppliers etc.
However, some of FIs have ameliorated to comply with regulations rather to increase their
corporate governance practices voluntarily. Obviously, regarding the independent members in
sub-index1 (the structure, components of the board), there were only 1110 firms which had
independent members in 2009, accounting for only 19.64%. The CGI concerning this question
was positively increased over the years with 26.79% and 51.79% in 2010 and 2011
respectively. Almost all of firms that employed independent board members were commercial
banks. This is reasonable because commercial banks are heavily regulated by the government
due to their specific characteristics as well as their sensitive role in the economy of Vietnam.
In addition, Credit Institutions are required11 to have at least one independent member in the
board structure to comply with Law on Credit Institutions in 2010, with effect from the 1st
February 2011. Besides, the "independent chairman" is rather new for FIs in Vietnam
where there were 3.57% of FIs had the "independent chairman" and this score remained
10
Please see appendices for more details.
11
According to paragraph 1, Article 62, Law on Credit Institutions in 2010, Credit Institutions are required to
meet the requirement that at least one independent board member should be included in the board of directors.
The conditions and standards for the board members are prescribed in Article 50 of Law on Credit Institutions in
2010. Law on Credit Institutions in 2010 invalidates Decision No. 59/2009/N-CP on the organization and
operation of commercial banks.
38

unchanged over the years from 2009 to 2011. In respect of hiring outside CEO, FIs still
hesitate to follow the strategy. The sub-index1 showed that there were only 12.50%, 25% and
32.14% of FIs which hired outside CEO in 2009, 2010 and 2011 respectively. On average,
the sub-index1 was 20.71%, 24.64% and 32.86% in 2009, 2010 and 2011 respectively. The
scores in this area were far less than an average of 50%.
With regard to the right of shareholders in sub-index2, we showed that the right of
shareholders in overall was positively cared and executed by FIs in Vietnam. FIs have paid
more attention to improve shareholders rights in term of effective voting. In particularly, the
results showed that 71.42%, 73.21% and 76.79% in 2009, 2010 and 2011 respectively of the
firms reserved for shareholders to participate and vote efficiently in the General Assembly of
Shareholders. However, the data showed that there were only 44.64% of FIs posted any
regulations or guidelines to organize the General Assembly of Shareholders in 2011 compared
to 42.86% in 2009 and 41.07% in 2010. Moreover, in the sub-index2 we add a question
(question 4)12 regarding foreign strategic ownership to the checklist because we believe that
FIs with foreign strategic ownership may have better CGI on the basic of the acquirement
from experience of foreign strategic partners on corporate governance practices. The results in
Table 1 showed that foreign strategic ownership was gradually increased from 2009 to 2011
with 25%, 30.36% and 35.71%. On one hand, this result indicates that the financial sector is
still potential to attract foreign investors. On the other hand, FIs in Vietnam have gone into
partnerships with foreign strategic partners to enhance their operations in term of capital,
network development, market share, risk management etc. in recent years (e.g. partnerships of
BNP Paribas - OCB, HSBC - Techcombank, Standard Chartered - ACB etc.). As a result, the
scores in this area were gradually increased from 2009 to 2011. This is a good sign because
12
39

the participation of foreign strategic shareholders in the ownership structure of FIs in
Vietnam will help FIs to improve their risk management activities, strengthen the
transparency in FIs operations and contribute to a healthy operation of the financial sector as
a whole in Vietnam. The arithmetic average of sub-index2 was 53.13% in 2009, 52.23% in
2010 and 56.25% in 2011. In general, the rights of shareholders were relatively cared by FIs
in Vietnam.
In sub-index3 (the transparency in operations), in overall FIs in Vietnam have
implemented to disclose information fairly well. The results indicated that 76.79% of FIs
hired highly internationally recognized audit company to audit their firms in 2009. The scores
in this area were increased to 80.36% and 82.14% in 2010 and 2011 respectively. This is a
strong side of FIs in Vietnam. Many FIs have hired highly internationally recognized audit
companies13 such as Deloitte, KPMG, Ernst and Young, PriceWaterhousecooper. This
provides further evidence that FIs are stringently regulated by the government in respect of
hiring independent auditing firms. The results also showed that 78.57% of FIs delivered
audited financial statement reports on time in 2011. The score was positively improved
compared to 2009, in which the score was 71.43%. Meanwhile, the score in 2010 was
80.36%. However, relating to the question Do shareholders gain access to full information
on firm website? in 2011, there were only 26.79% of FIs posted relatively full information
on relevant documents such as the meeting minutes of the General Assembly of Shareholders,
the board reports, internal regulations or guidelines regarding corporate governance etc. on
their websites for shareholders to access firms when needed, compared to 23.21% in 2010 and
26.79% in 2009. This showed that information publishing on FIs websites was still rather
13
We refer to annual list of audit companies approved by the State Securities Commission of Vietnam to check
the evidence of highly internationally recognized audit companies.
40

limited. Several FIs have disclosed information on their websites in a poor form, in which the
meeting minutes, financial reports were quite basic and too general. Particularly, some of FIs
posted the resolutions of the General Assembly of Shareholders, the board reports in general
form and disclosed financial reports, annual reports in a summary form. This poor information
disclosure is not good and transparent especially in many situations, in which it may create an
unaffordable condition for FIs in the case of rumors which are more popular in Vietnam.
This is potentially risky for not only FIs but also any firms in Vietnam. In addition, the
restriction in access to information on FIs websites might decrease shareholders preparation14
to scrutinize the documents and relevant contents before conducting their rights and
obligations in the annual General Assembly of Shareholders or in the extraordinary meeting.
In 2009 only 26.79% of FIs publicized transactions related to the board members, the
control board or managers. Most of these FIs were listed firms. This result is reasonable
because listed FIs are more stringently regulated by the government and attracted more
public attention. Thus, listed FIs should conduct to report strictly any transactions related to
the board members, the control board as well as managers or directors in accordance with
current regulations. Listed FIs are required to implement to disclose related transactions
while unlisted FIs are not mandatory to publicize these transactions. Therefore, there are not
many unlisted FIs to disclose related transactions voluntarily. This fact suggests that there is
evidence to conclude that some of FIs in Vietnam have implemented corporate governance
practices to meet the requirements prescribed by the authorities rather than improve their
corporate governance practices voluntarily to meet international standards on corporate
governance. The result also indicated that in 2011 only 46.43% of FIs delivered or posted
14
In some cases, important documents regarding the remuneration of the board, personnel of the board etc. are
only delivered to shareholders at the meeting to vote and ratify. However, this practice should not be encouraged
for the sake of shareholders. It is also not good manner in term of corporate governance standards.
41

quarterly or semi-annual reports on websites. This score was slightly decreased compared to
48.21% in 2009 and 2010. Many FIs did not post quarterly or semi-annual financial reports
on their websites. Most of these firms were unlisted. The arithmetic average for sub-index3
was 50% in 2009, 52.14% in 2010 and 52.86% in 2011.
In respect of the responsibility of the board in sub-index4, there were only 5.36% of FIs
that their board members were totally non-executive managers in 2009. Gradually, the scores
were increased to 19.64% in 2010 and 26.79% in 2011. Many FIs have had the board
members to hold concurrent titles or positions in the executive board. Holding concurrent
titles or positions by the board members is widely used in many FIs in Vietnam. The contents
regarding the balanced board and mechanism for evaluating the board members were
relatively positive, in which scores were both greater than the average of 50%. The arithmetic
mean for sub-index4 was 42.86% in 2009, 51.19% in 2010 and 52.98% in 2011.
From the above data, we can see that FIs in Vietnam still need to improve their
corporate governance practices with regard to the structure and components of the board of
directors, in which the scores were far less than 50%. It showed that some international
practices regarding the "independent chairman", outside CEO were still relatively new for
FIs in Vietnam and were not widely applied. Many FIs were still not interest in the benefits
of employing independent board members in the board structure. Instead, the election of
independent board members has been implemented in a number of FIs (mainly in
commercial banks) and the employment of independent board members was just to be in
accordance with current regulations (Law on Credit Institutions in 2010, related laws) rather
than strengthen the responsibility and performance of the board members in particular as well
as the board in general while there were few financial companies as well as insurance
corporations to include independent board members in their board structures.
42

According to international standards on corporate governance prescribed by OECD
(2004), the employment of the independent board members as well as the increase of the
number of non-executive board members in the board compositions may ensure the board to
be more objective in their decision making. On the other hand, it may increase the
independence between the executive board and the board of directors in FIs.
On average, the VCGI score was only 44.19%, still lower than the average of 50%. This
result shows that in overall corporate governance practices of FIs in Vietnam are still weak
even though this industry is heavily supervised by the government. Fortunately, the VCGI in
2011 was 48.74% which was rather close to 50%, suggesting that FIs are being actively
enhanced. This is a great effort of FIs in Vietnam to improve their corporate governance
practices to adapt to the new challenging environment after the 2008 global financial crisis.
Figure 1:
Source: the author calculates

Obviously, the overall VCGI was gradually increased from 2009 to 2011 with 41.67%,
45.05% and 48.74% respectively. Basically, the VCGI was still lower than the average of
50%. The above figure also indicates shareholders rights are relatively executed by FIs.
43

Table 2: Comparison of study conducted by IFC also in Vietnam
Items
CGI in overall
CGI (%) by this study

2009
2010
2011
CGI (%) by IFC

2009
2010
2011 Weighting
41.67% 45.05% 48.74% 43.90% 44.70%
NA
20.71%
53.13%
24.64%
52.23%
32.86%
56.25%
*
46.80%
*
48.50%
NA
NA
NA
15%
50.00%
52.14%
52.86%
39.40%
43.20%
NA
30%
42.86%
51.19%
52.98%
35.30%
36.10%
NA
30%
NA
NA
NA
NA
NA
NA
29.20%
65.10%
29.40%
61.00%
NA
NA
5%
20%
Sub-indices
The board structure
The rights of
shareholders
Information
disclosure
The board
responsibility
Role of Stakeholders
Equal treatment of
shareholders
Source: Corporate Governance Scorecard by IFC (2009, 2010).

*. The board structure was grouped into the board responsibility in IFC study, NA = Not
available.
In Table 2, we make a comparison with other study conducted by IFC (2009, 2010). The
results of this study are rather close to the study of IFC although our study is not entirely
similar to IFC. The study of IFC was conducted for 100 listed companies, including many
business sectors in the economy while this study examines 60 financial institutions in
Vietnam. In IFC (2009, 2010) study, sub-indices were weighted based on proportion as above
table, whereas our study uses equal weighting for four sub-indices.
Table 3: Statistics comparison of study in Venezuela and IFC (2009, 2010) in Vietnam
In Table 3, we make a comparison of studies in Venezuela and in Vietnam. We show that our
overall CGI in Vietnam is higher than the result reported by Garay and Gonzlez (2008) in
Venezuela. This also indicates that our overall CGI is rather close to the mean conducted by
IFC for financial companies.
44

Items
Overall CGI
Maximum
Minimum
Mean
Observations
Firms
This study
44.19%
88.00%
6.00%
44.19%
168
FI's only
Garay and Gonzlez (2008)

40.30%
71.67%
16.67%
40.34%
46
Listed firms from all sectors
IFC (2009)
45.80%
55.30%
24.00%
45.90%
18
FI
IFC (2010)
44.80%
55.40%
35.70%
NA
35
FI
Source: Garay and Gonzalez (2008).

Overall CGI in this study is 44.19% compared to 40.30% presented by Garay and
Gonzlez (2008). At the firm level, maximum CGI in this study is also higher which is 88%
compared to 71.67% of study conducted by Garay and Gonzlez (2008). However, our
minimum CGI is l0.67% below the minimum score of Garay and Gonzlez (2008). This result
may be reasonable because our study includes both listed and unlisted FIs. Unlisted firms are
not mandatorily required by the government to implement some provisions which are required
by listed firms. Thus, there is a large difference between corporate governance between listed
and unlisted FIs. The study in Venezuela examined all listed firms in the Caracas Stock
Exchange.
Table 4: Sub-indices comparison of study in Venezuela
Sub-indices
Average score
This study
Average score
Garay and
Gonzalez (2008)
Weighting
The board structure
26.07%
Equal
53.87%
16.30%
Equal
Disclosure and transparency
51.55%
50.80%
Equal
The board performance/responsibility
49.01%
54.40%
Equal
NA
39.90%
Equal
Ethics and conflict of interest
Source: Garay and Gonzalez (2008), this study. *. The board structure was grouped into the
board performance, responsibility in the study by Garay and Gonzalez (2008).
45

Figure 2: Distribution of the VCGI
Figure 2 shows that the

mean of the VCGI is 7.51
points (44.19%). The point
5 occurs most frequently
with 23 observations to be
occurred. At the firm level,
the highest score is 15
points (88%). On the
contrary, point 1 (6%) is
the lowest score. The range
between the highest and the
lowest score is 14 points.
4.1.2. The dependent variables and independent variables

Table 5: Descriptive Statistics of variables in the model
Descriptive Statistics
Minimum Maximum
Mean
Std.
Deviation Variance
Range
ROE
168
0.4772
-0.0758
0.4014
0.1256
0.0790
0.0060
ROA
168
0.2482
-0.1811
0.0671
0.0175
0.0259
0.0010
Dividend Payout
168
0.9583
0.0000
0.9583
0.6450
0.2666
0.0710
Leverage
168
0.8720
0.0913
0.9633
0.7659
0.1984
0.0390
Growth rate
168
6.2720
-0.4305
5.8415
0.5531
0.7676
0.5890
Firm size
168
3.6529
5.0104
8.6633
7.1444
0.7700
0.5930
Business risk
168
242.53
-215.09
27.44
-0.553
17.93
321.47
Capital intensity
168
40.146
1.195
41.341
10.775
6.437
41.432
VCGI
168
14.00
1.00
15.00
7.51
3.16
9.98
VCGI_percent
168
0.8200
0.0600
0.8800
0.4419
0.1858
0.0350
Valid N
168
(listwise)
Source: extracted from SPSS
46

For the entire observation period, the results (Table 5) show that the average score of the
VCGI is 7.51 points (44.19%). Obviously, we see that the point 5 occurs most frequently with
23 observations to be occurred.
At the firm level, the highest score is 15 (88%). On the contrary, point 1 (6%) is the
lowest score. This result also shows that there is a significant difference in the VCGI among
FIs in Vietnam. The range between the highest and the lowest score is 14 points. The highest
ROE is 40.14%, whereas the lowest ROE is - 7.58%. The arithmetic mean for ROE of FIs in
Vietnam is 12.56%. The average ROA of FIs is 1.75%. The highest ROA is 6.71% while the
lowest ROA is -18.11%.
On average, FIs in Vietnam use 64.49% of their net income to distribute cash dividends
to shareholders. Especially, there was one case to use 95.83% of its net income to pay
dividends in cash to shareholders. The results also showed that some FIs in Vietnam did not
pay dividends in cash to shareholders (some of the FIs have paid stock dividends to
shareholders in part to raise capital to meet the requirements15 while the other FIs reserved as
retained earnings to continuously to increase chartered capital to make them stronger and
safer in the operations. Most of these firms were commercial banks).
The mean for financial leverage of FIs in Vietnam is 76.59%. That is, FIs in Vietnam
averagely use 76.59% debts in their proportion of capital structure. The least financial
leverage is 9.13% while the highest uses 96.33% debt to finance its capital. This ratio is rather
high but reasonable because of the specific characteristics of banking financial firms16.
15
According to Decision 10/2011/N-CP dated 26 January 2011 of the government, commercial banks are
required to increase its chartered capital to 3,000 billion VND at the end of 31st December 2011.
16
Due to specific characteristics, financial companies and commercial banks use higher debt ratio in the
proportion of capital structure because these firms attract capital in society as deposits to lend to customers.
Deposits account for a large proportion in total debts of these firms.
47

On average, total assets growth rate of FIs in Vietnam is 55.31%. This growth rate is
rather high in unaffordable business condition caused by the 2008 global financial crisis. This
suggests that financial banking in Vietnam is still potential to grow even though this sector in
many countries around the world has faced with many difficulties caused by the 2008 global
financial crisis. The minimum growth rate is 43.05% while the fastest one is up to 584%.
There is a huge range between the fastest and the slowest FI.
In recent years, many FIs in Vietnam especially financial companies and commercial
banks have grown so fast. Total asset growth is quite hot while the risk management is
rather weak and still not commensurate with the management capability. In Vietnam, not so
many FIs have mechanisms or process to control risks effectively. On the other hand, there is
no independence between risk management activities and business. However, at the pressure
of profit plan, many FIs are ready to grow at an extremely hot growth rate even though it
might lead to the high potential risks such as an increase in bad debt, risk management is not
commensurate with the scale of business, there is no settlement mechanism in the emergency
etc.
The largest size of financial institution is 8.66, whereas the smallest is 5.01. The mean
size of FIs in Vietnam is 7.14. There is a big change in earnings before tax over net sale
among FIs in Vietnam. The maximum business risk is 27.43 while the minimum business
volatility is 215. The range is 242.53.
Averagely, the change in earnings before tax over net sale of FIs in Vietnam is negative
0.5539. In respect of capital intensity ratio, the data shows that on average an increase of
10.77 VND in assets will generate an additional of 1 VND in net sale. The above data in
Table 5 shows that the highest capital intensity ratio is 41.34 while the lowest is 1.19. It also
indicates that there is a large difference from capital intensity ratio between the highest
48

(reflecting high tangible assets) and the lowest (exhibiting high intangible assets). The range
between the highest and the lowest is 40.14.
Figure 3: The mean of ROE, ROA and DPR between listed and unlisted FIs
The figure 3 shows that on average listed FIs are better than unlisted FIs, exhibiting higher
not only ROE, ROA but also DPR.
Table 6: Independent Samples Test
Independent Samples Test
Levene's Test for
Equality of
Variances
F
Equal variances assumed
ROE
.255
.614
Equal variances not assumed

DPR
.084

ROA
3.022
Sig.
11.878
.001
t-test for Equality of Means

t
4.504
Sig. (2tailed)
166
.000
df
4.335
87.511
.000
2.794
166
.006
3.399
152.148
.001
2.230
166
.027
2.608
139.743
.010

49

The data in Table 6 shows that the variances of ROE and ROA are equal (sig. > 0.05 in
two cases) therefore we refer to the t-test results for equity of means in Equal variances
assumed. Because all sig. values in t-test results for equity of means are all less than 0.01, we
can conclude that the mean between listed and unlisted FIs is not equal. That means there is a
significant difference on the average of ROE, ROA and DPR between listed and unlisted FIs.
More concisely, the arithmetic mean for ROE and ROA of listed FIs is 16.50% and
2.58% respectively in comparison with the arithmetic mean of 10.58% in ROE and 1.39% in
ROA performed by unlisted FIs (Figure 3).
This result demonstrates that in Vietnam listed FIs averagely perform better in term of
ROE and ROA than unlisted FIs. Statistically, we show that the arithmetic mean for DPR
determined by listed FIs is also higher than DPR exhibited by unlisted FIs (sig. = 0.01, t =
2.608). On average, listed FIs in Vietnam use 71.36% of their net income to pay dividends to
shareholders compared to the ratio of 61.50% distributed by unlisted FIs.
In sum, the results suggest that on average listed FIs have better accounting
performance than unlisted FIs and listed FIs also tend to pay more dividends to shareholders
by reflecting a higher dividend payout. This result is reasonable and is explained that in
Vietnam most of listed firms are the best enterprises represented for the whole in the
economy. These firms meet high requirements prescribed by the government to be listed in
stock exchange.
Therefore, averagely listed FIs seem to be better than unlisted FIs in term of
performance.
4.1.3. The correlation matrix of variables in the model
Table 7: The correlation matrix of variables
50

Correlations
ROE
ROE
Pearson
Correlation
Sig. (2tailed)
ROA Pearson
Correlation
Sig. (2tailed)
DPR Pearson
Correlation
Sig. (2tailed)
LEVR Pearson
Correlation
Sig. (2tailed)
GROW Pearson
Correlation
Sig. (2tailed)
SIZE Pearson
Correlation
Sig. (2tailed)
RISK Pearson
Correlation
Sig. (2tailed)
CAIR Pearson
Correlation
Sig. (2tailed)
VCGI Pearson
Correlation
Sig. (2tailed)
STAT1 Pearson
Correlation
Sig. (2tailed)
N
ROA
DPR LEVR GROW SIZE
RISK
CAIR VCGI STAT1
.324**
.000
.117
.424**
.130
.000
.446** -.217**
.082
.000
.005
.293
-.110
-.050
-.062
.144
.155
.519
.428
.062
.607**
-.064
.013
.829**
.016
.000
.411
.869
.000
.837
.036
-.021
-.003
-.001
.057
.003
.639
.791
.971
.993
.462
.973
.494**
.352**
.020
.000
.000
.799
-.027
.725
-.152* -.152* .403**

.050
.640** .208**
.000
.007
.330** .212**
.049
.000
.167* .370**
-.157*
.680** -.025
.031
.000
.043
.000
.745
.171*
-.022
-.228**
.236**
.065
-.012
.873
-.236** .641**
.000
.006
.027
.775
.003
.002
.404
.002
.000
168
168
168
168
168
168
168
168
168
168
**, *. Correlation is significant at the 0.01 level and 0.05 level (2-tailed) respectively.
51

4.1.4.1. The VCGI
Based on Table 7, the data demonstrates that the VCGI is positively associated with
ROE, ROA, DPR, LEVR, and SIZE. With regard to ROE, ROA and SIZE, we report that
there are strongly positively significant coefficients between these variables and the VCGI, in
which the correlation between the VCGI and SIZE is the most significant one. The Pearson
correlation between the VCGI and SIZE is 0.68. The correlation coefficients between the
VCGI and above variables are statistically significant at the 0.01 level. Regarding the
leverage, the result shows that the leverage is positively correlated with the VCGI. Although
the VCGI is negatively correlated with RISK, CAIR and GROW, the coefficient between the
VCGI and GROW is statistically significant at 0.05 level.
4.1.4.2. Firm size (SIZE)
In Table 7, the data shows that SIZE variable is positively related to ROE, LEVR, CAIR
and the VCGI. We also find that the correlation coefficients between SIZE and ROE, LEVR,
CAIR, and VCGI are statistically significant, all at the 0.01 level. Although SIZE is positively
correlated with DPR and GROW, its correlation coefficient is not statistically significant at
any level. We also find that the correlation coefficient between SIZE and ROA is negative but
not statistically significant at any level.
4.1.4.3. Financial leverage (LEVR)
Table 7 shows that leverage is positively correlated with ROE, SIZE, CAIR and the
VCGI. The correlation coefficients between leverage and all above variables are statistically
significant at the 0.01 level. Despite the Pearson correlations between leverage and both DPR
and GROW are positive, there are not statistically significant at the 0.05 level. It also shows
that leverage is negatively interacted with both ROA and RISK. Nonetheless, the leverage
52

correlation coefficient is only statistically significant with ROA at the 0.01 level while there is
no significant coefficient between leverage and business risk.
4.1.4.4. Total asset growth rate (GROW)
In Table 7, we show that GROW is positively correlated with LEVR, SIZE, CAIR and
RISK. However, only the correlation coefficient between GROW and CAIR is statistically
significant at the 0.01 level. The correlation between GROW and LEVR is weakly significant
at the 0.1 level. We have no statistical evidence to show there is any significant correlation
between GROW and two variables SIZE and RISK. On the other hand, the data also
demonstrates that GROW is negatively associated with ROE, ROA, DPR and the VCGI.
However, it also shows that only the correlation coefficient between GROW and the VCGI is
statistically significant at the 0.05 level.
4.1.4.5. Business volatility (RISK)
The data in Table 7 indicates that RISK is negatively associated with ROA, DPR,
LEVR and the VCGI. However, there is no statistical evidence to show that the correlation
coefficients between RISK and four above variables are statistically significant at any
significance level. The data also demonstrates that business risk has positive relationships
with other variables such as ROE, GROW, SIZE and CAIR. However, the Pearson
correlations between these variables are rather low, exhibiting unclosed associations between
RISK variable and four variables ROE, GROW, SIZE and CAIR. Like the first cases, there is
no statistical evidence to show that the correlation coefficients between RISK and ROE,
GROW, SIZE and CAIR are statistically significant at any level.
4.1.4.6. Capital intensity ratio (CAIR)
In Table 7, we show that capital intensity ratio is negatively correlated with ROE, ROA,
DPR and the VCGI, in which CAIR correlation coefficient is statistically significant at the
53

0.05 level with both ROA and DPR. Nonetheless, the result does not show that there is a
statistically significant correlation between CAIR and ROE as well as RISK at any level.
CAIR is positively correlated with both leverage and size and the coefficients are statistically
significant at the 0.01 level.
4.1.4.7. Industry dummy variable (STAT)
We show that STAT1 variable (indicating FI is listed) is positively correlated with ROE,
ROA, DPR, SIZE and the VCGI and the correlation coefficients are statistically significant at
the 0.01 level except that DPR is statistically significant at the 0.05 level. It also shows that
STAT1 is negatively related to GROW and CAIR and the correlation coefficients are
statistically significant at the 0.01 level. Although STAT1 is positively correlated with RISK
and negatively related to leverage, its coefficient is not statistically significant at any level.
4.1.4. The sub-indices correlation matrix
In Table 8, the results show that the VCGI is positively correlated with all four subindices and the Pearson correlations are statistically significant at the 0.01 level. This result is
similar to the results reported by Garay and Gonzlez (2008)17. Above of all, sub-index2
indicating the rights of shareholders and sub-index3 indicating the transparency in operations
are most closely interacted with the VCGI, in which the Pearson correlation is 0.78 and 0.846
respectively. Our data also indicate that most sub-indices are positively associated with the
VCGI, ROE, ROA and DPR unless sub-index1 (indicating the structure of the Board of
Directors), in which sub-index1 is negatively correlated with ROA and DPR. More precisely,
ROE has positive association with all four sub-indices and the correlation is statistically
significant at the 0.01 level. ROA is positively correlated with sub-index2 and sub-index3 and
17
Garay and Gonzlez (2008) found that the CGI was positively significantly interacted with its sub-indices,
including information disclosure, the board of directors, and the right of Shareholders.
54

statistically significant at the 0.01 level but ROA is negatively interacted with sub-index1.
However, it does not show that ROA has significant correlation at the 0.05 level with subindex1 and sub-index4 (the responsibility of the board of directors). Regarding DPR, the data
shows that although DPR is positively associated with three sub-indices (sub-index2 - the
rights of shareholders, sub-index3 - the transparency in operations, and sub-index4 - the
responsibility of the board of director) and is negatively with sub-index1, its correlation is
statistically significant at the 0.01 level with only the right of shareholders sub-index.
Table 8: The sub-indices correlation matrix with the VCGI, ROE, ROA and DPR
Correlations
ROE
ROE
Pearson Correlation
ROA
DPR
SubSubSubSubVCGI index1 index2 index3 index4
Sig. (2-tailed)
ROA
DPR
VCGI
Pearson Correlation
.000
Pearson Correlation
.117
.424**
Sig. (2-tailed)
.130
.000
Pearson Correlation
Pearson Correlation
Sig. (2-tailed)
Subindex2
Pearson Correlation
Sig. (2-tailed)
Subindex3
Pearson Correlation
Sig. (2-tailed)
Subindex4
Sig. (2-tailed)
Sig. (2-tailed)
Subindex1
.324**
Pearson Correlation
.640** .208**
1
.167*
.000
.007
.031
.276**
-.107
-.091
.599**
.000
.169
.242
.000
.569
**
.000
.303
**
.000
.550** .218**
.000
.371
**
.004
.784**
.217**
.000
.000
.005
.150
.846**
.285**
.576**
.052
.000
.000
.000
.270
**
.141
.132
.524
**
.218
**
1
1
.325**
.296**
Sig. (2-tailed)
.000
.068
.088
.000
.005
.000
.000
168
168
168
168
168
168
168
1
168
Source: extracted from SPSS.
55

Note: Sub-index1: the structure, components of the Board of Directors, Sub-index2: the rights
of shareholders, Sub-index3: the transparency in operations, Sub-index4: the responsibility of
the board.
In sum, in all cases we show that sub-index2 (indicating the rights of shareholders) is
positively correlated with all three dependent variables such as ROE, ROA and DPR and its
correlation is statistically significant at the 0.01 level. This result is similar to the results
presented by Garay and Gonzlez (2008) who reported that the right of shareholders subindex was positively associated with three performance measures including dividend payout
ratio, price to book value and Tobins Q.
4.2. The results of regression analysis
In Table 9, we conduct to check the co-linearity issues in the model. Fortunately, the
data shows that the model is satisfactory for the co-linearity.
Details are presented as follows:
Table 9: The co-linearity checking
Model
Dependent
variable
VIF
ROE
All < 10
ROA
All < 10
DPR
All < 10
Source: the author consolidates, Complete Business Statistics, Seventh Edition, Aczel
Sounderpandian.
4.2.1. The association between the VCGI and ROE (Model 1)
The results of the VCGI and ROE regressions are reported as follows:
Table 10: The results of the VCGI and ROE regressions
56
Dependent
Variable
ROE
Predictors
Coeff.
sig.
(Constant)
-.191
-2.731
.007
LEVR
.045
.995
.321
GROW
.002
.303
.763
SIZE
.033
2.118
.036
RISK
.000
.854
.395
CAIR
-.002
-2.610
.010
VCGI
.010
4.185
.000
Adjusted
R Square
DurbinWatson
0.475
1.799
Sig.
26.203
.000b
Source: extracted from SPSS.

Based on Table 10, Sig. value is extremely small (sig. = .000 < 0.01, F-statistical = 26.203),
and we have strong evidence that there is a linear relationship in the model. Therefore, the
model is appropriate to our data and we do not take risk when we reject H0 which denotes
correlation coefficients in the model are all equal to zero.
Accordingly, H1 is accepted and we have statistical evidence that there is a linear
relationship between dependent variable ROE and at least one of the independent variables in
the model.
The data in Table 10 shows that the VCGI is positively correlated with ROE and its
correlation coefficient is statistically significant at the 0.01 level (sig. = .000 < 0.01, t =
4.185). That is, the correlation coefficient of the VCGI is different from zero and the VCGI is
positively associated with ROE. Therefore, the null hypothesis (H0) is rejected, and as a result
we accept H1.
Based on Table 10 and Figure 4 (please see Appendices), the data shows that the VCGI
has a linear relationship with ROE. That is, better corporate governance performance is
associated with higher ROE. This suggests that in Vietnam FIs with better corporate
57

governance performance have higher ROE compared to the rest. Therefore, we can conclude
that when other factors remain unchanged, a 1% increase in the VCGI of FIs in Vietnam will
lead to an increase of 1% in ROE.
In respect of firm size, the data in Table 10 also demonstrates that sig. value is relatively
small (sig. = .036 < 0.05, t = 2.118) and the correlation coefficient shows that size is
positively correlated with ROE and is statistically significant at the 0.05 level. It shows that
there is a linear relationship between size and ROE.
In other words, larger size is related to better ROE. This finding suggests that in
Vietnam larger FIs have better performance in term of ROE than smaller FIs. This finding is
consistent with the result presented by Leal and Carvalhal-da-Silva (2005) who found that
size was positively related to firm valuation in the context of Brazil.
On the contrary, CAIR variable has a negative association with ROE and its correlation
coefficient is statistically significant at the 0.01 level (sig. value is rather small, sig. = .01, t =
- 2.610). That is, lower capital intensity is associated with higher ROE. This result implies
that FIs with lower capital intensity ratio reflected by higher intangible assets tend to have
higher ROE than FIs with higher capital intensity ratio. This finding is consistent with the
result found by Klapper and Love (2004), in which they presented that capital intensity ratio
was negatively associated with firm market performance. In other words, firms with lower
capital intensity ratio, which shows higher intangible assets, have better Tobins Q.
Finally, we find no statistical evidence to show that there is any linear relationships
between dependent variable ROE with other variables such as LEVR, GROW and RISK (sig.
values are all greater than 0.1).
4.2.2. The relationship between the VCGI and ROA (Model 2)
The results of the VCGI and ROA regressions are reported as follows:
58

Table 11: The VCGI and ROA regressions
Dependent
variable
Predictors
ROA
(Constant)
Coeff.
sig.
.034
1.144
.254
LEVR
-.042
-2.151
.033
GROW
.003
.878
.381
SIZE
-.001
-.120
.905
RISK
-2.19E-05
-.209
.835
CAIR
.000
-.489
.625
VCGI
.003
2.985
.003
Adjusted DurbinR Square Watson

0.116
2.095
Sig.
4.667
.000b

Based on Table 11, sig. value is extremely small (sig. = .000 < 0.01, F-Statistical = 4.667),
and we have strong evidence that there is a linear relationship in the model. Therefore, the
model is appropriate for our data and we can reject H0 which denotes all correlation
coefficients are equal to zero. Accordingly, H1 is accepted and we have statistical evidence
that there is a linear relationship between dependent variable ROA and at least one of the
independent variables in the model.
In Table 11, referring to coefficients we show that the VCGI is positively associated
with ROA and its correlation coefficient is statistically significant at the 0.01 level (sig. = .003
< 0.01, t = 2.985). Therefore, the null hypothesis (H0) is rejected, and as a result we accept H1.
It can be concluded that the correlation coefficient of the VCGI is different from zero and we
have statistical evidence to show that the VCGI is positively significantly associated with
ROA. That is, the VCGI has a linear relationship with ROA (Figure 5 in Appendices). In
other words, higher corporate governance score is associated with better ROA. This finding
suggests that in Vietnam FIs with better corporate governance practices tend to perform
59

better in term of ROA. In particular, when other factors remain unchanged, a 1% increase in
the VCGI will cause in 0.3% increase in ROA.
In sum, our data supports the first hypothesis (H1) raised in the study. In other words,
the first hypothesis is accepted in the context of Vietnam. Particularly, the VCGI is positively
associated with ROE and ROA and the correlation coefficients are statistically significant at
the 0.01 level. This result is consistent with the findings of Klapper and Love (2004) who
reported that good corporate governance was strongly related to better operating performance.
This result also implies that in Vietnam positive accounting performance of FIs in term of
ROE and ROA may be interpreted by the higher quality of corporate governance practices.
Thus, the VCGI is an important indicator to reflect and determine FI accounting performance.
Based on the above results, two questions raised in research objectives are addressed
and answered. More specifically, the first question is statistically answered that corporate
governance practices impact significantly on performance of FIs in Vietnam. Similarly, the
second question is empirically answered that the more FIs improve their corporate
governance the better performance in term of return on equity and return on assets FIs
perform. For example, when other factors are constant, a 1% increase in the VCGI of FIs in
Vietnam will cause in an increase of 1% in ROE and 0.3% in ROA.
The data in Table 11 also shows that leverage is negatively related to ROA and its
correlation coefficient is statistically significant at the 0.05 level (sig. = .033 < 0.05, t = 2.151). That is, lower leverage is interacted with better ROA. This suggests that in Vietnam
FIs with lower leverage have higher ROA than FIs with higher leverage. This finding is
consistent with the result presented by Jensen and Meckling (1976) and Myers (1977), in
which leverage was negatively related to firm performance. Firms with higher financial
60

leverage may face with higher agency costs because shareholders and debt holders have
different interests.
However, the finding of this study is not in agreement with the results reported by Leal
and Carvalhal-da-Silva (2005) and Garay and Gonzlez (2005), in which leverage was
positively related to firm market valuation in Brazil and Venezuela respectively.
Finally, we have no statistical evidence to show there is any statistical significance at
any level between dependent variable ROA and other variables in the model such as GROW,
SIZE, RISK and CAIR in the model.
4.2.3. The relationship between the VCGI and DPR (Model 3)
The regression results are reported as follows:
Table 12: The VCGI and DPR regressions
Dependent
variable
Predictors
Coeff.
DPR
(Constant)
1.559
5.027
.000
LEVR
.721
3.552
.001
GROW
.000
-.004
.996
SIZE
-.236
-3.429
.001
RISK
.000
.172
.864
CAIR
-.005
-1.278
.203
VCGI
.036
3.581
.000
sig.
Adjusted
R Square
DurbinWatson
Sig.
0.093
1.851
3.850
.001b

Based on Table 12, sig. value is rather small (sig. = .001 < 0.01, F-Statistical = 3.850), thus
the model is appropriate for our data and we are safe to reject H0 which denotes all correlation
coefficients are equal to zero. Accordingly, we accept H1 and we have statistical evidence that
61

there is a linear relationship between dependent variable DPR and at least one of the
independent variables in the model.
Referring to Table 12 and Figure 6 in Appendices, our data show that the VCGI has a
positive association with dividend payout ratio and its correlation coefficient is statistically
significant at the 0.01 level (sig. = .000 < 0.01, t = 3.581). Therefore, the null hypothesis (H0)
is rejected, and then H1 is accepted accordingly. Empirically, we find that the VCGI is
positively associated with dividend payout ratio
62

FIs dividend payout. This finding suggests that in Vietnam FIs with higher leverage set
higher dividend payout ratio and tend to allocate more earnings to shareholders than FIs with
lower leverage. This finding is not consistent with the finding reported by Leal and Carvalhalda-Silva (2005) and Garay and Gonzlez (2008). These authors showed that leverage was
negatively associated with dividend payout.
On the contrary, size variable has a negative correlation to DPR and is statistically
significant at the 0.01 level (sig. = .001 < 0.01, t = - 3.429). This result implies that larger FIs
tend to pay less cash dividends to shareholders than smaller FIs. This result is not consistent
with the finding reported by Leal and Carvalhal-da-silva (2005). These authors showed that
there was a positive relationship between firm size and dividend payout ratio. In other words,
larger firms should tend to allocate more earnings to shareholders. The result of this study
may be explained by the following reasons in the context of Vietnam. First, in recent years
larger FIs tend to prefer a moderate and stable dividend payout instead of setting higher cash
dividend paid to shareholders even they are more profitable and even they can pay more cash
dividends to shareholders. Vietnam financial market is potential to grow therefore cash
dividend is likely to be kept as retained earnings by larger FIs to increase chartered capital to
strengthen the financial capacity and reinvest to meet business requirements in the new
period. Second, remaining higher dividend payout ratio in a long time is rather challengeable
and not feasible for larger FIs.
We also find no statistical evidence to show there is any significance at any level
between dependent variable DPR with other variables such as GROW, RISK and CAIR in the
model.
Finally, it can be empirically concluded that the VCGI has a positive relationship with
DPR and its correlation coefficient is statistically significant at the 0.01 level (sig. = .000 <
63

0.01, t = 3.581). As a result, our second hypothesis (H2) is significantly supported by the data.
That is, the second hypothesis is accepted in the context of Vietnam, in which the data shows
that the VCGI is positively and significantly associated with dividend payout ratio. In other
words, in Vietnam FIs which have better corporate governance performance tend to
determine higher dividend payout to pay cash earnings to shareholders.
In our models, it shows that all values of adjusted R-square are rather small especially in
Model 2 and Model 3. Our independent variables may explain only 11.6% of the variation in
ROA in model 2 while in model 3 there is only 9.3% of DPR fluctuation to be interpreted by
the combination of the independent variables.
The highest adjusted R-square is only 0.475. This shows that the independent variables
can reflect 47.5% of the variation in dependent variable of ROE. This issue again can be
addressed by our small sample which may potentially cause in small adjusted R-square as
mentioned in Scope and limitation section.
4.2.4. ROE, ROA and dividend payout regressions
We also conduct to test whether FIs with better performance in term of ROE, ROA
normally tend to pay more cash dividends to shareholders or not in the context of Vietnam.
The regression results are presented as follows:
Table 13: ROE, ROA and DPR regressions
Dependent
variable
Predictors
Coeff.
DPR
(Constant)
.577
16.289
.000
ROE
-.076
-.303
.762
ROA
4.451
5.797
.000
sig.
Adjusted
R Square
DurbinWatson
0.171
1.869
18.188
Sig.
.000b
64

Based on Table 13, sig. value is rather small (sig. = .000 < 0.01, F-Statistical = 18.188),
thus the model is appropriate for our data and we have statistical evidence that there is a linear
relationship between DPR and at least one of the independent variables in the model.
The empirical results (Table 13) demonstrate that DPR has a positive relationship with
ROA and its correlation coefficient is statistically significant at the 0.01 level (sig. = .000 <
0.01, t = 5.797). It shows that better ROA is associated with higher dividend payout ratio.
This means that FIs with better ROA tend to pay more cash dividends to shareholders
reflected a higher cash dividend payout in comparison with the rest in the context of Vietnam.
However, the data also indicates that we have no statistical evidence to show there is
any linear relationship between dividend payout and ROE.
Empirically, we find no strong evidence to conclude that FIs with better performance
tend to pay more dividends to shareholders in the context of Vietnam.
4.2.5. Regression with four sub-indices and dependent variables ROE, ROA, DPR
We also conduct to run multiple regressions test, including four sub-indices as
independent variables and dependent variables of ROE, ROA and DPR. The regression results
are reported as follows:
Table 14: The analysis of variance
ANOVA
Model
Dependent Variable
Sig.
ROE
30.822
.000b
ROA
6.384
.000b
3
DPR
4.603
.002b
Predictors: (Constant), Sub-index1, Sub-index2, Sub-index3, Sub-index4
65

The ANOVA Table 14 shows that all sig. values are relatively small (all sig. < 0.01),
thus our models are appropriate to the data. We have statistical evidence that there is a linear
relationship between dependent variables (ROE, ROA and DPR) and at least one of the
independent variables (sub-indices) in the models.
Table 15: The regressions results of ROE, ROA and DPR on four sub-indices
Dependent variable
Dependent variable
Dependent variable
ROE
ROA
DPR
Predictors
Coeff.
sig.
Coeff.
sig.
Coeff.
sig.
(Constant)
-.001
-.054
.957
.002
.430
.667
.509
8.655
.000
Sub-index1
.006
1.415
.159
-.005
-2.721
.007
-.043
-2.192
.030
Sub-index2
.022
4.534
.000
.006
2.922
.004
.061
2.910
.004
Sub-index3
.015
3.844
.000
.002
1.141
.255
.004
.233
.816
Sub-index4
.021
2.488
.014
.003
.884
.378
.034
.942
.347
Adjusted R
Square
.417
.114
.079
Source: extracted and consolidated from SPSS

Note: Sub-index1: the structure, components of the board of directors, Sub-index2: the rights
of shareholders, Sub-index3: the transparency in operations, Sub-index4: the responsibility of
the board.
Based on Table 15 in model 1, the data indicates that Sub-index2 and Sub-index3 are
positively related to ROE and the correlation coefficients are statistically significant at the
0.01 level (sig. = .000 < 0.01, t = 4.534 and sig. = .000 < 0.01, t = 3.844, respectively). Subindex4 is positively associated with ROE and its correlation coefficient is statistically
significant at the 0.05 level (sig. = .014 < 0.05, t = 2.488). These results show that the rights
66

of shareholders, the transparency in operations and the responsibility of the board
significantly affect the FIs ROE.
In model 2, we show that Sub-index2 is positively related to ROA while Sub-index1 is
negatively associated with ROA. These sub-indices coefficients are statistically significant at
the 0.01 level (Sub-index1: sig. = .007 < 0.01, t = -2.721; Sub-index2: sig. = .004 < 0.01, t =
2.922). These results indicate that the structure, components of the board and the rights of
shareholders impact significantly on ROA of FIs in different directions.
In model 3, sub-index2 is positively related to DPR while sub-index1 has a negative
association with DPR. These correlation coefficients are statistically significant at the 0.01
level (Sub-index1: sig. = .03 < 0.05, t = -2.192; Sub-index2: sig. = .004 < 0.01, t = 2.910).
In sum, the result shows that only the right of shareholders sub-index (sub-index2) is
positively associated with all three cases and its coefficient is statistically significant at the
0.01 level (sig. < 0.01 in all cases). This finding suggests that the right of shareholders is an
important factor, interpreting accounting performance and dividend payout of FIs in
Vietnam. This finding is consistent with the finding of Gompers, Ishii, and Metrick (2003)
who found that higher right of shareholders was associated with better profitability. That is,
firms with higher right of shareholders have better performance.
4.2.6. Regression with dummy variable (STAT)
In this stage, we
67

ANOVA
Model
Dependent Variable
Sig.
ROE
59.749
.000b
ROA
4.685
.010b
3
DPR
2.963
Predictors: (Constant), VCGI, STAT1
.054b
Source: extracted and consolidated from SPSS

Table 17: The regressions results of ROE, ROA and DPR on STAT1
Dependent variable
Dependent variable
Dependent variable
ROE
ROA
DPR
Predictors
Coeff.
(Constant)
sig.
Coeff.
sig.
Coeff.
sig.
-.004
-.289
.773
.008
1.393
.166
.564
9.832
.000
VCGI
.018
9.409
.000
.001
1.240
.217
.008
.976
.330
STAT1
-.023
-1.757
.081
.007
1.354
.178
.063
1.086
.279
Adjusted R
Square
.413
.042
.023
Source: extracted and summarized from SPSS

The above ANOVA reports that sig. values of ROE and ROA as dependent variables in
the model are extremely small (sig. = < 0.01 in two cases), thus the models are appropriate
and we are safe to reject H0. That is, linear relationships between dependent variables and
independent variables exist in our models, in which ROE and ROA are included as dependent
variables.
However, sig. value when DPR is included as dependent variable is greater than 0.05
(sig. =.054 < 0.1). This shows that it is weakly significant. Therefore, the model is not
strongly appropriate.
68

Based on Table 17, the data with dummy variable shows that at the 90% confidence
interval, STAT1 variable has a negative relationship with ROE and its correlation coefficient
is statistically significant at the 0.1 level (sig. = .081 < 0.1, t = - 1.7557). This result indicates
STAT1 is weakly significant. Furthermore, the results when ROA and PDR are included as
dependent variables are not showed that there is any statistical significance at any level.
Figure 7, 8 and 9 (please see Appendices) indicate that listed FIs have higher CGI than
those of unlisted FIs, represented by the bold dot scattered on the right to the horizontal axis.
However, we find no statistical evidence to conclude that listed FIs are significantly different
from unlisted FIs in term of ROA and dividend payout given unchanged VCGI. More
precisely, we have no strongly statistical evidence to show that listed FIs perform better and
also pay more dividends to shareholders given unchanged VCGI.
69

CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
In this chapter, we summarize the key contents discussed in the study as well as the findings
obtained by the data and we then conclude the study. Based on the findings supported by the
data, we suggest recommendations to managers or directors of FIs in Vietnam and related
parties for their consideration and implementation to improve corporate governance practices
of their FIs in Vietnam. Moreover, future research is also recommended to conduct regarding
corporate governance in general and the relationship between corporate governance and firm
performance in particular.
5.1. Conclusions
Based on the designed questionnaire, this empirical study has established the VCGI for
60 FIs in Vietnam, including 37 Commercial Banks, 16 Insurance Corporations and 7
Finance Joint Stock Corporations. At the company level, the results show that the highest
corporate governance score is 15 points (88%) and the lowest score is 1 point (6%). The
results also show that there is a large difference in the quality of corporate governance
practices among FIs in Vietnam. The arithmetic mean for the VCGI for 3 years from 2009 to
2011 was only 44.19%. Although the score is greater than the Venezuelan average (40.34%)
and the Brazilian mean (41.67%), our overall VCGI is still lower than an average of 50% and
far below the emerging market mean (54.11%) and Chile (58.86%). This suggests that
corporate governance practices in general in FIs of Vietnam are rather weak even though the
operations of FIs are heavily regulated by the government. Positively, the VCGI in 2011 was
48.74%, suggesting that FIs are being actively improved. Nonetheless, FIs in Vietnam still
need to overcome and improve in the future for corporate governance practices concerning the
structure and components of the board of directors. This area was rather weak, in which the
scores were all far less than the average of 50%. The results also show that some FIs are still
70

not voluntary to enhance their corporate governance practices. Instead, these FIs have merely
attempted to satisfy the requirements of current laws or to prevent from "the punishment" of
the authorities.
Regarding the hiring of outside Chief Executive Officer, our data indicate that FIs in
Vietnam still hesitate to follow the strategy. FIs normally prefer having a board member or
Vice Chairman to be their Chief Executive Officer. This shows that in many FIs, the role of
the board of directors is not properly implemented. This is a specific characteristic of FIs in
Vietnam. However, in the long term the role of the board of directors of FIs in Vietnam
should be properly positioned in accordance with international standards for a sustainable
growth of banking financial industry. The board members or vice chairman as well as
permanent members of the board get much involvement in the daily work of FIs (they often
hold key positions such as chairman or vice chairman in specific Committees, Councils in
FIs). The involvement of the board of directors has both good and bad side. On the good
side, the difficulties or requirements proposed from the Executive Board will be moved
quickly to the board of directors for discussion and settlement through the permanent
members. On the contrary, the dark side may reduce the independence between the role of the
board of directors and the role of chief Executive Officer as well as the Executive Board of
FIs. In the long term, the independence between the role of the board of directors and the role
of the Executive Board of FIs in Vietnam should be strongly improved for a sustainable
growth.
Regarding information published on websites, there were still many FIs to disclose
information rather sketchily. Specially, some FIs have implemented to post the resolutions of
the General Assembly of Shareholders in general form and financial statements were
delivered on a poor form, a summary report. This is not only a bad and risky but also an
71

unprofessional way, especially when a rumor or an unaffordable thing related to the business
situation of FIs is suddenly occurred. In addition, poor information disclosed by FIs may
cause shareholders a lot of problems to examine documents before participating in the
General Assembly of Shareholders to execute his or her rights more effectively. These issues
should be addressed in the future for the sake of not only investors but also FI itself.
As predicted, the results of multiple regressions statistically support our hypotheses
proposed in the study. Accordingly, the results indicate that the VCGI is positively associated
with both ROE and ROA and the correlation coefficients are statistically significant at the
0.01 level. More precisely, when other factors remain unchanged, a 1% increase in the VCGI
of FIs in Vietnam will result in an increase of 1% in ROE and 0.3% in ROA. This result is
consistent with the finding of Klapper and Love (2004) who found good corporate governance
practices were strongly related to higher operating performance. This result is also consistent
with the results of Claessens (2002), in which good corporate governance might lead to better
operating performance.
From these results, two questions raised in research objectives are addressed and
answered. Empirically, it shows that corporate governance practices impact significantly on
performance of FIs in Vietnam. These findings suggest that corporate governance practices
play an important role in explaining FI accounting performance in Vietnam.
The results also show that the VCGI has a positive relationship with dividend payout
ratio and its correlation coefficient is statistically significant at the 0.01 level. For example,
when all other factors are unchanged, a 1% increase in the VCGI of FIs in Vietnam will lead
to an increase of 3.6% in dividend payout ratio. This result implies that FIs with better
corporate governance performance tend to allocate more earnings to shareholders, reflected in
a higher cash dividend payout in their dividend policies. This finding is consistent with not
72

only Garay and Gonzlez (2008) conducted in Venezuela but also the outcome agency
model of La Porta et al. (2000b) regarding dividend payment policy. The outcome agency
model regarding dividend payment policy of latter authors showed that firms with stronger
corporate governance practices should disburse more earnings to shareholders.
In sum, we find statistical evidence to reach a conclusion that effective corporate
governance practices are related to better accounting performance of FIs and we also show
that FIs with good corporate governance performance tend to contribute more dividends to
shareholders in the context of Vietnam.
Further test on the relationship between sub-indices and three performance measures
shows that higher shareholders rights are associated with better accounting performance and
higher dividend payout paid to shareholders. This suggests the right of shareholders is an
extremely important factor, explaining accounting performance and dividend payout of FIs in
the context of Vietnam.
Finally, we also find that the leverage, size and capital intensity ratio are the important
factors which significantly impact accounting performance and dividend payout of FIs in
Vietnam.
5.2. Recommendations
We show that corporate governance is a vital factor for FIs in Vietnam in interpreting
the association between corporate governance and FI accounting performance. Therefore, FIs
in Vietnam should define corporate governance enhancement as top priority issue to
implement. Empirically, we henceforth suggest recommendations to FIs in Vietnam as well
as related people for taking into consideration and implementation as follows:
In managers or directors perspective, FIs in Vietnam should concentrate on
strengthening their corporate governance practices. Improving corporate governance practices
73

may help FIs not only to control risk more effectively as well as to be more transparent but
also to strengthen their accounting performance significantly in Vietnam.
FIs should voluntarily enhance their guidelines or policies on corporate governance to
ensure FIs are effectively governed. FIs in Vietnam should determine that willingly
enhancing corporate governance is much better than adopting corporate governance to be in
line with current regulations. In weak investor right protection, improving corporate
governance practices become more important for firms to adapt with such weak environment
(Klapper and Love, 2004). Thus, adopting effective corporate governance may help FIs to be
clearly recognized in the market to attract lower cost of capital and strengthen performance.
For investors, they desire to maximize their profits when making any investments.
Empirically, this study suggests a quantitative method for investors, shareholders as well as
other related persons to keep it as useful reference for entering FIs in Vietnam. The findings
in this study suggest that FIs with stronger corporate governed operate more effectively,
exhibiting better ROE and ROA and also disburse higher cash dividends to shareholders than
the rest.
It is recommended that the government should review and revise the regulations
frequently to be more closely to the new business environment which is frequently changed.
On the other hand, the punishment should be more strictly revised to protect investors,
shareholders as well as FIs from the expropriation caused by rumors or unfair competition
behaviors in the market.
The authorities should develop mechanisms to check and supervise FIs on a regular
basis for the implementation of corporate governance of FIs to detect and govern firms
promptly in the case of violation, protecting investors more effectively. The authorities should
74

also apply strict sanctions for FIs that publish financial statements inaccurately, delay to
disclose information or deliver information in a poor manner.
The government should support FIs in the process of selecting the independent board
members by issuing specific guidance. This support may help FIs to speed up the process to
elect independent members of the board in effort to improve corporate governance practices
as well as increase "the quality" of the independence of board members in FIs to facilitate
the application of international practices and increase the role and responsibilities of the board
of directors.
Finally, further researches on corporate governance issues in general and the
relationship between corporate governance and performance of firms in particular should be
encouraged to conduct more in all business sectors in the future. Hopefully, this study can be
used as a basic study for further researches, in which larger sample sizes should be included
and tested with more factors related to corporate governance. Hence the practical application
of the research findings will become more popular, contributing to improving the
transparency in operations of all types of business and the economy as a whole.
75

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http://finance.vietstock.vn/
http://www.vinacorp.vn
80

Appendices
List of Tables
Table 1: The VCGI and its sub-indices 2009 2011
In this Table, we report the overall VCGI results established from 2009 to 2010 for the 60
Financial Institutions in Vietnam.
No
2010
2011
41.67%
45.05%
48.74%
Structure, components of the Board of Directors
20.71%
24.64%
32.86%
19.64%
26.79%
51.79%
3.57%
3.57%
3.57%
46.43%
39.29%
42.86%
VCGI
Subindex1
Contents
2009
permanent member of the Board of Directors in the

firm?
4
12.50%
25.00%
32.14%
21.43%
28.57%
33.93%
53.13%
52.23%
56.25%
Is a clear report presented to the General Assembly of
73.21%
64.29%
67.86%
42.86%
41.07%
44.64%
71.43%
73.21%
76.79%
25.00%
30.36%
35.71%
Transparency in operations of the company
50.00%
52.14%
52.86%
26.79%
23.21%
26.79%
48.21%
48.21%
46.43%
directors?
Subindex2
1
Shareholders to describe performance of the board?

2

Does firm reserve for shareholders to vote efficiently

in the meeting? (E.g. information, time to access
relevant contents such as financial evaluation report,
profit distribution plan, the B.O.D remuneration,
delegation etc.)
4
Subindex3
1
firm website?
2
Did the firm deliver or post quarterly and semi-annual
81

reports of the previous years on website?
3
71.43%
80.36%
78.57%
76.79%
80.36%
82.14%
26.79%
28.57%
30.36%
The responsibility of the Board of Directors
42.86%
51.19%
52.98%
Is there any evidence that firm has a balanced board
69.64%
76.79%
78.57%
53.57%
57.14%
53.57%
5.36%
19.64%
26.79%
promptly?
4
Does firm hire highly internationally recognized audit

company?
Did firm disclose any transactions related to the board

members, managers etc.?
Subindex4
1
of Directors?
2

members?
Source: the author calculates based on publicly available information. Following the
approach of Garay and Gonzlez (2008), the questionnaire was constructed for FIs in
Vietnam.
17 questions are constructed on the basic of current regulations and international
standards on corporate governance such as Law on credit institutions in 2010, Law on
enterprises, and Law on securities and Law on amendments 2010 of Law on securities,
principles of OECD (2004) and Decision No. 12/2007/Q-BTC of the Ministry of Finance as
well as other relevant regulations of the Vietnamese government. Basically, this study
separates the VCGI into 4 sub key indices as prescribed in Decision 12/2007/Q-BTC of the
Ministry of Finance and in OECD principles as well to build the VCGI for 60 FIs in
Vietnam. We ourselves carefully check and give points to either yes or no for each of
FIs. More precisely, for yes answer we give 1, otherwise 0 is added for no answer. To
obtain necessary information, we refer to the main documents such as the meeting minutes,
the resolutions of the General Assembly of Shareholders, annual reports, financial statements,
the board reports, FI charters etc.
82

Table 2: Comparison of study conducted by IFC also in Vietnam
In this Table we make a comparison with other study conducted by IFC in 2009 and 2010 also
in Vietnam.
Items
CGI in overall
CGI (%) by this study

2009
2010
2011
CGI (%) by IFC

2009
2010
2011 Weighting
41.67% 45.05% 48.74% 43.90% 44.70%
NA
The board structure
20.71%
24.64%
32.86%
NA
NA
The rights of
53.13%
52.23%
56.25%
46.80%
48.50%
NA
15%
Information
disclosure
50.00%
52.14%
52.86%
39.40%
43.20%
NA
30%
The board
responsibility
42.86%
51.19%
52.98%
35.30%
36.10%
NA
30%
Role of Stakeholders
NA
NA
NA
29.20%
29.40%
NA
5%
Equal treatment of
shareholders
NA
NA
NA
65.10%
61.00%
NA
20%
Sub-indices
shareholders
Source: Corporate Governance Scorecard by IFC (2009, 2010)

*. The board structure was grouped into the board responsibility in IFC study, NA = Not
available.
Table 3: Statistics comparison of study in Venezuela and Vietnam
In this Table, we present a statistic comparison of study conducted by Garay and Gonzlez
(2008) in Venezuela and IFC (2009, 2010) in Vietnam for financial companies.
Items
This study Garay and Gonzlez (2008)
Overall CGI
44.19%
40.30%
Maximum
88.00%
71.67%
Minimum
6.00%
16.67%
Mean
44.19%
40.34%
Observations
168
46
Firms
FI's only
Listed firms from all sectors
Source: Garay and Gonzalez (2008)
IFC (2009)
45.80%
55.30%
24.00%
45.90%
18
FI
IFC (2010)
44.80%
55.40%
35.70%
NA
35
FI
83

Table 4: Sub-indices comparison of study in Venezuela
In this Table, we present sub-index comparison with study conducted by Garay and Gonzlez
(2008) in Venezuela.
Sub-indices
Average score
This study
Average score
Garay and
Gonzalez (2008)
Weighting
The board structure
26.07%
Equal
53.87%
16.30%
Equal
Disclosure and transparency
51.55%
50.80%
Equal
The board performance/responsibility
49.01%
54.40%
Equal
84

Table 6: Independent Samples Test
In this Table, we report the results for Independent Samples Test. It shows the variances of
ROE and ROA are equal (sig. > 0.05 in two cases). All sig. values in t-test results for equity
of means are all less than 0.01, we can conclude that the mean between listed and unlisted
FIs is not equal. That means there is a significant difference on the average of ROE, ROA
and DPR between listed and unlisted FIs.
Independent Samples Test
Levene's Test
for Equality
of Variances
Sig.
t-test for Equality of Means
df
Sig. (2- Mean

Std. Error
tailed) Difference Difference
95% Confidence
Interval of the
Difference
Lower
ROE
ROA
DPR
Equal variances
assumed
3.022
.084
Equal variances
not assumed
Equal variances
assumed
.255
.614
Equal variances
not assumed
Equal variances
assumed
11.87
Equal variances
not assumed
.001
Upper
4.504
166
.000
.0565177
.0125497 .0317401 .0812953
4.335
87.5
.000
.0565177
.0130373 .0306068 .0824286
2.794
166
.006
.0118863
.0042538 .0034878 .0202849
3.399
152.1
.001
.0118863
.0034965 .0049782 .0187944
2.230
166
.027
.0985904
.0442071 .0113097 .1858710
2.608
139.7
.010
.0985904
.0378091 .0238385 .1733422
85

Table 7: The correlation matrix of variables
Correlations
ROE
ROE
Pearson
Correlation
Sig. (2tailed)
ROA Pearson
Correlation
Sig. (2tailed)
DPR Pearson
Correlation
Sig. (2tailed)
LEVR Pearson
Correlation
Sig. (2tailed)
GROW Pearson
Correlation
Sig. (2tailed)
SIZE Pearson
Correlation
Sig. (2tailed)
RISK Pearson
Correlation
Sig. (2tailed)
CAIR Pearson
Correlation
Sig. (2tailed)
VCGI Pearson
Correlation
Sig. (2tailed)
STAT Pearson
Correlation
Sig. (2tailed)
N
ROA
DPR LEVR GROW SIZE
RISK
CAIR VCGI STAT1
.324**
.000
.117
.424**
.130
.000
.446** -.217**
.082
.000
.005
.293
-.110
-.050
-.062
.144
.155
.519
.428
.062
.607**
-.064
.013
.829**
.016
.000
.411
.869
.000
.837
.036
-.021
-.003
-.001
.057
.003
.639
.791
.971
.993
.462
.973
.494**
.352**
.020
.000
.000
.799
-.027
.725
-.152* -.152* .403**

.050
.640** .208**
.000
.007
.330** .212**
.049
.000
.167* .370**
-.157*
.680** -.025
.031
.000
.043
.000
.745
.171*
-.022
-.228**
.236**
.065
-.012
.873
-.236** .641**
.000
.006
.027
.775
.003
.002
.404
.002
.000
168
168
168
168
168
168
168
168
168
168

86

Table 8: The sub-indices correlation matrix
Correlations
ROE
ROE
Pearson Correlation
ROA
DPR
SubSubSubSubVCGI index1 index2 index3 index4
Sig. (2-tailed)
ROA
Pearson Correlation
Sig. (2-tailed)
.324**
.000
87

Table 9: The co-linearity checking
Model
Dependent
variable
VIF
ROE
All < 10
ROA
All < 10
DPR
All < 10
Source: the author consolidates.

Table 10: ROE and the VCGI regressions
In this Table, we report the regressions results of ROE on the VCGI. Variables consist of
return on equity (ROE), return on assets (ROA) and dividend payout ratio (DPR), the
Vietnam Corporate Governance Index (VCGI), company size (SIZE), company growth
(GROW), company leverage (LEVR), business risk (RISK), capital intensity ratio (CAIR)
and dummy variable (STAT).
Dependent
variable
ROE
Predictors Coeff.
sig.
Adjusted
R Square
DurbinWatson
26.203 .000b
1.799
VIF
(Constant)
-.191
-2.731
.007
LEVR
GROW
SIZE
RISK
CAIR
.045
.002
.033
.000
-.002
.995
.303
2.118
.854
-2.610
.321
.763
.036
.395
.010
4.197
1.410
7.250
1.005
1.723
.010
4.185
.000
2.650
VCGI
0.475
Sig.
88

Table 11: ROA and the VCGI regressions
In this Table, we report the regressions results of ROA on the VCGI. Variables consist of
Dependent
Predictors
variable
ROA
Coeff.
sig.
Adjusted
R Square
DurbinWatson
4.667 .000b
2.095
VIF
(Constant)
.034
1.144
.254
LEVR
GROW
SIZE
-.042
.003
-2.151
.878
.033
.381
4.197
1.410
-.001
-.120
.905
7.250
-.209
-.489
2.985
.835
.625
.003
1.005
1.723
2.650
RISK
-2.19E-05
CAIR
.000
VCGI
.003
0.116
Sig.
Table 12: DPR and the VCGI regressions

In this Table, we report the regressions results of DPR on the VCGI. Variables consist of
Dependent
Predictors
variable
DPR
Coeff.
sig.
(Constant)
1.559
5.027
.000
LEVR
GROW
SIZE
RISK
CAIR
VCGI
.721
.000
-.236
.000
-.005
.036
3.552
-.004
-3.429
.172
-1.278
3.581
.001
.996
.001
.864
.203
.000
Adjusted
R Square
.093
Sig.
DurbinWatson
3.850 .001b
1.851
VIF
4.197
1.410
7.250
1.005
1.723
2.650

89

Table 13: DPR and ROE, ROA regressions
In this Table, we report the regressions results of DPR on ROE and ROA. Variables consist of
return on equity (ROE), return on assets (ROA) and dividend payout ratio (DPR).
Dependent
variable
Predictors
Coeff.
DPR
(Constant)
.577
16.289
.000
-.076
4.451
-.303
5.797
.762
.000
ROE
ROA
sig.
Adjusted DurbinR Square Watson

.171
1.869
F
18.188
Sig.
.000b
90

Table 14 to 15: Dependent variables and four sub-indices regressions
In this Table, we conduct the analysis of variance. The Table shows that all sig. values are
relatively small (all sig. < 0.01), thus our models are appropriate to the data. We have
statistical evidence that there is a linear relationship between dependent variables (ROE, ROA
and DPR) and at least one of the independent variables (sub-indices) in the models.
ANOVA
Model
1
2
3
Dependent Variable
ROE
ROA
DPR
Sig.
30.822
6.384
4.603
.000b
.000b
.002b
Predictors: (Constant), Sub-index1, Sub-index2, Sub-index3, Sub-index4

Table 15: The regressions results of ROE, ROA and DPR on four sub-indices
In this Table, we report the regressions results of ROE, ROA and DPR on four sub-indices.
Variables consist of return on equity (ROE), return on assets (ROA) and dividend payout ratio
(DPR), the structure, components of the board of directors (Sub-index1), the rights of
shareholders (Sub-index2), the transparency in operations (Sub-index3), the responsibility of
the board (Sub-index4).
Predictors
Dependent variable
ROE
Coeff.
sig.
Dependent variable
ROA
Coeff.
sig.
Dependent variable
DPR
Coeff.
sig.
(Constant)
-.001
-.054
.957
.002
.430
.667
.509
8.655
.000
Sub-index1
.006
1.415
.159
-.005
-2.721
.007
-.043
-2.192
.030
Sub-index2
.022
4.534
.000
.006
2.922
.004
.061
2.910
.004
Sub-index3
.015
3.844
.000
.002
1.141
.255
.004
.233
.816
Sub-index4
.021
2.488
.014
.003
.884
.378
.034
.942
.347
Adjusted R
Square
.417
.114
.079

91

Table 16 to 17: The regressions with dummy variable (STAT)
The regression results are reported as follows:
In this Table, we conduct the analysis of variance. It shows that sig. values of ROE and ROA
as dependent variables in the model are extremely small (sig. = < 0.01 in two cases), thus the
models are appropriate. Linear relationships between dependent variables and independent
variables exist in our models which ROE and ROA are included as dependent variables.
ANOVA
Model
1
2
3
Dependent Variable
ROE
ROA
DPR
Sig.
59.749
4.685
2.963
.000b
.010b
.054b
Predictors: (Constant), VCGI, STAT1

Table 17: The regressions results of ROE, ROA and DPR on STAT1
In this Table, we report the regressions results of ROE, ROA and DPR on STAT1. Variables
consist of return on equity (ROE), return on assets (ROA) and dividend payout ratio (DPR),
the Vietnam Corporate Governance Index (VCGI), STAT1 which indicates FI is listed.
Predictors
Dependent variable
ROE
Coeff.
(Constant)
VCGI
STAT1
Adjusted R
Square
sig.
Dependent variable
ROA
Coeff.
sig.
Dependent variable
DPR
Coeff.
sig.
-.004
-.289
.773
.008
1.393
.166
.564
9.832
.000
.018
9.409
.000
.001
1.240
.217
.008
.976
.330
-.023
-1.757
.081
.007
1.354
.178
.063
1.086
.279
.413
.042
.023
92

List of Figures
Figure 1: The VCGI and its sub-indices from 2009 - 2011
Figure 2: Distribution of the VCGI
Figure 2 shows that the mean of the VCGI is 7.51 points (44.19%). The point 5 occurs most
frequently with 23 observations to be occurred. At the firm level, the highest score is 15 points
(88%). On the contrary, point 1 (6%) is the lowest score. The range between the highest and
the lowest score is 14 points.
93

Figure 3: The mean of ROE, ROA and DPR between listed and unlisted FIs
Figure 4: The linear relationship between the VCGI and ROE
The figure 4
shows that the
VCGI seems to
has a linear
relationship
with ROE.
94

Figure 5: the linear relationship between the VCGI and ROA
The figure 5
shows that the
VCGI seems
to has a linear
relationship
with ROA.
Figure 6: the linear relationship between the VCGI and DPR
The figure 6
shows that the
VCGI seems
to has a linear
relationship
with DPR.
95

Figure 7: ROE between listed and unlisted FI
Figure 8: ROA between listed and unlisted FI
96

Figure 9: DPR between listed and unlisted FI
Figure 7, 8, 9 show that green bold dots denoting listed FIs are mostly located on the right,
which indicates listed FIs have higher corporate governance scores. However, we have no
strongly statistical evidence to show that listed FIs perform better and pay more dividends to
shareholders given unchanged VCGI.
97

The VCGI in details
Table 18: The VCGI constructed for FIs in 2011
No
Contents
VCGI
Subindex1
1
Affirmative
percentage
48.74%
Yes
No
The structure, components of the Board of Directors
32.86%
Does firm have the board independent members?
51.79% 29/56 27/56

firm?
42.86% 24/56 32/56

directors?
33.93% 19/56 37/56
4
5
Subindex2
1
2

3.57%
2/56 54/56
32.14% 18/56 38/56
56.25%
67.86% 38/56 18/56
98

No
Contents
VCGI
Subindex1
1
Affirmative
Yes
Percentage
45.05%
No
24.64%
26.79% 15/56 41/56

firm?
39.29% 22/56 34/56

directors?
28.57% 16/56 40/56
4
5
Subindex2
1
2
3
4
Subindex3
1
2
3
4
5
Subindex4
1
2
3
3.57%
2/56 54/56
25.00% 14/56 42/56
52.23%

Does firm post any regulations or guidelines to organize
the General Assembly of Shareholders?
Does firm reserve for shareholders to vote efficiently in
the meeting? (E.g. information, time to access relevant
contents such as financial evaluation report, profit
distribution plan, the B.O.D remuneration, and
delegation etc.?
64.29% 36/56 20/56
Transparency in operations
52.14%
Do shareholders gain access to full information on firm

website?
Did the firm deliver or post quarterly and semi-annual
reports of the previous years on website?
promptly?
Does firm hire highly internationally recognized audit
company?
Did firm disclose any transactions related to the board
members, managers etc.?
The responsibility of the Board of Directors
23.21% 13/56 43/56
Is there any evidence that firm has a balanced board of

Directors?
members?
Are the board members of the firm totally non-executive
managers?
41.07% 23/56 33/56

73.21% 41/56 15/56
30.36% 17/56 39/56
48.21% 27/56 29/56

80.36% 45/56 11/56
80.36% 45/56 11/56
28.57% 16/56 40/56
51.19%
76.79% 43/56 13/56
57.14% 32/56 24/56
19.64% 11/56 45/56
99

No
Contents
VCGI
Subindex1
1
Affirmative
Yes
percentage
41.67%
No
20.71%
19.64% 11/56 45/56

firm?
46.43% 26/56 30/56

directors?
21.43% 12/56 44/56
4
5
Subindex2
1

3.57%
12.50%
2/56 54/56
7/56 49/56
53.13%
73.21% 41/56
100

List of Financial Institutions included in this study
No
Credit Institutions
Industry
Status
Habubank (HBB)
Bank
Listed
The Maritime Commercial Joint Stock Bank (MSB)
Bank
Unlisted
Sacombank (STB)
Bank
Listed
Dong A Commercial Joint Stock Bank (EAB)
Bank
Unlisted
Vietnam Commercial Joint Stock (Eximbank)
Bank
Listed
Nam A Commercial Joint Stock Bank
Bank
Unlisted
Asia Commercial Joint Stock Bank (ACB)
Bank
Listed
Saigon Bank for Industry & Trade (SIT)
Bank
Unlisted
Vietnam Prosperity Joint Stock Commercial Bank (VPBank)
Bank
Unlisted
10
Vietnam Technological and Commercial Joint Stock Bank

(Techcombank)
Bank
Unlisted
11
Military Commercial Joint Stock Bank (MBB)
Bank
Listed
12
Vietnam International Commercial Joint Stock Bank (VIB)
Bank
Unlisted
13
Southeast Asia Commercial Joint Stock Bank (Seabank)
Bank
Unlisted
14
Bac A Commercial Joint Stock Bank
Bank
Unlisted
15
Housing development Commercial Joint Stock Bank

(HDBank)
Bank
Unlisted
16
Southern Commercial Joint Stock Bank
Bank
Unlisted
17
Viet Capital Commercial Joint Stock Bank
Bank
Unlisted
18
Orient Commercial Joint Stock Bank (OCB)
Bank
Unlisted
19
Sai Gon Joint Stock Commercial Bank (SCB)
Bank
Unlisted
20
Viet A Commercial Joint Stock Bank
Bank
Unlisted
21
Saigon Hanoi Commercial Joint Stock Bank (SHB)
Bank
Listed
22
Global Petro Commercial Joint Stock Bank
Bank
Unlisted
23
An Binh Commercial Joint Stock Bank (ABBank)
Bank
Unlisted
24
Nam Viet Commercial Joint Stock Bank (NVB)
Bank
Listed
25
Kien Long Commercial Joint Stock Bank
Bank
Unlisted
26
Viet Nam Thuong Tin Commercial Joint Stock Bank
Bank
Unlisted
27
Ocean Commercial Joint Stock Bank
Bank
Unlisted
28
Petrolimex Group Commercial Joint Stock Bank
Bank
Unlisted
29
Western Rural Commercial Joint Stock Bank
Bank
Unlisted
101

30
Great Trust Joint Stock Commercial Bank
Bank
Unlisted
31
Great Asia Commercial Joint Stock Bank
Bank
Unlisted
32
Lien Viet Commercial Joint Stock Bank
Bank
Unlisted
33
Tien Phong Commercial Joint Stock Bank
Bank
Unlisted
34
Mekong Development Joint Stock Commercial Bank
Bank
Unlisted
35
Bao Viet Joint Stock Commercial Bank
Bank
Unlisted
36
Vietcombank (VCB)
Bank
Listed
37
Vietnam Joint Stock Commercial Bank for Industry and Trade Bank
(VietinBank)
Listed
38
Vinaconex-Viettel Finance Joint Stock Company
Finance
Unlisted
39
Vietnam Chemical Finance Joint stock Company
Finance
Unlisted
40
Handico Finance Joint Stock Company
Finance
Unlisted
41
Song Da Finance Joint Stock Company
Finance
Unlisted
42
Cement Finance Joint Stock Company
Finance
Unlisted
43
EVN Finance Joint Stock Company
Finance
Unlisted
44
Petrovietnam Financial Corporation (PVFC
Finance
Listed
45
Petrolimex Joint-Stock Insurance Company (PJICO)
Insurance Listed
46
BIDV Insurance Corporation
Insurance Listed
47
Bao Minh Insurance Corporation
Insurance Listed
48
PTI Insurance
Insurance Listed
49
Global Insurance Company
Insurance Unlisted
50
Nha Rong Insurance Corporation
Insurance Unlisted
51
Vien Dong Assurance Corporation
Insurance Unlisted
52
Military Insurance Joint Stock Corporation
Insurance Unlisted
53
Hung Vuong Assurance Corporation
Insurance Unlisted
54
Phu Hung Assurance Corporation
Insurance Unlisted
55
SHB VINACOMIN (SVIC)
Insurance Unlisted
56
Vietnam National Reinsurance Corporation (VNR)
Insurance Listed
57
Bao Viet Insurance
Insurance Listed
58
AAA Insurance Corporation
Insurance Unlisted
59
Petro Vietnam Insurance Corporation (PVI)
Insurance Listed
60
Vietnam Airline Insurance Corporation
Insurance Unlisted
Source: the SBV, MOF, HOSE, HNX.
102

Thinh, Nguyen Duc

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CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EVIDENCE

FROM FINANCIAL INSTITUTIONS IN VIETNAM

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

International University - Vietnam National University HCMC

CORPORATE GOVERNANCE AND FIRM PERFORMANCE: EVIDENCE FROM

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Corporate Governance Index

Dividend Payout Ratio

General Statistics Office

Hanoi Stock Exchange

Ho Chi Minh Stock Exchange

The Ministry of Finance

Organization for Economic Co-operation and Development

The State Bank of Vietnam

Status (Dummy variable)

Vietnam Corporate Governance Index

Ho Chi Minh City, September 2012

Problem statement ................................................................................................................ 5

Research objective ............................................................................................................... 9

Scope and limitation ............................................................................................................ 9

Implications of the study.................................................................................................... 11

Structure of the study ......................................................................................................... 12

CHAPTER TWO: LITERATURE REVIEW ............................................................................... 14

Corporate governance: a theoretical review ...................................................................... 14

Results of empirical research ............................................................................................. 17

CHAPTER THREE: RESEARCH METHODOLOGY .............................................................. 25

Data collection ................................................................................................................... 25

Research Methodology ...................................................................................................... 25

Model to measure and variables ........................................................................................ 29

Model to measure variables ........................................................................................ 29

Dependent variables ................................................................................................... 30

Independent variables ................................................................................................. 31

Company size (SIZE) .......................................................................................... 31

Company growth (GROW) ................................................................................. 32

Company leverage (LEVR) ................................................................................. 33

Business volatility (RISK) .................................................................................. 33

Capital intensity ratio (CAIR) ............................................................................. 34

Industry dummy variable (STAT) ....................................................................... 34

Variable definitions .................................................................................................... 35

Analysis process ......................................................................................................... 35

CHAPTER FOUR: DATA ANALYSIS AND FINDINGS ......................................................... 36

Descriptive statistics .......................................................................................................... 36

The VCGI ................................................................................................................... 36

The dependent variables and independent variables .................................................. 46

The correlation matrix of variables in the model ....................................................... 50

The VCGI ............................................................................................................ 52

Firm size (SIZE) .................................................................................................. 52

Financial leverage (LEVR) ................................................................................. 52

Total asset growth rate (GROW) ........................................................................ 53

Business volatility (RISK) .................................................................................. 53

Capital intensity ratio (CAIR) ............................................................................. 53

Industry dummy variable (STAT) ....................................................................... 54

The sub-indices correlation matrix ............................................................................. 54

The results of regression analysis ...................................................................................... 56

The association between the VCGI and ROE (Model 1) ........................................... 56

The relationship between the VCGI and ROA (Model 2) .......................................... 58

The relationship between the VCGI and DPR (Model 3) .......................................... 61

ROE, ROA and dividend payout regressions ............................................................. 64

Regression with dummy variable (STAT).................................................................. 67

CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS ......................................... 70

Corporate Governance and Firm Performance: Evidence from Financial Institutions