Why Corporate Gov Is Important in Viet Nam Specifically

BERLIN SCHOOL OF ECONOMICS AND LAW
Institute of Management Berlin (IMB)
Corporate Governance:
The Effects of Board Attributes
on Performance of Listed Firms in
Vietnam
ThaoThi Ho
Matr. No.: 360795
Masters Thesis
Submitted in partial fulfilment for the degree of
"Master of Arts"
Supervisors: Prof. Dr. Christina Schaefer

Dr. Myriam Hadnes
April 15, 2014

Acknowledgement
It is with immense gratitude that I acknowledge the academic guidance and helpful
materials of my supervisors, Professor Dr. Christina Schaefer and Dr. Myriam Hadnes. I
wish also to thank all the lecturers from Berlin School of Economics and Law, who came
to Vietnam and delivered the course in enthusiastic and professional manner.
I highly appreciate those who work at Ho Chi Minh Open University for their invaluable
help. I would like to thank Mr. Thanh Van Vu, who provided me with the background
techniques of quantitative analysis in his best dedication and efficient method. In addition,
during the course and the process of writing this paper, I am indebted to Thuy Mong Thi
Nguyen who supported me unconditionally. I am sincerely appreciative of encouragement
from Professor Dr. Ha Minh Nguyen and Tran Bao Thi Nguyen as well.
I am deeply grateful to Thuy Phan for suggesting me to write this topic and sharing his
experience and knowledge in this field. With special thanks to Dr. Duc Vo for his patience
in reading and giving best advice on this work.
My studywork would not be possible without unlimited love and sacrifice of my parents,
for which I can accomplish the master thesis.
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Abstract
Corporate governance affects financial performance of a firm. This relationship has been
documented in recent studies in several countries. However, such literature has been very
limited in Vietnam where the code of corporate governance was just put into practice few
years ago. Therefore, an investigation of whether corporate governance affects
performance of Vietnamese listed firms is worth conducting. This study focuses on
emphasizing the advantages of good corporate governance practice and exploring what
features of the board, the most important determinant of corporate governance, could
impact firm performance. Based on a panel data for 156 manufacturing companies trading
on the HNX and the HOSE from 2009 to 2012, the obtained result shows that boards of
smaller size and with higher proportion of female directors are associated with better
financial performance. Meanwhile, CEO duality makes no difference in this regard.
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Table of Contents
Chapter 1: Introduction ................................................................................................................1
1.1 Background...................................................................................................1
1.2 Research Problem.........................................................................................2
1.3 Objective and Outline ...................................................................................2
1.4 Corporate Governance .................................................................................3
1.4.1 Definitions of Corporate Governance ..........................................................3
1.4.2 Systems of Corporate Governance ...............................................................4
1.4.3 Principles of Corporate Governance............................................................5
1.4.3.1 The OECD Principles of Corporate Governance ........................................5
1.4.3.2 The Vietnamese Principles of Corporate Governance ...............................6
1.4.4 Benefits of Corporate Governance ...............................................................6
1.5 Board of Directors ........................................................................................7
1.5.1 Board Structure ............................................................................................7
1.5.2 The role of Board ..........................................................................................8
Chapter 2: Literature review ......................................................................................................11
2.1 Theoretical Perspectives.............................................................................11
2.1.1 Agency Theory ............................................................................................11
2.1.2 Stewardship Theory ....................................................................................13
2.1.3 Stakeholder Theory .....................................................................................14
2.1.4 Resource Dependency Theory ....................................................................15
2.2 Board Attributes and Firm Performance ....................................................16
2.2.1 Board size ...................................................................................................16
2.2.1.1 Prior Studies Finding Positive Relationship ..............................................16
2.2.1.2 Prior Studies Finding Negative or No Relationship ...................................18
2.2.2 CEO duality ................................................................................................19
2.2.3 Women on Board ........................................................................................22
Chapter 3: Hypotheses development .........................................................................................26
3.1 Board size ...................................................................................................26
3.2 CEO duality ................................................................................................27
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3.3 Women on Board ........................................................................................28
Chapter 4: Data and model specification ...................................................................................31
4.1 Data collection ...........................................................................................31
4.2 Measurement of Variables ..........................................................................31
4.2.1 Dependent variables ...................................................................................31
4.2.2 Independent variables.................................................................................31
4.2.3 Control variables ........................................................................................32
4.3 Model specification.....................................................................................33
Chapter 5: Empirical Results .....................................................................................................35
5.1 Descriptive Statistics ..................................................................................35
5.2 Correlations among explanatory variables ................................................35
5.3 Regression Results ......................................................................................36
5.3.1 Testing for selection of model .....................................................................36
5.3.1.1 The Hausman test for the random effects versus the fixed effect model .....36
5.3.1.2 Testing for random effects ..........................................................................37
5.3.1.3 Testing for Fixed effects..............................................................................37
5.3.2 Testing for violation on panel error assumptions .......................................37
5.3.2.1 Testing for heteroscedasticity .....................................................................37
5.3.2.2 Testing for serial correlation ......................................................................38
5.3.2.3 Testing for cross-sectional dependence ......................................................38
5.3.3 Fitting panel data linear models.................................................................39
Chapter 6: Conclusion ...............................................................................................................42
6.1 Conclusion and discussion .........................................................................42
6.2 Limitation and recommendation .................................................................45
References .................................................................................................................................46
Appendix ...................................................................................................................................61
Table 5.1: Descriptive statistics for the variables ...........................................................61
Table 5.2: The Pairwise correlation matrix among predictor variables.........................62
Table 5.3: The results from some tests on panel error assumptions ...............................63
Table 5.4: Regression results from RE, FGLS, and PCSE methods (Dependent
variable: ROA) ...............................................................................................64
Table 5.5: Regression results from RE, FGLS, and PCSE methods (Dependent
variable: ROE) ...............................................................................................65
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List of Figures
Figure 1.1: The Corporate Governance System .................................................................4
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Abbreviations
Board Board of Directors
CEO Chief Executive Officer
CIEM The Central Institute for Economic Management

COB Chairman of the Board of Directors
FDI Foreign Direct Investment
GMS General Meeting of Shareholders

HNX Ha Noi Stock Exchange
HOSE Ho Chi Minh Stock Exchange
IFC International Finance Corporation
OECD Organization for Economic Cooperation and Development
ROA Return on Assets
ROE Return on Equity

S & P 500 Standard & Poor's 500 Stock Index
SOEs State-Owned Enterprises
U.S. United States
WTO World Trade Organization
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Chapter 1: Introduction
1.1 Background
Good corporate governance is beneficial not only for the economic health of the company
but also for the national economy. Therefore, it is essential to promote good governance
and continuously improve its quality over time. Specifically, the quality of corporate
governance primarily depends on the process of decision making, the internal corporate
structure, and the key people who are together to make up a qualified board of directors
(Argden, 2010). According to Ferreira (2010), board is the most powerful decision
making body, which plays a central role in governing the company (Menozzi et al., 2010).
While Pudjiastuti and Mardiyah (2007) view the board as the heart of the company, the
Cabury (1992, cited in Garg, 2007) considers the board as the bridge between the managers
and the shareholders.
The importance of the board for the success of a corporation has been increasingly
recognized internationally, and the corporate governance practice has been adopted in
several countries (Bathula, 2008). This tendency is in response to several financial scandals
and corporation collapses that took placed around the World (Indreswari, 2006; the IFC,
2010). According to the World Bank (2006), good corporate governance practice enhances
a firms performance, reduces the costs of capital, adds values to firm, and improves the
control of risk, which ultimately lead to sustainable growth for companies and contribute to
healthy economic development for the country.
Contemporarily, there has been a variety of research on the relationship between

corporate governance and firm performance. Nevertheless, the empirical results were
inconclusive. Some studies found that good corporate governance would improve company
performance, some others proved the inverse relationship between them, and some studies
even failed to find any significant link between these factors (Ghabayen, 2012). With
respect to these divergent results, Ranjbar (2009) argued that it stems from the specifically
national culture. What is proved the best in one country may not occur in exactly the same
manner in the others. Therefore, Vietnam should implement more examinations to evaluate
the effects of corporate governance on firm performance because such exploration has
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been very rare so far. Since board of directors is the important internal corporate
governance mechanism (Arntz, 2010; Garg, 2007; Radlach and Schlemmbach, 2008; Wu,
2009), it is necessary to examine what characteristics of the board could have to constitute
an effective team in steering their firm toward enhancing performance.
1.2 Research Problem
The Vietnamese code of corporate governance was adopted only a few years ago. That is
why the term corporate governance has been still new to the business community (the
IFC, 2010; Truong, 2013). Hence, the awareness of its value has been limited. In addition,
the legal and regulatory framework of corporate governance has been in the first stage of
development (the IFC, 2010; Minh and Walker, 2008; the World Bank, 2006). To date,
there have been a handful of studies on corporate governance which mainly review in
legislative framework and current practices. Their findings revealed that some research
issues are still unsolved (Cung, 2008; Hai and Nunoi, 2008; Minh and Walker, 2008; the
IFC, 2010; the World Bank, 2006).
With regard to the investigation into the correlation between board characteristics
and firm performance, Duc and Thuy (2013) claimed that there were very few empirical
studies on this kind, and their research conducted in 2013 was the first one in Vietnam.
Interestingly, their study presented a significant relationship between various attributes of
the board of directors and firm performance. Together with their study, the examinations of
the IFC in 2010, 2011, and 2012 also found the links between firm performance and
corporate governance scorecard. From these reasons, the current study is motivated to
explore if there is any connection between firm profitability (ROA, ROE) and board
attributes, e.g. board size, women on board, and the CEO duality.
Based on the sample of the manufacturing companies listed from 2009 to 2012, this
dissertation aims to provide more empirical evidence either for supporting the previous
findings or for contributing to the currently limited literature of such a topic in Vietnam.
Also, the benefits of corporate governance practice are highlighted to draw more attention
to relevant audiences. Finally, there may be an optimal board model with specific features
which are found to pertain to good performance of listed firms in Vietnam.
1.3 Objective and Outline
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This paper aims to examine the effects of board attributes on performance of Vietnamese
listed firms with a particular emphasis on the role of board and the advantages of
adherence to good corporate governance.
The dissertation is organized into six chapters. Chapter 1 provides key concepts,
benefits and regulations relevant to corporate governance as well as the structure and the
role of board. Theories and literature of corporate governance, board characteristics and
company performance are reviewed in chapter 2. Chapter 3 provides rationales in relation
to board attributes for formulating research hypotheses. Chapter 4 describes the data and
model specification. The applied methods and empirical findings are presented in chapter
5. The conclusion and discussion of the current study as well as the recommendation for
future research are given in the final section, chapter 6.
1.4 Corporate Governance
1.4.1 Definitions of Corporate Governance
There are different definitions of corporate governance. Which one can be applied depends
on the contexts or the jurisdictions (the IFC, 2010). The followings are some ideas of the
best known authors.
According to Shleifer and Vishny (1997, p. 737), Corporate governance deals with
the ways in which suppliers of finance to corporations assure themselves of getting a
return on their investment.
Under the viewpoint of the Cadbury (1992, p.14), Corporate governance is the system by
which companies are directed and controlled.
Among perspectives of this concept, the OECDs definition is more detailed (the
IFC, 2010). Corporate governance involves a set of relationships between a companys
management, its board, its shareholders and other stakeholders. Corporate governance
also provides the structure through which the objectives of the company are set, and the
means of attaining those objectives and monitoring performance are determined.(the
OECD, 2004a, p. 11).
In summary, the concept of corporate governance derived from different point of

views. Ultimately, corporate governance is a control system which helps firms to achieve
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their objectives, to hinder the misuse of the corporate assets, as well as to protect and align
the benefits of the owners with all stakeholders. It also complies with the local laws and
regulations as well as conforms to international business for long term growth.
1.4.2 Systems of Corporate Governance
According to the IFC 2010, the corporate governance system comprises of governing
bodies, functions, and relationships (See figure 1.1). The basic system of corporate
governance includes three main components, namely the General Meeting of Shareholders,
the Board of Directors, and the Executive Board. These parties have their function in
accordance with the direction and the organization of the company. For example, (i) the
General Shareholder Meeting is the highest decision making body; (ii) the Board of
Directors is held responsibility for monitoring management decision; giving strategic
guidance; and (iii) the executives are responsible for firm operations.
Figure 1.1: The Corporate Governance System

Figure 1.1: The Corporate Governance System
Shareholders (The Genaral Meeting of Shareholders)
Elect and Dismiss Represent and Report to
Report Transparently
Provide Capital
Directors (The Board of Directors)
Elect, Dismiss, Guide and Oversee Report and Answer to
Managers (The Executive Board)
Source: The IFC (2010)
This system sets out the relationships between the parties. For instance, the
shareholders provide the executives with their capital to earn returns on their investment
and transparent reports. They also elect the board of directors to control firm on their
behalf or to fire them in certain circumstances. As for the board of directors, it has the right
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of selecting the managers, guiding and monitoring their managerial operations. Moreover,
the board of directors can remove the managers in necessary cases (the IFC, 2010).
In practice, this system reveals that conflicts of interest may arise between parties
in the operational process of a firm. Typically, the conflict between the shareholders and
the managers sets in the so-called agency problem. Besides, there are potentially
contradictory benefits between the majority and the minority shareholders, between the
executive directors and the non - executive directors. These issues need to recognize
carefully and address efficiently, especially the benefits between individuals and groups
should be aligned (the IFC, 2010).
Corporate governance system also takes into consideration the external

stakeholders who have a direct or indirect interest in a company. These parties mainly
encompass the investors, the creditors, the customers, the suppliers, the local government,
the regulatory agencies, the community, and the environment (the IFC, 2010).
1.4.3 Principles of Corporate Governance
1.4.3.1 The OECD Principles of Corporate Governance
Basically, the corporate governance framework should build on the following key areas:
(i) The Rights of Shareholders and Key Ownership Function; (ii) The Equitable
Treatment of Shareholder; (iii) The Role of Stakeholders in Corporate Governance; (iv)
Disclosure and Transparency; and (v) The Responsibilities of the Board (the OECD,
2004a).
In order to carry out good corporate governance practice, companies should build the
efficient mechanisms based on the rights and benefits of shareholders and other
stakeholders. Fairness and honest are the governance standards to serve all related parties.
Transparency is the critical regulation. This requires that all materials with regard to
financial transactions and results, ownership structure, company governance and
performance should be provided and published sufficiently, accurately, and timely. The
last corporate governance principle is the effectiveness of board regarding its
responsibilities for the oversight of the management operations as well as masterminding
the strategic objectives for the company (the OECD, 2004a).
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1.4.3.2 The Vietnamese Principles of Corporate Governance
The Vietnamese corporate governance regulations are mandatory for listed companies.
Most of the principles are based upon the OECD basis and in accordance with Vietnam
conditions (Minh and Walker, 2008). The corporate governance rules emphasize the
fairness, and the responsibility in managing the assets of and allocating the interests to the
shareholders and relevant parties. Besides, they build the norms of profession and morality
for the corporate leaders. These principles are also the standards for the evaluation of
corporate governance compliance (the IFC, 2010).
On the basis, the core principles encompass (i) Internal governance structures of a
listed company; (ii) Rights of shareholders; (iii) Conflict interest and related party
transaction; (iv and Information disclosure and transparency (Minh and Walker, 2008,
p.14).
1.4.4 Benefits of Corporate Governance
According to the IFC (2010), good corporate governance could bring abundant benefits at
the company as well as the national level. In the contemporary business environment,
companies that represent sound public image will gain more competition in doing business.
Ones believe that implementation of sound corporate governance would result in
reputation, prestige and valuation of firm.
Companies that adhere to best corporate governance tend to improve internal

governance system. Well governed firms could stimulate the improvement and the
efficiency in their operational procedure. The exploitation and the opportunism may be
weaken or absent with the robust presence of corporate governance practice. Additionally,
the internal structure and the corporate policies will initiate incentives for individuals to
function at their best ability. The internal control, the decision making process, and the
communication process are likely to improve in a proper governance system (the IFC,
2010). Corporate governance establishes internal management system under which
managerial behaviors can be monitored and the shareholders benefits can be protected.
Through building external relationships, corporate governance can acquire needed
resources for stable growth. Therefore, good corporate governance is viewed as a possible
instrument to improve corporate values (Ghabayen, 2012).
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According to Imam and Malik (2007), there has been a tendency in considering
corporate governance practice as a key standard of investment decision making. As such,
best corporate governance implementation enables companies to create belief in investors
and boost international as well as domestic investment. Corporate governance framework
is built on the core valuation of transparency and disclosure, for which ones can assess and
understand performance of firms. Consequently, companies that apply high standard of
corporate governance can maintain financial supply and facilitate to receive lower
borrowing costs. This could help firms to minimize financial risks and avert market
uncertainty (IFC, 2010).
For developing countries, corporate governance has a significant role in raising FDI
flow (Oman, 2001). Gonzalez and Mendoza (2002) demonstrate that good governance
promotes economic growth for some Southeast Asian countries. Their survey shows that
sound corporate governance practice and economic growth moves the same direction.
Good corporate governance can improve economic value added for enterprises and reduce
instability for a developing financial market. In terms of national economy of the emerging
countries, corporate governance can enhance productivity and alleviate sytemetic risks,
which contribute to sustainably economic growth (the World Bank, 2006).
1.5 Board of Directors
1.5.1 Board Structure
There are two primary models of corporate governance with respect to the board of
directors, the one tier board structure and the two tier board structure (Radlach and
Schlemmbach, 2008). The one tier board structure or also referred to the Anglo - Saxon
model, which is prevailingly applied in the United States and the United Kingdom. In this
system, the board is structured as a unitary unit which is in charge of both supervisory and
managerial functions. As such, board composition is composed of the executives and the
non-executives. Besides, the chairman of the board of directors is also the chief executive
officer. This regime aims at concentration of power for unanimous and rapid decisions
(Arntz, 2010). According to Indreswari (2006), the Anglo - American model is market
oriented which focuses on the interests of shareholders.
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The two tier board structure is best known as the Continental - European model, in
which the supervisory board is separate from the management body (Arntz, 2010). This
model allows the chairman of the supervisory board is independent of the chief executive
officer of the management team. The purpose is to increase the independence in overseeing
the top executives. On the basis, the Continental - European model is network oriented
or bank based, which implies the key role of bank in the system. The model orientation
emphasizes the benefits of all stakeholders (Indreswari, 2006).
According to the IFC (2012), Vietnam adopts the two tier system which consists of
the board of directors and the supervisory board. The model, in principle, is designed to
assure the impartiality and independence of the supervisors in examining the performance
of the board of directors. In practice, the members of the supervisory board are selected by
the board of directors instead of the GMS. Therefore, the capability of the supervisors and
the intrinsic manner of unbiased supervision has remained big issues in the system (Cung,
2008). Minh and Walker (2008) claim that the supervisory body in a firm is established
just because of the legal requirement. Cung (2008) expresses his concern about the current
structure of board in Vietnamese listed companies. This model may weaken the oversight
of the supervisory mechanism, leading to potential abuse of the board members and the
executives.
1.5.2 The role of Board
The board of directors is considered as the supreme management unit in a firm (Francis et
al., 2012; Immaculate, 2010). When everything goes smoothly and the company works
well, the boards roles may be unobserved. However, if something appears
disadvantageous for the company, the roles of board become apparently essential and draw
much attention from people (the IFC, 2010). According to the OECD (2004a), board has
responsibilities for devising strategic development, controlling the corporate management,
and ensuring the fair treatment for the shareholders.
A board of directors is the mastermind of all organizations (Javed et al., 2013). This
body is held responsible for protecting and maximizing the wealth of the shareholders
(Fama and Jensen, 1983; Hermalin, and Weisbach, 2003; Immaculate, 2010). Also, board
takes the important roles in overseeing the top executives and evaluating their management
8
effectiveness (Immaculate, 2010). Board acts on behalf and for the interests of the
shareholders with the key function of mitigating the agency problem (Fauzi and Locke,
2012; Wu, 2009).
In Vietnam, the board of directors appears to be very powerful. It takes the real,
great, major responsibilities covering almost operations of the company. The rights and
obligations of board can be classified into five groups, including (i) setting; controlling and
overseeing the implementation of the corporate strategies and plans; (ii) establishing the
system of internal regulations and selecting the key managers; (iii) determining the policies
of share, dividend, and other investment; (iv) facilitating the exercise of the rights of
shareholders; and (v) overseeing the process of disclosure, transparency and
communication (Cung, 2008).
The corporate governance framework is established to ensure that board must

follows the laws and other relevant standards. Also, board performs consistently for the fair
benefits of all parties concerning the company. Therefore, the success or failure of a firm
depends mostly on how the board carries out its tasks. Ultimately, this body is accountable
to the shareholders for the firm performance (Minh and Walker, 2008).
According to the IFC (2010), board is viewed as the key instrument of the internal
corporate governance system. On the one hand, board is expected to keep the interests of the
company and the rights of shareholders from detrimental. On the other hand, board
supervises the CEO and reviews the financial outcomes and situations. In general, board in
listed firms deals with all the matters which are outside the authorities of the GMS. In order
to put corporate governance into practice, the most decisive factor is to have a capable,
expert, and independent board. The board of directors can perform optimally if it is
independent. Nevertheless, in Vietnam, the majority shareholders usually overpower the
voting rights and win in the election at the GMS. Consequently, they hold a great number of
seats on the board of directors and also on the executive board concurrently. In addition, the
Chairman could be also the CEO. This matter results in the dominance of the chairman and
other directors on board, making board less independent. Besides, the members of the board
of directors are often lack of industry professional skill and experience. So, they are likely
to think as a habit of doing what are favorable to their purposes. Moreover, they do not
9
perform their roles actively but often wait for the allocation of tasks from the board (Cung,
2008).
In reality, board tends to focus on daily business activities instead of long - term
strategies (Cung, 2008; Minh and Walker, 2008; the IFC, 2010). This mode is contrary to
the corporate governance principles of the OECD (2004b), which emphasize the role of
board in focusing on the strategic guidance and the internal control rather than day - to - day
operations of the corporation. In such a context, ones expect the supervisory board with a
powerful authority to restrain the board of directors. However, there are some criticisms of
the ability and the incentives of the supervisors in playing their role. Legislatively, the
members of the supervisory board are elected by the GMS. Nevertheless, in practice, they
seem to be assigned by the Board of Directors (Cung, 2008) who are the majority
shareholders and dominate the voting right in the nomination process (the World Bank,
2006).
Further, the supervisors conduct their supervisory duty as the part - time job.
Commonly, they are the employees of the company and their qualification is lower than the
members of the Board of Directors. Consequently, the supervisory mechanism has been
ineffective. The existence of the supervisory boards in Vietnamese listed firms are
considered as formalistic and are compared with the counterparts in China, which are
described as inviting guests, friendly consultant, and grasped supervisor. From the
legal and regulatory perspective, there have existed the gaps that leave room for the boards
discretion. In reality, the abuse has occurred frequently in the priority of new shares, which
just issued to the board members and some employees or in the engagement of related
transactions. In brief, the board of directors does not perform the strategic role as expected.
Also, they failed to hold the balance between the managers and the shareholders. Addition
to the lack of expertise as well as the long term vision, the habit of working and currently
organizational structure may result in (i) limitation of corporate strategy with respect to
lasting efficiency and stability and (ii) fragile networks of supplies and demands between
corporations (Cung, 2008).
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Chapter 2: Literature review
2.1 Theoretical Perspectives
According to Fauzi and Locke (2012), the theoretical perspectives that commonly used in
studying corporate governance are: (i) agency, (ii) stewardship, (iii) resource dependence,
and (iv) stakeholders. Each of these theories will be discussed briefly in turn below.
2.1.1 Agency Theory
Agency problem stems from the separation of ownership and control in modern businesses
of which stocks are dispersedly held (Fama and Jensen, 1983; Jensen and Meckling, 1976).
In order to expand business, firms need to raise capital. One common and cheap way is to
go public for accessing to financial resources. This leads firms to have more owners.
Usually, the shareholders do not manage the firms due to the diffused ownership and the
professional background. Typically, the managers (or the agents) are employed to run the
company through a contract with the owners (also referred to as the principals).
Theoretically, such contracts cover stipulations of what the agents must do (Shakir, 1997).
However, whether the agents completely perform their duty as if they would be the owners
of that firm is the main concern. Since ones could not predict all situations in the future, the
contingencies might arise and result in an imperfect contract which is technologically
infeasible in reality. Consequently, the agents have more room to do what are not specified
in the contract at their proposal. With considerably residual rights, the managers could
allocate funds discretionarily (Shleifer and Vishny, 1997). This issue is described very
vividly by Jensen and Meckling (1976, p. 5) an agency relationship as a contract under
which one or more persons (the principal(s)) engage another person (the agent) to perform
some service on their behalf which involves delegating some decision making authority to
the agent. If both parties to the relationship are utility maximizers, there is good reason to
believe that the agent will not always act in the best interests of the principal.
When the investors sink their money in companies with a hope of gaining returns,
what they have from this affair is only a piece of paper. So, how they can know that
their welfare is used in the right ways by the right people (Shleifer and Vishny, 1997). This
topic is first discussed in the work of Adam Smith (1776, p.700) entitled The wealth of
11
Nations. The author argues that The directors of [joint stock] companies, however, being
the managers rather of other peoples money than of their won, it cannot well be expected,
that they should watch over it with the same anxious vigilance [as owners] Negligence
and profusion, therefore, must always prevail, more or less, in the management of the
affairs of such a company (cited in Hermalin and Weisbach, 2000, p. 8).
Another aspect of the contractual relationship is the adverse selection. Before

entering into a contract, the principals cannot determine exactly the capability of the
agents. Therefore, the agents may misrepresent their true information. The principals hire
the agents via the agent labor market. In case of low qualified agents, the principals get the
lemons as mentioned in Akerlof (1970). According to Chen (2012), the principals face
with the impediment in preparing the contract because of the unrevealed information from
the side of the agents. Therefore, adverse selection is unavoidable in the real world as an
inherent issue of corporate governance. Besides, moral hazard occurs when the contract is
carried into effect. In fact, the agents have more understandings of the firm over the
principals. This situation is described as asymmetric information. Along with that, the
divergent incentives between the principals and the agents induce the latter to pursue their
own goals at the formers costs. It is difficult for the principals to observe such actions
because the firm performance is affected by several factors (Jensen and Meckling, 1976).
When the agents seek to pursue their own interest, expenditures that involve in such
transactions are considered as agency cost which affects the shareholders interest (Jensen
and Meckling, 1976; Fama and Jensen 1983).
Regarding agency problem solving, Fama and Jensen (1983) suggest that decision
management should be separated from decision control. Moreover, the oversight of
managerial actions could mitigate agency problem. This mission is given to the board of
directors (Donaldson and Davis, 1991). At this point, the board members are selected by
the shareholders to function as the monitors who ensure that the agents always respect and
maximize the assets of the principals. Jensen and Meckling (1976) point out that agency
problem, whatever ways it can be solved, will ultimately end in expenses of firm. The
challenge to alleviate agency conflict between the principals and the agents at the
minimum costs accounts for the need of corporate governance and the important role of
board.
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According to Rogers et al. (2007), in the countries that are characterized as high
concentrated ownership and underdeveloped stock market, corporate governance problem
mainly comes under the conflict between the majority and the minority shareholders. Thus,
the agency conflict between the principals and the agents as described by Fama and Jensen
(1983) may not be as typical as that between the minority shareholders and the majority-
controlling stockholders (Berglf and Claessens, 2004; Villalongga and Amit, 2006).
Supporting this view, Claessens and Fan (2003, p6) posit that When ownership is
concentrated to a degree that one owner has effective control of the firm, as is typically the
case in Asia, the nature of the agency problem shifts away from manager-shareholder
conflicts to conflicts between the controlling owner (who is often also the manager) and
minority shareholders.
2.1.2 Stewardship Theory
Contrary to the agency theory, the steward perspective views human beings are honest and
can be reliable trustees. As such, there is no concern about the agents because they can
serve the companies as good as possible. They try their utmost to maximize the welfare of
the principals and enhance the value of the companies. Thus, the managers are the good
stewards whose motives are far from the exploitative shirkers. They just want to perform
well (Donaldson and Davis, 1991). The point of this argument is that the managers
perceive that their own interests are aligned with those of their owners and the goals of
firm. Thus, the executives benefits are closely ties to their performance and firm outcome.
By working towards enhancing value for firm, they will in turn receive higher benefits than
the utility that they could gain by pursuing their own objectives (Davis et al., 1997).
Beside wages, other non-financial factors also stimulate managers to improve their
performance and maximize the firm value. The recognition of talent and devotion from the
owners as well as the coworkers can boost the managers ego. Furthermore, the sense of
satisfaction, achievement and challenge are personal aspirations. When they have served
long time and incorporate their personal values into the company, the prestige of
individuals and organization will become one. In addition, the perception of hard work
today for future prosperity encourages managers to act as stewards even though they hold
no firm shares (Davis and Donaldson, 1991).
13
2.1.3 Stakeholder Theory
Freeman (2004, p. 229) defines stakeholder as any group or individual that can affect or
is affected by the achievement of a corporations purpose. This viewpoint implies that the
stakeholders are significantly linked to the firms goals. According to Argden (2010),
every corporation needs resources to sustain and create value. As such, the stakeholders
play an important role in supplying capital for firm. These outside suppliers are the
decisive factors for the success of firms. Their contributions in both physical and human
capital help firms to get profits and competitiveness. Therefore, companies should
acknowledge the valuable provisions of the stakeholders and promote their embedding in
long time (the IFC, 2010).
Given the importance of the stakeholders, Jensen (2001, abstract) asserts A firm
cannot maximize value if it ignores the interest of its stake holders. The reason is
stakeholders are about the business, and the business is about the stakeholders.
Therefore, Stakeholder interests need to be balanced over time (Freeman (2004, p.231).
According to Pfeffer and Salancik (1978), there are various groups and organizations in
regard to an organizations activities. How well to serve them is an external standard for
identifying the organizational effectiveness.
Imam and Malik (2007) argue that paying attention to outside stakeholders is the
ethical standard for sound corporate governance practice. Corporate governance assures the
major resources to be utilized efficiently and allocated properly. In doing so, corporate
governance mechanisms, on the one hand, have to attain the strategic objectives of
corporation and on the other hand, align the interests of the owners with those of other
stakeholders. In essence, the value creation for the enterprise should be connected closely
to those of the stakeholders. Thus, the business is an arrangement to reach the satisfaction
of various stakeholders: suppliers, customers, employees, communities, managers and
shareholders in long-term (Freeman et al., 2004).
The Stakeholder perspective underscores the role of board in serving diverse

stakeholders. Through the corporate governance systems, board should take into account
the demands and expectations of all constituencies concerned (Radlach and Schlemmbach,
2008). Board has responsibility to balance benefits of all players in a company. For
14
sustainable growth, moral behaviors, economic objectives and governance strategy should
not be separated. The board should identify the crucial capitals, viz., finance, technology,
society, environment, and human in establishing the long-term corporate strategies.
Furthermore, the impacts of companys operations on surroundings such as community,
environment, and society have to include in the reports for the stakeholders (Argden,
2010).
2.1.4 Resource Dependency Theory
Resource dependence theory is developed by Pfeffer and Salanciks (1978). Over decades,
their work has been applied greatly in the studies on the board of directors. This
perspective defines the organizational actions in response to the interdependencies and
contingencies in the business world. In essence, the competency of the board membership
with regard to resource service is the main topic of resource dependence view (Hillman et
al., 2009).
Given the philosophical underpinnings of resource dependency theory, Pfeffer and

Salancik (1978) discuss that the existence of an organization mainly depends on how it can
obtain and maintain the vital resources. In reality, no company can absolutely operate
independently but must inevitably link to other entities in the business environment. Thus,
they are mutually dependent for importing several needed resources. To survive and
sustain, companies must have interactions with surroundings for their supplies, their sales,
etc. The cooperation between organizations helps them to establish the networks in
controlling their external environment, reducing the instability, and improving their
performance. Such interactions can be attainable by the connections of the corporate
boards.
The resource dependence role of board is, on the one hand, providing personal
human capital, and on the other hand, creating the linkages of external resources. Firstly,
board members possess qualification and experience to initiate and formulate strategic
direction as well as to give administrative counsel. Board members with individuals
expertise and relational capital can strengthen board effectiveness. Board also pools the
standing and legitimacy which improves firm performance. Moreover, board serves as the
bridge of information between its corporation and other organizations. As a channel of
15
communication, board facilitates the firm to gain timely access to valuable information
which helps to moderate the transaction costs of vulnerability from environment. Lastly,
board procures resources from outside by connecting to influential individuals and
important organizations in the network system (Hillman and Dalziel, 2003). According to
Alvarado et al. (2011), with the knowledge of individual directors, board not only plays the
role of information and resource provider, but also functions as the cushion to mitigate
the possible influences of environment.
Resource dependence perspective is also a useful ground for evaluating how

effectively board could fulfill its strategic role. The board of directors is subject to the
assessment of building external relationships for the acquirement of beneficial resources.
Thus, the fulfillment of this fundamental objective is an important dimension of the
boards efficiency (Brown, 2005).
2.2 Board Attributes and Firm Performance
There are several features in relation to the board of directors. This research selects three
proxies of board, including (i) board size, (ii) CEO duality and (iii) gender diversity to
investigate their impacts on company performance.
2.2.1 Board size
Numerous studies on board size and firm performance have been carried out around the
world. The results are varied due to different factors relevant to each specific case.
2.2.1.1 Prior Studies Finding Positive Relationship
Yusoff and Alhaji (2012) investigate the relationship between corporate governance and
firm performance of 813 listed companies in Malaysia from 2009 to 2011. They
demonstrate that board size significantly influences performance in relation to firm earning
per share and return on equity (ROE).
Fauzi and Locke (2012) employ a dataset of 79 New Zealand listed firms to examine
whether board composition and ownership structures have impact on firm performance.
They find that large boards can improve firm performance because more members in the
boardroom lead to the increase in quality and frequency of overseeing management
16
activities. This results in lessening managerial entrenchment, thus improve firm
performance.
Anderson et al. (2003) conduct a study on a sample of S&P 500 firms and
document that board size is negatively associated with the cost of debt financing, for
example when the former added one member, then the latter declined 10 basis point. They
rationale that the oversight of financial reporting will be improved as board has a greater
members.
Babatunde and Olaniran (2009) conduct a study of 62 companies quoted on the

Nigerian Stock Exchange between 2002 and 2006. Their findings reveal that for the
Nigerian environment, board size has a strong association with better firm value (Tobin
Q) because more numbers on board may produce a larger range of knowledge which is
helpful for decision making.
Tsifora and Eleftheriadou (2007) perform an empirical test to identify the effects of
corporate governance principles on performance for publicly traded manufacturing firms in
Greek over the period 2002 - 2004. The findings indicate that corporate governance has a
closely connection to performance of companies. Particularly, firms that implement the
corporate governance practice have high profitable ratios. Moreover, the expanding board
size is associated with better performance.
In the analysis of 208 Brazilian publicly firms which are listed on Bovespa for the
year 2008, Gondrige et al. (2012) present a positive relationship between board size and
firm value. They document that most valued firms are likely to have a large board.
The research of Marn and Romuald (2012) is based on the sample of 20 Malaysian
public companies. Their purpose is to examine the association between corporate
governance and corporation performance measured by earning per share. The data is
collected cover 5 years, spanning from 2006 to 2010. Their study find that board size is
positive associated with company performance.
Using the sample of 62 Romanian firms listed on the Bucharest Stock Exchange for
the year 2010, Moscu (2013) explores that the increase in board size leads to the
improvement of the company profitability. Also, expanding the size of board increases
information as well as diversity in companies.
17
In Vietnam, the study of the IFC (2012) presents evidence of correlation between
board size and best corporate governance scores in top companies. The explanation may be
the larger firms are likely to obtain higher governance scores and have more complex
problems to solve. Therefore, they also need greater board members.
2.2.1.2 Prior Studies Finding Negative or No Relationship
In the analysis of 821 listed companies on the First Section of Tokyo Stock Exchange,
Bebenroth and Donghao (2006) discover that board size is not related with market
performance (Tobins Q) of Japanese manufacturing firms.
Ghabayen (2012) proves that board size has no effect on performance (ROA) of 102
non-financial listed companies in Saudi Arabia for the year 2011.
In Canada, board size is found to negatively impact on profitability of the service

corporations. The result is based on an analysis of 75 Public companies of which data were
obtained randomly on the Toronto Stock Exchange during 2008-2010 (Gill and Mathur,
2011).
Ramezani et al. (2013) explore the relationship between board size and market
value of companies in Iran. To accomplish the work, the researchers use 140 Iranian listed
companies from 2006 to 2010 as a statistical sample. They find that board size has no
significant effect on market value.
Board size has no connection to firm performance which measures by ROA and
ROE. These results are found in the study of 28 Sri Lankan manufacturing companies for
the period from 2007 2011 (Velnampy, 2013).
The study of Ness et al. (2010) confirms that board size has a negatively correlation
to the debt to asset ratio. It contributes to the literature that larger boards may face with
vacillation due to various ideas, hence effecting debt-funded projects.
Garg (2007) finds that board size is negatively related to firm performance, the
higher members in board, the lower effective it performs. He also suggests that the board
of six members is an optimal size and board size should be small for all members
contribute their ideas and come to a consensus. He points out that the firms are likely to
add more board members in case of underperforming, leading to poorer performance.
18
Samuel (2013) investigates the effects of the larger board size on financial
performance of Nigerian corporations. In this study, the author employs a dataset of 50
companies listed on the Nigerian Stock Exchange during 2001-2010. He finds that there is
a negative connection between the size of board and the firm value. The larger board size
deteriorates financial performance and corporate governance as well.
In Vietnam, Duc and Thuy (2013) employ a panel data analysis to examine the
effect of corporate governance on performance of 77 non-financial companies quoted
during 2006 2011 in the HOSE. The results show that board size has an adverse effect on
performance of corporations.
2.2.2 CEO duality
Similar to board size, CEO duality has positive, negative, or no impact on corporate
governance. The inconsistent findings may be due to the different contexts and the applied
methods of each study.
Ramezani et al. (2013) examine the impacts of CEO duality on market value of firms in
Iran. They select a sample of 140 firms listed on the Tehran Stock Exchange over the
period between 2006 and 2010 for their investigation. In their research, CEO duality is
considered as independent variable of corporate governance and Tobins Q as dependent
variable of company marker value. They provide envidence that CEO duality positively
and significantly impacts on Tobins Q.
Javed et al. (2013) explore whether the combined leadership structure is linked to
company profitability. Through the investigation of 30 Pakistani banks of which data spans
five years from 2007 to 2011, these researchers conclude that CEO duality is positive
associated with ROA.
In the turbulent time, the role of CEO duality appears robust and outweighs the
possibility of CEO entrenchment. Hence, firms will benefit from this pattern of leadership
structure. This exploration is documented in the Singaporean environment based on the
sample of 77 listed companies trading on the exchange for three years 1995, 1996, and
1997 (Kuan et al., 2000).
19
In the survey by Gill and Mathur (2011), CEO duality is found to have positive
effects on profitability of Canadian corporations. This exploration is drawn from the
analysis of 75 companies in the service industry listed on the Toronto Stock Exchange over
three years from 2008 through 2010.
Based on the sample of 321 companies collected from the Standard and Poor
Compustat Services Inc. for the year 1988, Donaldson and Davis (1991) find that CEO
duality is associated with higher ROE. The results can be interpreted that dual leadership is
consistent with stewardship perspective and is inconsistent with agency problem.
In Kuwait, Al-Matari et al. (2012) undertake an empirical study by looking at the

relationship between board properties and company performance. In this research, the data
is composes of 136 non-financial listed companies trading on the Kuwaiti stock exchange
in the fiscal year of 2009. He finds that CEO duality is significantly and positively
associated with ROA.
In a competitive environment, CEO duality benefits firm than non-CEO duality

since the combined leadership structure can decrease the cost of information and control.
The 1979 - 1998 dataset of 1,927 U.S. firms is used as to evaluate whether board
leadership structure could impact corporate performance under the effect of the 1989 Free
Trade Agreement between United States and Canada. The results of this study indicate
that firms with combined leadership have better Tobins Q than those with separate
leadership (Yang and Zhao, 2011).
By looking at the effects of the legal requirement, which split the position of CEO
and COB in Chinese publicly manufacturing companies that quoted on Shanghai Stock
Exchange over the period from 2000 to 2004, (Yu, 2008) finds that CEO duality appears to
improve firm. In this context, the combination of these two titles into one person drives
him or her to perform better and result in positive impact on firm financial outcomes. This
phenomenon becomes more robust in a high volatile environment.
In the context of Vietnam, CEO duality is proved to have positive effects on

performance of firms listed on HOSE during the years 2006 - 2011. This exploration is
based on the sample of 77 non - financial companies (Duc and Thuy, 2013).

20
Arslan et al. (2010) carry out the study on the data of 999 observations collected from the
non-financial firms listed on the Istanbul Stock Exchange. The findings indicate that CEO
duality has no influence on the accounting performance of firms in both general and crisis
period.
In the sample of banks owned by family in Pakistan, CEO duality is found to have no
significant effect on the financial indicator as measured by ROA during the period from
2005 to 2010 (Nasir, 2012).
Amba (2013) opines that CEO duality has a negative impact on business
performance. His opinion is drawn from an analysis of 39 Bahrain listed companies during
the years of 2010, 2011, and 2012. When the CEOs are also the chairmen, their companies
are poor performance with regard to ROA, ROE, and Assets Turnover.
In his study, Rashid (2009) uses the data collected in the Dhaka Stock Exchange for
9 years from 1999 to 2007. The sample comprises of 104 non-financial listed firms. The
exploration suggests that CEO duality does not improve economic performance of firms in
Bangladesh.
In an examination of 290 large U.S corporations selected from the Fortune 1000,
Kim and Buchanan (2008) find that CEO duality is inclined to diminish the risk taking.
They document that the risk- taking behavior of the agents and the principals are
completely different. The agents are primarily concerned with their employment risk and
the firms survival. Meanwhile, the principals are interested in high investment returns,
which may attribute to high risk, affecting the agent compensation and job security.
Consequently, the dual leadership structure undermines the roles of board in monitoring
and controlling the executives activities. Along with that, the mechanism of check and
balance is weak, facilitating the agent opportunism. The joint leadership structure also
deteriorates the boards effectiveness due to the concentrated power on a single person.
Ujunwa et al. (2013) use the sample of 212 Nigerian public companies in 2010 to
identify the correlation between the pluralism of CEO and COB and the company
performance. They demonstrate that the plurality of CEO and COB has adversely effects
on firm performance regardless the ownership structure in firms. They argue that Nigeria
has remained the weak external mechanism. Thus, the controlling block-holders could
21
exploit for their own benefits at the expense of minority shareholders and inhibit firm
performance.
With the purpose of investigating the relationship between board structure and
corporate performance, Abidin et al. (2009) measure the effects of CEO duality on 75
Malaysian publicly traded companies for the year 2007. In this study, the value added
efficiency is used as the proxy for firm performance. This variable is defined as total
intellectual as well as physical capital of firm. They conclude that CEO duality has no
influence on value added efficiency.
Golmohammadi et al. (2012) examine the association between board structure and
firm profitability as measured by ROE. The data is consists of 311 companies listed on the
Tehran Stock Exchange for the years between 2006 -2011. The empirical results prove that
CEO duality is negatively related to firm performance.
2.2.3 Women on Board
Similar to others board characteristics, the empirical evidence with respect to the
participation of women on board and performance of firms has provided mixed outcomes.
Kang et al. (2009) posit that board can perform the role of control and strategic guidance
better in the case of increasingly female presence. In the Singaporean public corporations,
the investors respond positively to the appointment of female membership in boardroom.
They support the gendered diverse boards when women function as outside director or non
- CEO, which enhances board independence.
The observation of Parrotta and Smith (2013) is based on the data of Danish
companies in private sector over the 1997-2007s period. The empirical findings show that
female leaders steer firms more stable over time than their male peers. Specifically, female
CEOs are significantly associated with less volatile in relation to economic outcomes
measured by profits, sales, investments, and ROE. They are also related to more adverse
risk. Their attitude to risk is different from men. Therefore, they govern and monitor firm
more stringent than male leaders.
22
Using the large sample of 2360 companies around the world over six years, the
work of Credit Suisse (2012) provides evidence in relation to the contribution of gender
diversity at board level to firm outcomes. They are (i) higher ROE, (ii) higher market to
book value multiples, (iii) greater average growth of net income, and (iv) lower leverage.
Based on the empirical results, the author suggests that it would be better to invest in
companies with women on board in preference to in those without.
Carter et al. (2002) use a sample of the Fortune 1000 firms to identify how board
gender diversity affects firm value and the empirical results are interesting. The ratio of
female directors is linked to firm size and board size. Furthermore, the increase in the
proportion of women in the boardroom enhances the firm value.
Torchia et al. (2011) survey the effects of women on board in 317 Norwegian
companies for the winter of 2005/2006 and a half of 2006. The authors create a
questionnaire in which some of 265 questions are changed accordingly to the respondents.
Their findings show that board with at least three women appears to bring more
contribution to the innovation of the firm due to their involvement in the strategic role of
the board. With respect to organizational innovation, the increase in women population on
board is encouraged because heterogeneous board is better than homogenous one with the
domination of men.
In 2011, the IFC undertakes a review of corporate governance practices in Vietnam.

This survey encompasses 100 companies, taking up more than 83% of the HXN and HOSE
combined market capitalization. The statistical results show that the numbers of women on
board ranges between 0.68 and 1.20, which is a significant variance. The firms with more
women on board are observed to have higher corporate governance scores. This positive
link is a good sign of good corporate governance practices in spite of the relatively low
proportion of female directors in Vietnamese listed companies. Women are a potential
source of talent and independence. This quality may help firms to establish an
unchallenged board and heterogeneous team, which can lessen risk of group think (the
IFC, 2011).
23
The study of Duc and Thuy (2013) reports the positive and significant link between
financial performance of companies and female directors in 77 Vietnamese listed firms
over the period 2006-2011.
Darmadi (2011) explores the impacts of women presentation on board in 169 Indonesian
listed firms and concludes that there is no relationship between performance as gauged by
ROA and women participation in the board of directors. The reason may be the feature of
companies in the sample is family controlled. Thus, the nomination of the board members
in this system is mostly based on the family relationship rather than the competence of
those women.
OReilly III and Main (2012) fail to find evidence that women outside directors
improve firm performance. In an investigation of more than 2,000 firms over the period
2001-2005, they detect that the high - compensation CEOs tend to add munificently more
women from outside to board for reputation or legal requirement rather than for improving
performance.
Of 102 Dutch and 84 Danish listed firms, 40% have at least one female director.
However, in overall, the average ratio of women on board is 5.4%. The analysis of this
data shows that board gender diversity has no impact on market performance (Tobins Q)
of companies (Marinova et al., 2010).
In Spain, Alvarado et al. (2011) observe the association between gender diversity in
146 listed companies and Tobins Q, Sales growth, ROA, and ROE. The dataset is
collected on the Madrid Stock Exchange from the financial reports during the years 2005-
2007. They fail to provide evidence of the link between firms with gender-diverse board
and the performance variables. One reason is the very low fraction of women directors in
the boardroom. They occupy only around seven percent of board chairs, so their influences
on firm performance if have, is inconsiderable.
The analysis of Kenyan commercial banks for two years of 1998 through 1999
found that out of eight male directors, only one woman on board. Consequently, the
modest presence of female directors does not bring any effect on these banks (Wachudi
and Mboya, 2012).
24
In the analysis of the Chinese fund management companies, Yu and Tam (2011)
document the inverse impact of board diversity on the cost of fund and also on board
performance as the diversity increase to some extent. The data of the study represents more
than 97% of the fund management companies between the year 2006 and 2010.
Based on the sample of more than 400 large U.S. companies over the period from
1997 to 2006, Dobbin and Jung (2010) find that women directors do not influence the firm
profits but impact negatively on the stock price.
Abdulah et al. (2012) conducts a study on the sample of 841 publicly firms listed
on the Bursa Malaysia for the year 2008. The findings demonstrate that women directors
diminish market performance (Tobins Q). He argues that this reflects the negative attitude
of the firm stakeholders to the participation of women on board. One interpretation is that
the view on gender inequality has been rooted deeply in the culture of Malaysia, where two
religions Islam and Confucianism are dominant. The response of market is irrational which
suggests the reasonable reaction from the government.
In Vietnam, the IFC carries out a study on corporate governance practices of the
100 largest firms listed in 2012. The data is obtained from the company reports for the year
2011. The sample includes 80 companies listed on the HOSE and 20 firms listed on the
HNX, which accounts for more than 80% of the total market capitalization. In this analysis,
gender diversity has no statistical significance when putting the performance of top 25,
middle 50 and bottom 25 firms into perspective. This is because the low fraction of female
directors in these firms. Therefore, their role could be difficult to see and still inconclusive
(the IFC, 2012).
25
Chapter 3: Hypotheses development
As discussed in previous sections, boards have been subject to controversial argument from
theories. In addition, empirical studies provided divergent evidence of the relationship
between board characteristics and company performance. Based on literature in this regard,
the research hypotheses are developed for each particular attribute of board.
3.1 Board size
The empirical studies on board size provide mixed evidences of what one - size - fits - all.
Thus, board size has remained controversial. Many theorists support large size of board,
whereas other authors suggest vice versa, some others argue for the flexible size.
Lawal (2012, p.25) defines the board size represents the total head counts of
directors seating on the corporate board. The size of corporate board has significance to
the debates for decision making. Given the strategic roles of board, Javed et al. (2013)
argue that board should comprise of sufficient numbers of directors to undertake its duties.
In this line, Noor and Fadzil (2013) state that board size should be tailored for the required
jobs and the internal management structure of the corporation. What size of board also
depends on several outside factors such as the industry, the legal and regulation
framework, the economic system, and the political institution. Going the same direction,
Imam and Malik (2007) give the rationale that when board is oversized, the coordination
between its members may be difficult. Conversely, if board is undersized, the provision of
opinions would be limited.
However, Bebenroth and Donghao (2006) opine that board becomes symbolic if its
size expands too large. When board increases in number of directors, there is a likelihood
of room for opportunism. This is one aspects of agency problem. Jensen (1993) adds his
comment that companies should have small board for their good functioning. He argues
that small board can enhance firm performance. Oversized board is inefficient to carry out
their duties because the CEO would be able to exert more influences in board with more
members.
Conversely, there are several ideas argue for large board. Fauzi and Locke (2012)
account for the link between large board size and firm performance based on some
theoretical frameworks. From agency perspective, larger size of board provides greater
26
monitoring actions for management performance. With respect to resource dependence
theory, the larger quantity members of board offer more linkages to access to external
resources for firms survival and growth. Under stewardship view, the inside directors can
use their valuable information to serve board in making better decisions. There is a
likelihood that the increase in size of board could bring about a broader spectrum of
knowledge and opinion which flourish firms at their disposal. Abidin et al. (2009) assert
that the greater board size allows more members with their pool of talents and perspectives
to participate in the boardroom and assemble a greater view for dealing with complex
issues.
In consistent with other authors, Samuel (2013) deems that the larger size of board
enables firms to restraint the CEO in his or her unreasonable decisions. A bigger board size
also makes up a crowded group to impede the domination of CEO. More board members
contribute greater skill and experience for a wider range choice of decision making.
Obviously, board size is positively linked to corporate performance because more

board members provide greater resources. Therefore, the hypothesis is formulated as
follows:
Hypothesis 1: Larger board size has positive impacts on firm performance
3.2 CEO duality
There has been no consensus of theories as well as empirical studies regarding the effect of
dual leadership on firm performance. Whether CEO duality is really good or bad for
corporations has continuingly discussed.
On the one side, CEO duality is applicable in several enterprises and believed to have
positive impacts on firm outcomes. The stewardship theory prefers the combined
leadership structure. The CEO duality has unequivocal control and gives unique
commands, which improves company performance. The duality promotes managers to use
their expertise in finding ways to enhance profits for firm. From this perspective, the
managers are viewed as good stewards. They perform their management tasks at their best
for maximizing the interests of shareholders. Holding dual roles facilitates the CEO to fully
exercise his or her rights over company. This can result in better firm values. The CEO
duality provides the corporation with the unanimous direction. Consequently, the dual
27
leadership can maximize the shareholders returns rather than non-dual CEO chairs
(Donaldson and Davis, 1991).
On the other side, CEO duality reduces the monitoring activities which undermines
the boards effectiveness and leads to agency problem. Abidin et al. (2009) rationalizes that
the monitoring task can face with the hindrance because of dual leadership. When CEO
duality occurs in a company, the independence of board is decreased, giving rise to agency
problem. Jensen (1993) posits that the role of the chairman and the CEO is clearly
different. Thus, the separate leadership structure will strengthen the board. The
independent board will perform effectively in monitoring the management team.
As for agency theory, duality is detrimental for corporate governance. The
combined leadership causes concern about weak performance of firm when people assess
themselves work. There could be the likelihood of distortion with regard to firm outcomes,
which affects the long - term value. The concentration of power in hands of a single
executive could lead to low quality performance due to overloaded responsibilities.
Moreover, the CEO can exploit his or her dual position to assign the board members who
are in turn probably beholden to him. As a consequence, the oversight over the
management may be impaired and the evaluation of managerial quality might not be
accurate and impartial (Moscu, 2013). Hussin and Othman (2012) voice their concern that
CEO duality empowers him or her to abuse firm assets and power. He or she could
unfetteredly acts because of inefficient checks and balance. Supporting this argument,
Fama and Jensen (1983) state that separation of decision control and decision management
is better than combination these functions in the same agents
Having the same opinion with other researchers, which consider CEO duality may
distort the firm outcomes, the hypothesis is:
Hypothesis 2: CEO duality has negative impacts on firm performance
3.3 Women on Board
The participation of women on board has increased in corporations worldwide not only for
the fairness or the regulatory intervention but also for their contributions to companies
value. However, this topic is subject to divergent point of views. Some authors advocate
gender diversity in board, others do not (Yang and Zhao, 2011).
28
Farrell and Hersch (2005) state that women directors do not create value for their
company. In their view, female directors are tokenism. They claim that firms seem to
add new women directors in response to the pressure from environment or because the low
presence of women on board. According to Adams and Ferreira (2004), high gendered
diverse board may be costly and causes an inverse effect on shareholders value for some
firms. Marinova et al. (2010) argue that female presence in board will make up a diverse
group. It may be difficult to reach unanimity. In addition, the coordination among members
in a heterogeneous team could be costly. Thus, diverse boards may entail conflicts which
lead to sluggish process of decision making. This situation limits the competitive capability
in the cases which require rapid reactions (Alvarado et al., 2011; lvarez et al., 2010).
The second school gives various benefits of appointing female directors on board
and links their presence to better firm values. According to Lincoln and Adedoyin (2012),
women have unique features that are really essential for strategic direction of an
organization. Gender diversity possibly impact significantly on firm value. Bart and
McQueen (2013) point out that board with gender diversity is not only the right thing to
do but also the smart thing to do. The rationale of this argument is that women have
different cognition and thinking from men. Their understanding of the customers helps
firm to expand business market. Women have unique background which enables board to
make higher quality of decisions. Moreover, female directors are more inclined to consider
benefits of various stakeholders in consistent, fair and ethical manners. Their decisions are
made on an effectively cooperative, collaborative and consensus basis. The authors
empirically prove that women directors have better skill of corporate risk management.
They are also linked to higher rate of return, lower risk of bankruptcy and superior decision
making. With the inquisitive nature, they actively seek to understand and reason out the
perspective. Additionally, women directors attempt to learn and carefully evaluate the
nature of issues before addressing a situation. Such approaches allow them to select
solutions on a greater alternative of chances and outcomes. As a result, women on board
could effectively work out the problem by acknowledging the roles and comprehend the
viewpoint of other people.
From agency perspective, women on board may moderate the agency conflict
(O'Reilly III and Main (2012). This argument is in reference to the research of Adams and
29
Ferreira (2009). They document that female directors are the stricter monitors than their
male peers. Gender diversity, to some extent, generates independence which can be as
weighty as the impacts of outside directors on board. Thus, this aspect results in the
decrease in agency cost. Women directors also reflect the effectiveness of their male
counterparts. As a whole, gender diversity has meaningful influences on corporate
governance.
As regards resource dependence perspective, gender diversity provides board with a
valuable source of qualification, innovation and creativity, which enhance quality of
decision making and different solutions for solving problems. Gender diversity in board
also improves competitiveness for companies (Alvarado et al., 2011).
The stakeholder perspective advocates gender diversity on board. In an examination
of Fortune 500 companies for 2010 fiscal year, gender diverse board and stock
performance are observed to be correlated. Firms that are identified as ethical businesses
are likely to have higher number of female directors. This can be interpreted that the
market reacts positively to the presence of women on board. Further, companies that
engage in more gender diversity probably increase the recognition of society as appearing
in the famous magazine of 100 Best Corporate Citizens List or Worlds Most Ethical
Companies (Larkin et al., 2012).
In relation with steward theory, women are clearly awake to their responsibilities in
a collectivity. They usually support and encourage their employees with great devotion.
Therefore, the combination of female valuation and that of their male counterparts leads to
an equilibrium board, intensifying the leadership skill within the organization (Credit
Suisse, 2012).
Based on academic literature and observation of practitioners on female
participation in board, the formulation of hypothesis in relation to gender diversity will be:
Hypothesis 3: The proportion of women on board is associated with better firm
performance
30
Chapter 4: Data and model specification
4.1 Data collection
The data was secondary and collected from the primary source of the Vietstock website
(http://vietstock.vn/). The board information was gathered from the annual reports. The
financial data was taken from the database of the website Cophieu 68
(http://www.cophieu68.vn/) and was cross -checked with the audited financial statements
from the Vietstock data stream to make sure the accuracy of the dataset. Consequently, we
obtain 156 manufacturing companies trading on the HNX or the HOSE over four years
from 2009 to 2012.
4.2 Measurement of Variables
4.2.1 Dependent variables
Following Hussin and Othman (2012), the dependent variables in this study are ROA and
ROE which measure how much profitability is derived by the firm assets and the
shareholders equity, respectively. Also, the ROA indicator tells us how efficient the
company utilizes their assets in making profits from investment. Based on the ROE figure,
ones can see the firms ability to generate income from the investment funds.
The numerator of ROA and ROE is Earnings before Interest and Taxes (EBIT) and
their denominator is the book value of total assets and total equity, respectively. EBIT is
used in measuring ROA and ROE in order to leave aside the borrowing cost as well as to
eliminate the possible effects of varied tax policies on firms.
4.2.2 Independent variables
We select three proxies of board characteristics: (i) board size, (ii) CEO duality, and (ii)
proportion of women on board as independent variables to measure their influence on
company performance.
According to Fauzi and Locke (2012), board size is among factors that can influence
firm performance. Their empirical finding shows that larger boards could improve
corporate performance because they provide more oversight over the managerial activities
31
and diminish the possible entrenchment of the executives. Board size includes total number
of directors sitting on board.
CEO duality has been contemporarily received great attention in the corporation
management. There has been opposite view on the pluranity, most of which consider the
concentration of power into a single person may undermine firm performance. Therefore,
we predict that companies with dual leadership structure could hinder their performance.
The leadership structure is measured by a dummy variable which is denoted as 1

If the CEO is also the chairperson of a company and as 0 otherwise (Chaghadari and
Chaleshtori, 2011; Gill and Mathur, 2011).
As discussed in previous chapters, there are several reasons to believe that the
proportion of women on board is linked to company performance. To date, there has been
several empirical findings which provided evidence on the relationship between better
performance and female participation on board of an organization (Ararat et al., 2010;
Parrotta and Smith, 2013).
The proportion of women on the board of directors is obtained by dividing the

number of female directors by total board members (Fauzi and Locke, 2012).
4.2.3 Control variables
Similar to other studies, our analysis uses firm size, asset turnover, sales growth, debt to
equity ratio, and year dummies as the control variables. These factors are believed to drive
the regression results.
Black et al. (2005) in their study, document that larger firms have better governance.
Consistent with Garg (2007) and Rashid et al. (2010), firm size is defined as natural
logarithm of net sales. We use logarithmic transformation to scale down the difference in
value among observations. This can eliminate the outliers (Black et al., 2005) which can
distort the regression results.
32
According to Florackis and Ozkan (2004), asset turnover is the fraction of net sales
to total assets. This is an important indicator that determines how efficiency the firm can
utilize their assets to generate revenues.
The increase in sales growth contributes to firm profits and also potential
investment. This indicator is derived from the difference in net sales of this year and the
last year scales by the net sales of the last year (Gill and Mathur, 2011).
Debt to equity ratio or also known as financial leverage tells the investors the
proportion of debt and equity that the company finances its assets. This ratio takes on the
form of total debt divided by shareholders equity (Chaghadari and Chaleshtori, 2011).
Finally, year dummies are added in the regression models due to their significance
as proposed by Woodbridge (2002).
4.3 Model specification
With the purpose of testing the relationship between board characteristics and firm
performance, we design the following equations:
4.3.1 Equation 1
ROA i,t = 0 + 1 BODSIZE i,t + 2 PROWODIR i,t + 3 DUALITY i,t
+ 4 LNSALE i,t + 5 DEBEQUI i,t + 6 PRODUCTI i,t + 7GROWTH i,t
+ 8 YEAR t + i,t
4.3.2 Equation 2
ROE i,t = 0 + 1 BODSIZE i,t + 2 PROWODIR i,t + 3 DUALITY i,t
+ 4 LNSALE i,t + 5 DEBEQUI i,t + 6 PRODUCTI i,t + 7GROWTH i,t
+ 8 YEAR t + i,t
Where,
ROA i,t is return on assets for firm i in year t.
ROE i,t is return on equity for firm i in year t.
33
0 is the intercept of the regression model.
BODSIZE i,t is board size which denotes as total number of directors on
board for firm i in year t.
PROWODIR i,t is the percentage of female directors to board members for

firm i in year t.
DUALITY i,t is dummy variable which is taken the value of 1 if the CEO
is also the chairman of board for firm i in year t or 0, otherwise.
LNSALE i,t is firm size which measures as natural logarithm of net sales firm
i in year t.
DEBEQUI i,t is debt to equity ratio which is the fraction of total debt to
equity for firm i in year t.
PRODUCTI i,t is assets turnover for firm i in year t. This figure takes the net
sales and divides it by total assets.
GROWTH i,t is the sales growth rate for firm i in year t. The numerator of
this fraction is the difference in net sales of the year t and the year t-1. The
denominator is the net sales of year t.-1.
YEARt is the financial year. This dummy variable is coded as 1 if it is year

t and as 0 otherwise.
i,t is the error term.

i = firm
t = year
34
Chapter 5: Empirical Results
5.1 Descriptive Statistics
Table 5.1 (appendix) shows wide variation in value of most variables in the sample. The
mean of GROWTH is 0.15 while its min is -0.72, far lower from its max at 6.48. Similarly,
the large difference between min and max values can be seen in other variables such as
DEBEQUI, BODSIZE, PROWODIR, ROA, and ROE.
The statistics of this sample indicates that mean of BODSIZE is rather low at 5.63,
reflecting the size of board is quite small in the manufacturing listed firms. Impressively,
mean of DUALITY is 0.446, implying the progressive inclination in the leadership
structure with non-dual CEO makes up 55.4% in the sample firms. Meanwhile the mean
for PROWODIR shows that women directors hold 16.6% of total board chairs. This is a
high percentage as compared with other countries. For example, the survey of GMI
Ratings2013 reveals that in 5,977 largest and famous corporations in 45 countries around
the World, women only occupy 11% board seats. In developed markets, this fraction is
11.8% and in emerging markets, female directors account for 7.4% (Gladman and Lamb,
2013).
5.2 Correlations among explanatory variables

According to Kumari (2008, p. 88), The existence of a linear relationship among of the
independent variables is called multicollinearity..Multicollinearity can cause large
forecasting error and make it difficult to assess the relative importance of individual
variables in the model.
Taking into account the multicollinearity which can lead to imprecise regression
estimation as proposed by Kumari (2008), this study performs the Pairwise correlations
among regressors in the models to measure the degree of multicollinearity. If the pair-
wise correlation coefficient between two regressors is high, i.e. in excess of 0.80, then
multicollinearity is a problem (Kumari, 2008, p. 91.)
Table 5.2 (appendix) contains the pairwise correlation matrix among independent
variables. Overall, all the pairwise correlation coefficients between the explanatory
35
variables are very low. The largest pairwise correlation is 0.333, indicating no problem
with multicollinearity among independent variables.
5.3 Regression Results

In panel data analysis, verifying the nature of the data is necessary to specify the right
models so that the regression results will be unbiased, consistent and efficient.
5.3.1 Testing for selection of model
According to Yihua (2010), there are a variety options to estimates a panel data regression
model. These approaches are ordinary least squares (OLS), fixed effects, and random
effects. Each estimator has some specific assumptions of the error term. While OLS does
not take into account firm individual effects and period specific effects, fixed effects and
random effects control for these elements. Based on some tests that are designed for
checking their assumptions, we can determine which one could be the most proper model
for this study data.
5.3.1.1 The Hausman test for the random effects versus the fixed effect model
According to Woodbridge (2002), fixed effects and random effects are two options that are
widely used in panel data regression analysis. However, which one should be applied
depends on the standard Hausman test (Baltagi, 2005). According to Greene (2012, p. 380),
The Hausman test is a useful device for determining the preferred specification of the
common effects model.
Random effects and fixed effects estimations are based on different assumptions that
whether the unobserved factors are correlated with independent variables in the model.
While the fixed effects estimator allows the unobserved effects to be arbitrarily correlated
with the included explanatory variables, the random effects approach assumes the
unobserved individual effects are uncorrelated with the observed explanatory variables
(Woodbrige, 2002). Thus, the null hypothesis is that two estimates should give similar
results and then random effects model is the most efficient estimate (Greene, 2003).
Otherwise, random effects might be biased. In this case, fixed effects model is appropriate.
As displayed in table 5.3 (appendix), the Hausman test calculates the value of P is 0.27 for
36
equation 1 and 0.000 for equation 2. Hence, random effects estimate is proper with model 1
and fixed effects estimator is the better choice for model 2.
5.3.1.2 Testing for random effects
The Breusch-Pagan Lagrange multiplier test is constructed to test for random effects
(Greene, 2003). This test is carried out to choose between random effects and OLS model.
Thus, we check the null hypothesis that the error variances across units are equal to zero.
Table 5.3 shows that the amount of F (chibar2) = 168. 31 (P = 0.000), which is significant
at 1% level. We can conclude that the test refutes the null and indicates that there exist the
random individual effects of which variances are statistically significant difference from
zero. Thus, OLS estimate is inappropriate for the analysis and random effects estimate is in
favor.
5.3.1.3 Testing for Fixed effects
In order to determine if OLS is preferred to fixed effects, we carry out the F test to check if
the constant terms are all equal (Greene, 2003). The standard OLS assumes that there is
neither time nor individual effect among panels. So, the rejection of the null hypothesis
means that the OLS model is not proper for the data. The F statistics = 5.31 (P = 0.000),
which is significant at least at 1% level (see table 5.3 in the appendix). In this case, OLS
model is inappropriate, so fixed effects is preferable.
5.3.2 Testing for violation on panel error assumptions
Since panel data is often associated with heteroscedasticity, serial correlation, and
contemporaneous correlation, testing for these complications is necessary before correcting
them (Beck and Katz, 1995). Therefore, some further tests will be performed to verify the
panel error assumptions.
5.3.2.1 Testing for heteroscedasticity
A definition of heteroskedasticity by Greene (2012, p. 268) is Regression disturbances

whose variances are not constant across observations are heteroscedastic.
Heteroscedasticity arises in numerous applications, in both cross-section and time-series
data.Heteroskedasticity causes the estimation results to be inefficient (Baltagi, 2005).
37
Thus, a modified Wald test is conducted to identify heteroskedasticity in the
disturbances of the fixed effects regression model (Baum, 2001). The null hypothesis is
that the error term is homoscedasticity. In table 5.3 (appendix), we can see that F statistic =
2900000 (P = 0.000) which strongly rejects the null at least at 1% level, indicating the
presence of heteroskedasticity.
5.3.2.2 Testing for serial correlation
Time-series data often display autocorrelation, or serial correlation of the disturbances

across periods (Green, 2012, p. 903). Serial correlation is problematic to linear panel data
models because its presence will render the standard errors biased as well as make the
estimated regression coefficients consistent but inefficient (Baltagi, 2005; Drukker, 2003).
As discussed by Wooldridge (2002), a test for serial correlation in panel data is necessary if
the temporal unit is equal to or larger than there.
On the assumption that there is no serial correlation in the errors, we implement the
Wooldridge test for equation 1 and equation 2. Table 5.3 (appendix) shows the statistical F
= 13.951 (P = 0.000) as the evidence to reject the null on 1% level of significance. The test
statistic shows the presence of temporal correlation in the form of first-order autoregressive
error AR (1) for random regression model. Similarly, the Wooldridge test yields the F
statistic = 3.126 (P = 0.0790) for equation 2, meaning the significance at 10% level. We
can conclude that there exists the AR (1) disturbance in fixed effects estimate.
5.3.2.3 Testing for cross-sectional dependence
Cross sectional dependence or also known as contemporaneous correlation describes a

circumstance that the regression errors in any two cross sectional units are correlated at the
same time point (Beck and Katz, 1995). According to DeHoyos and Sarafidis (2006), the
regression results from Random effects or Fixed Effects will be inaccurate if the regression
errors are cross-sectionally dependent. Therefore, we undertake the Pesaran CD test to
detect the contemporaneous correlation in the residuals from random effects and fixed
effect regression estimates as suggested by Pesaran (2004).
This test is designed for the detection of cross sectional dependence in panel data that
consists of large numbers of cross section units and small temporal units. The null
hypothesis is that the regression errors are independent across entities. We get F = 6.098 (P
38
= 0.000) for model 1 and F = 7.160 (P = 0.000) for equation 2 (see table 5.3 in the
appendix). The high amount F strongly rejects the null at 1% level of significance. The
results indicate that both random and the fixed effects regression estimates yield the
spatially correlated residuals.
5.3.3 Fitting panel data linear models
The tests on the assumptions of panel error structure provide sufficient evidence that the
regression errors are heteroscedastic, serial correlated, and contemporaneously correlated
(see table 5.3). This means that such nuisance should be addressed by some other
estimators instead of random or fixed effects.
According to Baltagi (2005), if the panel errors are heteroscedastic and

autocorrelated, neither fixed nor random effects model is efficient. In addition, the
simultaneously presence of spatial and temporal correlation in panel error structures is
problematic which cannot be addressed by the common methods (Reed and Ye, 2011).
Thus, we can remedy this situation by using either Parks feasible generalized least squares
(FGLS) or panel corrected standard error (PCSE) method. These estimators can deal with
the problems of serial correlation within panels, heteroskedasticity as well as
contemporaneous correlation across panels. However, PCSE is superior to FGLS in terms
of standard errors (Beck and Katz, 1995). As their arguments, Panel-corrected standard
errors perform well and are more accurate than Parks standard errors. Parks, however,
was designed to take account of the panel error structure and hence be more efficient than
OLS (Beck and Katz, 1995, p.641). Besides, Reed and Ye (2011) point out that Parks
FGLS is a good method in estimating efficiency but it is bad in performing confidence
intervals. In their studies, Kawai (2007) and Yihua (2010) suggest that PCSE is the
preferred estimator in dealing with the complicated panel error structures. For these reason,
we apply PCSE method to fit our panel data linear regression models.
In the presence of first order serial correlation, we presume that each panel has a
specific coefficient. Hence, we specify panel-specific first-order autocorrelation and use
time-series method to estimate autocorrelation parameters. Also, regression results from
random effects and FGLS estimate for equation 1 and fixed effects and FGLS for equation
2 are presented beside PCSEs to see the difference between them.
39
Overall, the sign of the coefficients are mostly unchanged. However, there is
considerable variation in value of the coefficients across models. Especially, almost the
coefficients of FGLS model are lower than those of PCSE estimate. Notably, just few
variables turn out to be significant or insignificant in different models. For example in
model 2, BODSIZE appears negative and significant in the PCSE approach. Meanwhile,
PROWODIR is found significant in FGLS but insignificant in PCSE estimate. However,
only in FGLS that PROWODIR is found to have influence positively and significantly on
ROE at 1% level. Among estimators, PCSE yields higher value for R2 than others.
The empirical findings for equation 1 and equation 2 are represented in table 5.4
and table 5.5 (appendix), respectively. With the value of Waldchi2 = 3185.95 (for equation
1), and 1177.03 (for equation 2), both regression models show the overall fit. We obtain R2
= 43.56% (for equation 1) and 42.22% (for equation 2), revealing that 43.56% movement
in ROA can be explained by variation in the predictors variables in model 1. Similarly, the
explanatory variables in model 2 can predict 42.22% variance in ROE. Generally, almost
the included variables in both models show high level of significance (1%). We can realize
that the firms with larger size, higher sales growth, greater productivity, and lesser debt
achieve better profitability.
Regarding the independent variables, only the percentage of women on board

(PROWODIR) and the size of board (BODSIZE) are found to be statistically significant. In
detail, board size negatively influences ROE, albeit the effects of board size on company
performance is quite low. For instance, the estimated coefficient of BODSIZE and ROE is
0.0104, meaning that as board size increasing in1member will lead to 1.04% decrease in
return on assets. Thus, hypothesis 1is supported in model 2 and rejected in model1.
Contrary to our assumption, CEO duality (DUALITY) has the negative sign in both
models. In the sample data, dual leadership does influence neither ROA nor ROE at all.
Hence, the empirical results provide no evidence to support hypothesis 2. Impressively,
the proportion of Women on board (PROWODIR) has the positive and significant impacts
on ROA at relatively high extent. It can be interpreted that 1% increase in female
directorship will enhance 7.2% in ROA. Unexpectedly, such a correlation could not found
in ROE Hence, the hypothesis 3 which predicts the relationship between the ratio of
40
women director and firm performance is proved successfully for equation 1 and
unsuccessfully for equation 2.
41
Chapter 6: Conclusion
6.1 Conclusion and discussion
Corporate governance, in theory, is the essential factor in reducing risk as well as

enhancing value for firm, confidence for investors, and growth for national economy. More
significantly, best corporate governance practice could prevent corporate failures and
systemic crises. Realizing great values of corporate governance, several countries and
regions have introduced corporate governance principles. However, in practice, empirical
evidence indicates that corporate governance has different effects on performance of
different organizations and environments. While some studies present the positive link
between corporate governance and firm performance, others studies found the opposite.
There may be various reasons for this divergence.
One important element among them is key people leading the corporations.
Corporate governance itself does not take effect because it is just a means. It requires
boards to establish and put corporate governance framework into practice in every level of
their organizational activities. As such, the most important determinant for a sound
corporate governance practice depends on how efficient and accountable the board of
directors could be. Alongside the professional background, ethical and dedicated behavior
is much more important and needed that the board members should commit and embrace
during exercising their duties. The core value that the board directors should take into
consideration is the loyalty. This factor is considered as the root of effective
implementation of other principles.
The second cause may be the different cultures and institution of each country that
impact the efficiency of corporate governance. For Vietnam, almost the corporate board
members and the top executives are often lack of governing experience and weak in
organizational skill. Also, corporate governance has faced with other challenges, for
instance, the weakness of the legal framework and its enforcement, the instability of the
emerging capital market, and the low quality of the human resource. Additionally,
Vietnamese code of corporate governance came into effect under the global economic
turndown which badly influences the Vietnamese companies and the national economics as
a whole. Interestingly, there are few recent studies on corporate governance and board
42
characteristics providing some evidence of their effects on performance of listed firms.
This exploration sheds some light on the attempts of the Vietnamese companies in
compliance with corporate governance rules.
The recent study aims to identify the effects of some board characteristics on
financial performance of 156 listed firms in Vietnamese manufacturing sector. The
empirical result of this study is consistent with those of Duc and Thuy (2013) in case of
women on board as well as board size and opposite to their findings in terms of CEO
duality. Particularly, the size of board is inversely associated with return on equity. This
exploration is inconsistent with the survey of IFC (2012), who argue that board size is
linked to firm size. In this context, companies with lesser directors in the room can
outperform their peers with more board members. This may be interpreted that small board
may make lesser effort to reach the unanimity, leading to timely decisions. Also, the small
board size could utilize the ability of all board members at best. Every director can be
closer to exchange their ideas and discuss the company policies with each other more
straightforward. In contrast, more number of directors on board might dilute the
atmosphere in the meetings. Further, For Vietnam context, small board reduces the
remuneration costs.
Beside, leadership structure has no connection with company profitability. There is

a negative but no significant relationship between CEO duality and company outcomes.
The reason may be in line with the discussion of Cung (2008) who characterizes corporate
governance of listed firms in Vietnam as the major shareholders are usually the controlling
members. Prevailingly, they simultaneously hold the positions in the board of directors and
the board of management. Thus, there is little substantial difference between performance
of firms with or without CEO duality.
With respect to the proportion of women on board, this variable has the positive
and significant influence on company profitability as measured by ROA. This finding
provides more evidence of women valuation and their significant contribution to the
growth of companies. The plausible argument of this phenomenon can be found in Sullivan
(2013). With the headline Vietnam values female perspective on money, the article gives
a convincing and obvious explanation of how Vietnamese women achieve success in
43
management of business. Recently, women in the position of decision making have
become a trend in large and best known companies in Vietnam, especially in investment
funds. The entrepreneurs are convinced to appoint women leaders due to their management
efficiency. Impressively, some companies even completely controlled by women because
their board is composed of all female members. According to Quynh Le, an insider, who is
the portfolio manager of the new fund and an associate director at Dragon Capital
Company, "Women are excellent fund managers capable of delivering a good
performance. Many companies in Vietnam that are run by women perform better."1
Under a view of a foreign businessman, the success of women in business in

Vietnam is partially due to their special virtues. He reckons that women are valued in
Vietnam for their thoroughness, patience and careful approach to investing other people's
money2
As far back as the past war in their national history, Vietnamese women have a
long heroic tradition of fighting side by side with men against their enemies. The
remarkable contribution of Vietnamese women in the war has altered the societys
perception of female valuation and their capability of doing business in the peace.
Nowadays, Vietnamese women no longer stand behind men as Oriental tradition. They
have more ambition and want to obtain the appropriate places in business. The growing
number of women in top positions in Vietnamese companies has changed the old custom
that business management is the job of men. Women have successfully proved their
managerial skill in business. The story reflects well on women in business management in
Vietnam. Thus, this reality needs to be acknowledged by the government so that talented
women will have opportunity to obtain the right places in business.
As a whole, the board of directors with lesser members and higher fraction of
female directors could have positive and significant impact on profitable indicators of
manufacturing companies. Hence, the findings partially corroborate the agency and
1
Speech of Quynh Le, in Sullivan (2013).
2
Speech of Bill Stoops, in Sullivan (2013).
44
resource dependence theory. The gender-diverse boards provide independence and unique
knowledge for creating firm values. Moreover, whether CEO duality improves or impairs
company performance is still inconclusive. Therefore, neither the stakeholder theory nor
stewardship perspective is proved in this sample data.
The empirical evidence of this studywork provides the insight of manufacturing

companies with regard to their board attributes and financial performance. The paper
attempts to prove the correlation between effective corporate boards and better corporation
performance with a hope of catching the attention of the business community, the
regulators and the other readers. As my expectation, it may help companies to take into
consideration in nominating the board members and building their management team.
Further, the ambitious purpose of this study is to expand the recognition of the society
regarding the management efficiency of women leadership in the business environment.
It is believed that the findings would attract attention of the policy makers in making
laws with respect to board size and quota of women directors. Finally, the readers could
see the benefits of corporate governance on performance of firms and the adherence to it is
an international trend to raise funds and to be competitive globally.
6.2 Limitation and recommendation
The performance of an organization depends on various issues which need to find out for
understanding and improving. The board of directors is among factors that could impact
the corporate governance and performance as discussed previously by several authors.
This paper just focuses on examining the relationship between corporate board and
corporate performance in the manufacturing sector. The measurement variables that are
used in this study cannot be adequate to reflect fully board attributes and the natures of
firms. Thus, it has some inherent imperfection and much room for future research. The
recommendation is that there are several properties of board and features of firm as well as
other industries should be investigated in relation to operation and outcomes of listed firms
in Vietnam.
45
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Appendix
Table 5.1: Descriptive statistics for the variables
Standard
Variable Observation Mean Min Max
Deviation
ROA 624 0.113 0.089 -0.51 0.52
ROE 624 0.244 0.208 -1.475 0.841
GROWTH 624 0.152 0.429 -0.725 6.483
LNSALE 624 13.084 1.41 8.635 17.094
DEBEQUI 624 1.605 2.481 0.029 44.372
PRODUCTI 624 1.328 0.773 0.114 6.135
BODSIZE 624 5.631 1.27 2 12
DUALITY 624 0.446 0.497 0 1
PROWODIR 624 0.166 0.173 0 0.8
61
Table 5.2: The Pairwise correlation matrix among predictor variables
1 2 3 4 5 6 7 8 9 10
1 GROWTH 1.00
2 LNSALE 0.24 1.00
3 DEBEQUI -0.05 0.10 1.00
4 PRODUCTI 0.13 0.18 -0.10 1.00
5 BODSIZE 0.05 0.13 -0.01 -0.13 1.00
6 DUALITI 0.01 -0.06 0.04 0.00 0.00 1.00
7 PROWODIR 0.01 -0.03 -0.09 0.15 0.03 0.16 1.00
8 YEAR2009 0.01 -0.09 -0.05 -0.02 -0.01 0.06 0.00 1.00
9 YEAR2010 0.14 0.00 -0.05 0.00 0.01 0.03 0.01 -0.33 1.00
10 YEAR2011 0.12 0.06 -0.01 0.05 0.03 -0.02 -0.01 -0.33 -0.33 1.00
62
Table 5.3: The results from some tests on panel error assumptions
Type of test Model 1 Model 2
Hausman test 12.22 (0.2704) 129.7 (0.000)*
Breusch and Pagan Lagrangian

222.97 (0.000)*
multiplier test for random effects
Auxilary F test for fixed effects 5.31(0.000)*
Wooldridge test for autocorrelation 13.951 (0.000)* 3.126 (0.0790)***
Modified Wald test for groupwise

29,00000 (0.000)*
heteroskedasticity
Pesaran's test of cross sectional

6.098 (0.000)* 7.160 (0.000)*
independence
Notes: - *, **, and *** denotes level of significance at 1%, 5% and 10%;
- P values are in parentheses
63
Table 5.4: Regression results from RE, FGLS, and PCSE methods (Dependent variable:
ROA)
Independent
variables Regression type
Random Effects FGLS PCSE
Intercept -0.134 (0.006)* -0.092 (0.000)* - 0.115 (0.004)*
GROWTH 0.014 (0.027)** 0.012 (0.000)* 0.013 (0.019)**
LNSALE 0.013 (0.000)* 0.011 (0.000)* 0.013 (0.000)*
DEBEQUI -0.005 (0.000)* - 0.005 (0.000)* -0.006 (0.000)*
PRODUCTI 0.025 (0.000)* 0.028 (0.000)* 0.027 (0.000)*
BODSIZE 0.002 (0.572) 0.001 (0.490) -0.000 (0.856)
DUALITY 0.003(0.658) -0.000 (0.899) -0.002 (0.698)
PROWODIR 0.064 (0.008)* 0.053 (0.000)* 0.072 (0.000)*
YEAR 2009 0.045 (0.000)* 0.040 (0.000)* 0.048 (0.000)*
YEAR 2010 0.031 (0.000)* 0.028 (0.000)* 0.033 (0.000)*
YEAR 2011 0.016 (0.000)* 0.016 (0.000)* 0.016 (0.000)*
Wald chi2 153.29 (0.000)* 912.31 (0.000)* 3185.95 (0.000)*
R2 0.2142 NA 0.4356
Number of
observations 624 624 624
Number of Firms 156 156 156

- NA means not applicable
64
Table 5.5: Regression results from RE, FGLS, and PCSE methods (Dependent variable:
ROE)
Independent
variables Regression type
Fixed Effects FGLS PCSE
Intercept -2.346 (0.000)* -0.400 (0.000)* -0.410 (0.000)*
GROWTH 0.016 (0.323) 0.041 (0.000)* 0.039 (0.003)*
LNSALE 0.205 (0.000)* 0.045 (0.000)* 0.051 (0.000)*
DEBEQUI -0.038 (0.000)* -0.006 (0.096)*** -0.023 (0.001)*
PRODUCTI -0.065 (0.006)* 0.030 (0.000)* 0.022 (0.205)
BODSIZE -0.003 (0.688) -0.004 (0.104) -0.010 (0.067)***
DUALITY -0.003 (0.904) -0.005 (0.423) -0.018 (0.196)
PROWODIR 0.077 (0.379) 0.051 (0.005)* 0.008 (0.841)
YEAR 2009 0.128 (0.000)* 0.066 (0.000)* 0.101 (0.000)*
YEAR 2010 0.070 (0.000)* 0.037 (0.000)* 0.069 (0.000)*
YEAR 2011 0.039 (0.014)** 0.029 (0.000)* 0.046 (0.000)*
Wald chi2 (F) 27.79 (0.000)* 927.23 (0.000)* 1177.03 (0.000)*
R2 0.1146 NA 0.4222
Number of
observations 624 624 624
Number of
Firms 156 156 156
- NA means not applicable
65

Why Corporate Gov Is Important in Viet Nam Specifically

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Why Corporate Gov Is Important in Viet Nam Specifically

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BERLIN SCHOOL OF ECONOMICS AND LAW

Institute of Management Berlin (IMB)

Supervisors: Prof. Dr. Christina Schaefer

April 15, 2014

Figure 1.1: The Corporate Governance System .................................................................4

Board Board of Directors

CEO Chief Executive Officer

CIEM The Central Institute for Economic Management

GMS General Meeting of Shareholders

HOSE Ho Chi Minh Stock Exchange

IFC International Finance Corporation

OECD Organization for Economic Cooperation and Development

ROA Return on Assets

ROE Return on Equity

SOEs State-Owned Enterprises

U.S. United States

WTO World Trade Organization

Contemporarily, there has been a variety of research on the relationship between

1.2 Research Problem

1.3 Objective and Outline

1.4 Corporate Governance

1.4.1 Definitions of Corporate Governance

In summary, the concept of corporate governance derived from different point of

1.4.2 Systems of Corporate Governance

Figure 1.1: The Corporate Governance System

Shareholders (The Genaral Meeting of Shareholders)

Elect and Dismiss Represent and Report to

Directors (The Board of Directors)

Elect, Dismiss, Guide and Oversee Report and Answer to

Managers (The Executive Board)

Source: The IFC (2010)

Corporate governance system also takes into consideration the external

1.4.3 Principles of Corporate Governance

1.4.3.1 The OECD Principles of Corporate Governance

1.4.4 Benefits of Corporate Governance

Companies that adhere to best corporate governance tend to improve internal

1.5 Board of Directors

1.5.1 Board Structure

1.5.2 The role of Board

The corporate governance framework is established to ensure that board must

2.1.1 Agency Theory

Another aspect of the contractual relationship is the adverse selection. Before

2.1.2 Stewardship Theory

The Stakeholder perspective underscores the role of board in serving diverse

2.1.4 Resource Dependency Theory

Given the philosophical underpinnings of resource dependency theory, Pfeffer and

Resource dependence perspective is also a useful ground for evaluating how

2.2 Board Attributes and Firm Performance

2.2.1 Board size

2.2.1.1 Prior Studies Finding Positive Relationship

Babatunde and Olaniran (2009) conduct a study of 62 companies quoted on the

2.2.1.2 Prior Studies Finding Negative or No Relationship

In Canada, board size is found to negatively impact on profitability of the service

2.2.2 CEO duality

2.2.2.1 Prior Studies Finding Positive Relationship

In Kuwait, Al-Matari et al. (2012) undertake an empirical study by looking at the

In a competitive environment, CEO duality benefits firm than non-CEO duality

In the context of Vietnam, CEO duality is proved to have positive effects on

2.2.2.2 Prior Studies Finding Negative or No Relationship

2.2.3 Women on Board

2.2.3.1 Prior Studies Finding Positive Relationship

In 2011, the IFC undertakes a review of corporate governance practices in Vietnam.

2.2.3.2 Prior Studies Finding Negative or No Relationship