Article2017

Independent directors, ownership concentration and firm performance in listed companies

Thi Tuyet Mai Nguyen · Elaine Rose Evans · Meiting Lu

54 citations0/0 files storedPacific Accounting Review

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to investigate the impact of independent directors on firm performance in Vietnam and identify how different types of ownership structure and the presence of controlling shareholders influence the relationship. Design/methodology/approach For a sample of 217 non-financial Vietnam-listed companies during the period from 2010 to 2014, this study uses the ordinary least squares regressions to estimate the relationship between independent directors and firm performance. Two econometric techniques – the fixed effects estimation and the difference in difference estimation – are used to control for endogeneity. The results are also robust to the lag variable of independent directors. Findings The results reveal that independent directors have an overall negative effect on firm operating performance. This finding may be because of information asymmetry, expertise disadvantage and the dominance of ownership concentration that prevent independent directors from fulfilling their monitoring function in governance. The negative relationship between independent directors and firm performance is stronger in firms where the State is a controlling shareholder. Research limitations/implications Findings suggest that changes relating to independent directors, as a response to the new corporate governance code in 2012, do not have a positive effect on the relationship between corporate governance and firm performance. Further reform is required to improve internal control mechanisms and corporate governance systems in Vietnam. Originality/value This is the first study to provide a robust evidence on the relationship between independent directors and firm performance in Vietnam as well as to explore the impact of the type of controlling shareholders on the relationship.

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References

2002Disentangling the Incentive and Entrenchment Effects of Large Shareholdings 2007Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms☆2010The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey 1991The Effects of Board Composition and Direct Incentives on Firm Performance 2003Corporate governance, investor protection, and performance in emerging markets 2007The Colors of Investors' Money: The Role of Institutional Investors Around the World 2008Corporate Governance in Emerging Economies: A Review of the Principal–Principal Perspective 2007Corporate Governance and Firm Performance

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