160 Finance dissertation on gender diversity and profitability of commercial bank in Vietnam,Master''''s Thesis

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UWE
Dissertation submitted in partial fulfillment of the Bristol I

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of the

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Requirement for the MSc in Finance

FINANCE DISSERTATION ON
GENDER DIVERSITY AND
PROFITABILITY OF COMMERCIAL BANK
IN VIETNAM
NAME OF STUDENT: NGUYEN NGOC TRAM
ID No: 17047734
Intake 1

Supervisor: Dr. Pham Chi Quang

ħ

i

-W

Abstract
This research examines the effects of gender diversity in the board of directors of a large sample
of commercial banks in Vietnam on their financial performance, measured by return on equity
(ROE) and return on assets (ROA). The empirical analysis is conducted via descriptive statistics,
correlation matrix and analysis of multivariate regression in order to answer the research
question: What is influence of women presence in board on profitability of commercial
banks in Vietnam?
This research is highly structured and quantitative in nature, using the data collected from largest
banks in the Vietnamese banking system in period from 2013 to 2017, with data related to the
board of director being extracted from the annual reports for all commercial banks listed on both
HNX and HOSE, while data related to dividend payment and bank-specific characteristics were
extracted from the published financial reports by banks
The research findings show that there was positive relationship between woman in board and
performance of commercial banks in Vietnam, although the influence could not cover both return
on assets and return on equity


Acknowledgement
This research is completed successfully thanks to the contributions from the following people;
Firstly, I owe my deepest gratitude to my supervisor for all of his dedication and enthusiasm in
giving me detailed and constructive feedback so that I can improve the quality of my research.
I would also like to extend my sincere thanks to my colleagues and lecturers in the University
who inspired and equipped me sufficient research skills to conduct this study,
Last but not least, I would love to thanks my parents for their unconditional love and support.

Table of Contents
Abstract............................................................................................................................................................. 2
Acknowledgement............................................................................................................................................ 3
Chapter 1. Introduction..................................................................................................................................... 5
1.1. Research

background..................................................................................................................... 5

1.2. Research

rationale, motivation andcontribution............................................................................ 6

1.3. Research

purpose, questionandstatementof research objectives...................................................8

1.4. Research

structure.......................................................................................................................... 8

Chapter 2. Literature Review........................................................................................................................ 10
2.1. Boards and Board composition................................................................................................................ 10
2.2. Board effectiveness................................................................................................................................... 10
2.3. Board composition and Bank performance.............................................................................................. 11


2.4. Board gender diversity and financial performance.................................................................................. 12
2.5. Bank financial performance and measurement........................................................................................ 13
2.6. The role of gender diversity and its effect on performance: Evidence................................................... 14
2.7. Female in board and bank performance................................................................................................... 18
2.8. Literature gaps and hypotheses development........................................................................................... 20
Chapter 3. Methodology................................................................................................................................. 22
3.1. Type of research......................................................................................................................................... 22
3.2. Research

philosophy.................................................................................................................... 24

3.3. Research

approach....................................................................................................................... 24

3.4. Research

design........................................................................................................................... 25

3.5. Data collection method.............................................................................................................................. 25
3.6. Variables

Definition..................................................................................................................... 26

Gender diversity measurement...............................................................................................................26
Bank performance measurement............................................................................................................26
Chapter 4.

Research result analysis.......................................................................................................... 28

4.1. Descriptive Statistics................................................................................................................................. 28
4.2. Correlation Analysis.................................................................................................................................. 29
4.3. Discussion of the Findings........................................................................................................................ 30
Chapter 5.

Result discussion.................................................................................................................... 32

Chapter 6.

Conclusion and recommendation........................................................................................... 33

6.1. Summary of the research........................................................................................................................... 33
6.2. Summary of the main empirical findings

andimplications.............................................................. 34

6.3. Policy recommendations........................................................................................................................... 35
6.4. Research limitations and suggestions

for futurestudies................................................................. 35

References....................................................................................................................................................... 36
Appendices..................................................................................................................................................... 42


Chapter 1.
1.1.

Introduction

Research background

Director board is one of the most internal governance mechanisms helping organizations to be
effectively directed and controlled so that they can maximize shareholder’s wealth. Classical
theorists of corporate governance therefore emphasized the increasing importance of the
corporate board seeking to provide managerial oversight and control to deter it from opportunistic
behavior (Fama & Jensen 1983, Jensen 1993, Jensen & Ruback 1983). Arguably, the academic
discussion of board structure and composition has extensively focused on many board attributes
and how to maintain board effectiveness to drive financial performance. However, the subject of

board diversity as an important corporate governance concept has recently caught the attention of
policy makers, corporate stakeholders and academia. As defined by Ahern and Dittmar (2012),
board diversity refers to the variation among its members, Effective corporate governance is
believed to have a positive association with board diversity, which is the prerequisite for boosting


profitability. Consistent with the self-interest principle and free cash flow hypothesis posited by
Akhigbe and McNulty (2013), good governance with diversity at the boardrooms enhances
decision-making process and performance. The observable attributes of board diversity as
concluded by Anderson and Reeb (2008) and Arano et al. (2010), refer to personalities, values,
learning styles age, gender, race and educational and managerial background. In recent years,
gender diversity in the boardroom has become a newly explored and highly debated governance
topic since gender diversity and the participation of female directors on board have been reported
to be predictors for financial performance.
Director board and its composition have been a focal point of corporate governance structure,
directing affecting market value of organizations. In the banking industry, this mechanism plays
as an important role in maximizing shareholder’s wealth while ensuring operating stability of
banks since they are responsible for creating wealth for various stakeholders including clients,
borrowers, regulators and depositors (Peterson & Philpot 2006, Smith et al. 2006). In emerging
markets, director board role is quite complicated because of the serious asymmetric information
risk which affect the efficiency in allocating bank resources. Therefore, despite having high
regulation level, the role of director board in banking governance is given higher attention since
the collapses of credit institutions might disturb the resources allocation as well as system for
payment, negatively affecting directly the world economy. This motivates the researcher to
conduct the current study on the contribution of women participation in boardrooms and
oversight role of the director boards in Vietnamese commercial banking.

1.2.

Research rationale, motivation and contribution

Over decades of empirical research, the effect of the women directors into the boardrooms on
profitability and financial performance of banks has gained inconclusive and mixed results due to
the influence of national culture, regulation, economic context, level of governance effectiveness
and the scope of financial markets across nations of developed and developing economies
(Peterson & Philpot 2006, Smith et al. 2006). Board diversity has still been hugely contemplated
as the most effective governance policy as concluded in the empirical study of Kahn and Santos
(2005) and Dobbin and Jung (2011), Diversified structure for firm governance can be indicated
based on geography with local administration versus foreigners, minority versus majority
shareholders, characteristics of the board such as age, qualification, ethnicity. The appointment of
female directors in bank board in a number of empirical studies indicated a strong effect on
financial performance (see for example Smith et al. 2006, Adams & Funk 2012, Dobbin & Jung


2011). On the other hand, in another research conducted in ASEAN-5 listed commercial banks by
Zulkufly et al. (2015), the female presence in the bank boardrooms among a selected number of
commercial banks in ASEAN is merely for the regulatory compliance and the market for high
performing female executives could be limited, especially in commercial banking. As agreed by
Staikouras et al. (2010) and Zulkufly et al. (2015), countries in ASEAN mainly constitute of
developing economies in which the lowest rates of gender diversity. This is a wonder that how
the gender structure with participation of female directors impact on bank performance. This is
the rationale which inspires the implementation of this research with a particular emphasis on
Vietnamese commercial banking context, which has been left unexplored in the existing
literature.
The present research therefore concentrates on the participation of women directors in bank
boardrooms as board diversity variable which is the predictor for the bank performance. The
empirical effect of this board composition attribute on performance of a selected number of
Vietnamese commercial banks is investigated. According to Zulkufly et al. (2015), the circles of
corporate governance feature board gender diversity which includes the participation of women
on the boardrooms, which is the definition applied in the present research. Unlike prior studies,

this research intends to use financial data collected from largest banks in the Vietnamese banking
system in period from 2013 to 2017 with data related to the board of director being extracted
from the annual report for all commercial banks listed on both HNX and HOSE for the 5-yearsperiod between 2013 and 2017, while data related to dividend payment and bank-specific
characteristics were extracted from the published financial reports by banks. Furthermore, other
non-banking industries which have been conducted in another economic contexts are not capable
of being generalized to commercial banking since there is a significant difference between
banking and non-banking industries (Zulkufly et al. 2015, Croson & Gneezy 2009). Another
motivation for choosing the commercial banking data is that almost all of the prior research
articles have been dealt with multi-sectoral companies therefore tending to produce inconclusive
findings as acknowledged by Balasubramaniam et al. (2015) and Dobbin and Jung (2011). In
order to contribute to the academic literature, this research seeks to focus merely on the
commercial banking sector and the data for the research is quite easily accessible
This research contributes to the extant literature by supplying updated empirical evidence on the
influence of women presence and board monitoring on the financial performance of commercial
banks in Vietnam. To the best of the researcher’s knowledge, there has been virtually no prior


examination to be implemented regarding the extent to which Vietnamese banking sector has
performed after it has undergone the structure change with a particular attention to gender
diversity in the boardroom. As such, this research intends to provide a number of practical
understandings as well as implications regarding the contribution of female executives in general
or independent female directors in particular. Finally, the results of the present empirical research
promise to generate practical insights and implications into the authority accountable for
controlling the extent of gender diversity as well as oversight mechanism of the board of
directors.

1.3.

Research purpose, question and statement of research objectives

Based on research background, context and identified motivations as well as significance for the
research topic, the present empirical study aims to investigate the effects of gender diversity in
the board of directors of a large sample of commercial banks in Vietnam on their financial
performance, measured by return on equity (ROE) and return on assets (ROA). The empirical
analysis is conducted via descriptive statistics, correlation matrix and analysis of multivariate
regression.
The research question is therefore as follows:
What is influence of women presence in board on profitability of commercial banks in
Vietnam?
In order to answer the key question, the following research objectives can be stated:
1. To study the impact that gender diversity on board can have on banks’ profitability in
Vietnam
2. To study the level of gender diversity in boardrooms of commercial banks in Vietnam
3. To examine if there is any relationship between boards gender diversity and banks
profitability levels.
4. To make contributions towards gender diversity research in Vietnam banking sector

1.4.

Research structure

The remaining of this research can be structured as follows. Chapter two presents the literature
review and the development of hypotheses. Chapter three justifies the chosen methodology and
discusses how the data are collected and analyzed. Panel data analysis is employed to examine
the relationship between board gender diversity and firm performance. The sample consists of 12


commercial banks listed on the HNX and HOSE for the 5-years-period between 2013 and 2017.
We used a five-year period to mitigate any potential sample bias. The identities of directors were
obtained from the firms’ annual reports. From these reports, the number of board members is

calculated. Accounting data, such as the book value of debt, the book value of total assets, and
the return on assets were obtained from securities companies, such as BaoViet Securities, BIDV
Securities. Chapter four presents the main empirical results. Chapter five discusses the empirical
results in light of the previous empirical evidence. Chapter six concludes the research by
summarizing the key results, practical implications, limitations of the research and how to
improve in future studies.


Chapter 2.

Literature Review

2.1. Boards and Board composition
As indicated by prior literature board director and its composition have a significant impact on
the performance of listed companies and the main function of the board is to make the interests of
managers and those of shareholders aligned by working closely with managers while providing
substantial oversights and control to ensure they do not commit opportunistic behaviour (Adams
& Funk 2012, Dobbin & Jung 2011, Croson & Gneezy 2009). Since the director board is critical
to the effectiveness of the corporate decision control system, the role of the board cannot be
denied in mitigating the agency conflicts between managers and shareholders, reducing the level
of asymmetric information risk and adverse selection normally occurred in publicly shareholding
firms with dispersed ownership structure. The quality of firm’s monitoring and decision-making
process are argued to have significant associations with the effective boards.
Board composition, according to Croson and Gneezy (2009), is defined as the balance between
inside and outside directors. Following the research conducted by Staikouras et al. (2010) and
Adams and Funk (2012), the current research defines this governance mechanism as the
characteristics of members in the board in the aspects of age, gender, executive or non-executive
members and the level of education and qualification. A large body of empirical literature argued
that there is homogeneity of the board in comparison to the environment in which they are
operating. Board diversity with effective resembling of the environment in which they are

operating can position the firms more competitively. Regarding age aspect, female directors are
younger than male ones in general by roughly five to six years (Core 2016, 2012), suggesting not
only do females impact diverse board in the aspect of gender, but in terms of age, having
significant contributions to the diverse views on the director board.

2.2. Board effectiveness
Board effectiveness ensures their organization quickly adapt and respond to the changing
business environment with high level of uncertainty, seeking to supply suitable leadership and
managerial oversight in order to drive organization to success (Barako et al. 2006). There has
been a number of significant factors influencing board effectiveness as concluded by prior
studies, including board composition, board independence, ownership concentration internal
dynamics of the board, which are grouped as the controllable variables. Moreover, research
conducted by Campbell and Minguez-Vera (2008), concluded on uncontrollable factors


impacting board effectiveness including industry type, complexity, legislative setting, industry
ethos. A recent research conducted by Hillman et al. (2015), found out the major dimensions of
board effectiveness including strategic and operational control, elucidating that operational
control activities are related to the roles of the board in supervising managerial decision-making
process in terms of the financial and economic position of the firm, needing expertise in
statistical and quantitative competence. Board effectiveness, according to the research findings of
Balasubramaniam et al. (2015), can be used as the mediator or intervening construct among
company performance and board processes.

2.3. Board composition and Bank performance
The relationship between board size and bank performance has been frequently examined in prior
studies. Dunn (2011) carried an empirical and quantitative analysis on a large sample of Canadian
companies over the period 2000 to 2008, concluding that boards with small size is positively
associated with return on assets, a widely used proxy for bank performance. Sharing the same
empirical observation, the research conducted by Macey and O’Hara (2013) who examined the

effect of board size of a large sample of US banks, concluded that smaller board size has a
statistically significant effect on bank profitability, measured by return on investment since
smaller size enables quicker decision-making and control to reduce asymmetric information risk
and moral hazard. However, there are several studies concluding that the size of the director
boards has an insignificant impact on performance (see for example Wang & Cliff 2009, Farrell
& Hersch 2005). Regarding board composition, Wainaina (2013) reported that this variable has
no relationship with bank profitability despite a direct correlation being reported. This result is in
line with that of Ujunwa (2012) who concluded that board composition has an insignificant
impact on bank profitability, measured by market-to-book ratio and Tobin’s Q. Conducting a
wide scale of research for a large sample of banks across OECD nations, Jurkus et al. (2010)
reported that an inverted U-shaped association among the proxies for bank profitability including
return on equity, return on sales, profit margin and return on assets, and board size. Their results
indicated a positive impact of board independence on the performance of banks. Additionally,
using a sample of 100 banks in selected countries in European from 2005 to 2010, and 50 banks
operating across Switzerland and EU-15 throughout the year 2010, Farrell and Hersch (2015)
reported that boards characterized with higher number of independent members are more likely to
positively influence the bank performance since they are independent from management to
provide unbiased business judgement to shareholders. Non-executive members are therefore


entrusted by shareholders since they help reduce agency costs and interest conflict. The
proportions of non-executive directors and bank performance have received a mixed association.
The Code of corporate governance and regulators in the UK suggested the composition of board
members must be balanced, consisting of independent members (Carter et al. 2013). Although
banks comprised the highest number of independent members, it would not ensure to maximize
the performances. Therefore, the presence of those non-executive members on board must be
monitored in order to create more shareholder’s wealth.

2.4. Board gender diversity and financial performance
As argued by Carter et al. (2013), female executives influence board effectiveness by suggesting

that two of the board activities including service task and financial control have an inverse impact
on the number of female directors. The female members have different power on team cohesion
by the nature of the performed tasks. There is a direct association between gender diversity and
financial performance in the board room. However, the gender diversity in executive suite is
negatively associated with financial performance. In order to assess how firm performs
financially wealthy, return on equity, return on sales and return on assets are frequently used. If it
has one or more female executives meanwhile the identical organization with one or more female
directors indicate lower average profitability (Farrell & Hersch 2005).
As mentioned by Freeman et al. (2004), the organization innovation level can be improved by
electing one or two female members in the board. Additionally, their results indicated that the
association between the number of women in board and the organization innovation level are
influenced by strategy perspective and direction. In a more recent research conducted by
Balasubramaniam et al. (2015), it was reported that when the board is comprised by 30 percent of
female members, they can positively affect the financial performance. The critical mass of 30
percent females indicated that having around three women on the board (Gohlmann & Vaubel
2007). Appropriate proportion of women executives can create advantages for the organization
since they can contribute their innovative capability and diversity in decision-making, improved
percentage on the board leadership. Such factors can result in more effective work environment
by accommodating more women holding key executive positions for the organization (Freeman
et al. 2004). The empirical analysis from the research conducted by Campbell and Minguez
(2010) indicated that the proportion of females holding executive positions is positively
associated with financial performance.


Werbel and Shrader (2003) argued that the financial performance can be improved by having
board diversity with careful and true and fair appointment of executive members since it can
result in higher profitability ratios to the organization. It is further known that gender diversity
can promise higher returns, higher customer loyalty and therefore higher profit margins since
diverse groups are more likely to confront more idea conflicts that take them ahead of the simple
solutions which homogenous groups normally consider, resulting in higher level of innovative

ideas and financial performance. Regarding this argument, Gul et al. (2011) further added that
teams which are consisted of men and women can indicated higher profitability measured by
profit margins, sales volume and earnings per share.

2.5. Bank financial performance and measurement
Following previous empirical evidence, financial performance of banks can be gauged with
different measures including efficiency, profitability, accounting based ratios, market based
ratios, level of competitiveness and productivity.
As argued by Singh and Vinnicombe (2004), profitability is the most frequently used proxy
measure for performance since it can assess financial results from the perspective of efficiency
while evaluating whether the organizations are capable of making sufficient cash flows from its
operating activities to make it durably develop their businesses. The profitability aims to present
the modality to attain the banking operations and serves as a benchmark to assess if banks
achieve their KPI and whether profit maximization and shareholder’s wealth maximization are
achieved. Furthermore, the importance of using profitability for bank performance is explained
by Barako et al. (2006), who purported that it helps analysis to be achieved for indicators of
measuring performance arising from the accounting dates which demonstrates the referencing
periods in most synthetic expressions of financial position and income statement.
From previous empirical evidence, return on equity (ROE) and return on asset (ROA) among the
most widely-used proxies for performance, measuring the firm’s capacity to generate profits from
the shareholders’ investments and from the total assets, respectively into the companies. ROE and
ROA use net profit in relation to the book value of shareholder’s equity and to the firm’s
resources, accordingly so that the value generated from the businesses per dollar invested by
shareholders can be identified. However, the use of net income includes heterogeneous and nonrecurrent items which may conceal the actual profitability structure. From banking perspective,
ROE is the most used profitability assessment for realizing how well the banking services and


activities can generate returns from the average stockholder’s equity. Both ratios can be found on
annual reports (Brennan 2010). Furthermore, they are seen as the easiest approach to assess
history of financial performance meanwhile indicating an effective indicator for future forecast

(Kersley & O'Sullivan 2012). According to Barako and Brown (2008), the most efficient
assessment of the financial institutions for their financial position is to use ROA and ROE, which
are normally adopted as the dependent variables in almost multivariate analysis, regressing
against the independent variables for corporate governance, board structure, gender diversity and
board composition. The use of ROE and ROA also allows the comparative analysis across banks
more easily and effectively.

2.6. The role of gender diversity and its effect on performance: Evidence
Women on board and its effect on financial performance have remained under consideration by
many prominent scholars over decades. A large amount of studies has been conducted in
developed economies to evaluate the effect of gender diversity on firm performance with
opposing results, leading to inconclusive decision on positive or negative effects of gender
diversity. Darmidi (2010) argued that female directors appear to serve on better performing
companies and there was a statistically insignificant abnormal returns on the appointment of
women elected to the board.
Rather than the need for female executives being performance-based, findings indicated firms in
response to either external or internal demands for board diversity. Studying gender diversity in
Swedish board rooms, Kans and Stengards (2012) argued that the percentage of female top
executives is positively associated with ROE and ROA after controlling for a number of firm’s
financial variables and causality direction. Their findings indicated that proportion of women on
executive boards, performance proxies vary from non to positive in relation and the
announcement for women executives on board has a statistically significant impact on ROE. In
another research conducted by Darmidi (2010), it was reported that women holding top executive
positions affect firm performance, depending on their qualifications and expertise. In this study,
Tobin’s Q was adopted as performance measure and there was weak evidence for a positive
relationship between women participation below CEO level and Tobin’s Q. Their findings
emphasized potential competitiveness for identification as well as development of talent in
management and leadership of female executives. Sharing the same empirical observation,
Bertrand et al. (2010) who examined the dynamics of the gender gap for young professionals in
the financial and corporate sectors in the UK, concluded that gender is positively associated with

firm’s value measured by market-to-book ratio and that the opposite causal association is
statistically insignificant. The UK investors did not penalize companies, which increased their
women on the director board and that greater board diversity can create values since share price
indicated a positive impact by announcement of women executives.
De Andres,and Vallelado (2008) reported that women executives do have some contributions
towards board inputs as well as corporate outcomes and that gender diverse board of directors
allocate more attempt to corporate monitoring and control since female directors are punctual and
regular in comparison to their male counterparts but this aspect does not result in significant
finding by rising the female ratio as directors would indicate a positive impact on profitability
ratios. In another research conducted by Fan (2012), the importance of board diversity to firm
performance and board independence was highlighted. Relying on a large sample of Singaporean
listed firms with the panel data regression analysis, his empirical result show statistically
insignificant relationship between profitability ratio of ROE, market-to-book ratio, price-earning
ratio, gender mix and gender influence. Notwithstanding the increasing attention tribute to board
diversity, the majority of existing evidence indicated slow progress to the achievement of the
balanced boards in terms of diversity (Dunn 2011, Werbel & Shrader 2003) which could be
because companies remain impartial regarding the benefits board diversity offers. Drawing upon
a large sample size of the US listed companies with more recent financial data, Hussein and
Kiwia (2015) examined the relationship between female board members and firm performance.
Their panel data multivariate regression analysis with fixed effect model reported on a negative
relationship between those variables. Another argument supporting for the empirical fact that
greater board gender diversity has an inverse effect on corporate profitability can be found in the
research done by Farrell and Hersch (2005) who argued that female directors are more riskadverse than their male counterparts and the participation of female executives in the board
increase the costs of the company as a result of higher turnover as well as absenteeism.
Therefore, greater gender diversity has negative effect on the profitability ratios if female
directors are elected as tokens rather than for their competencies. In this regard, the theory of
tokenism posited by Eisenhardit (1989) is applicable who argued that the tenure of female
workforce within the enterprises is impacted by the percentages in which they find themselves

under more pressure to demonstrate their skills worth as compared to male directors. Consistent
with the tokenism perspective, the research conducted by Grosvold et al. (2007) examined board
diversity in the UK and Norway, concluding that members of homogeneous groups can have


effective and frequent communication since they are more likely to share identical perspectives.
The group homogeneity allows cooperation and less touching conflicts to occur which lead to
less time consuming for the decision-making process.
On the other hand, there has been a number of studies reporting on the strong relationship
between gender diversity and firm’s value but different approaches utilized in each study
generated different findings. Utilizing the financial event study approach, Hermalin and
Weisbach (2003) reported that there is a positive response in general from investors towards the
election of female executives working on the boards among a sample of Canadian listed
companies. This research examined the gender diversity in the Anglo Saxon context while testing
if investors showed a systematic reaction towards the various executive vacancies held by female
directors, a question which gained low level of prior academic attention. On the other hand, a
more recent research conducted by Kersley and O'Sullivan (2012), an empirical investigation on
gender diversity between high-profile executives from Fortune 500 companies and its impact on
costly agency conflicts was conducted. Their results indicated that companies having higher
proportion of women directors show lower costly agency conflict and asymmetric information
risk, which lead to higher values of ROE and ROA. Therefore, a statistically significant
relationship was reported which implied that increased diversity in director boards is positively
associated with accounting-based performance ratio, ROE and ROA, regardless of the absence of
external governance effectiveness.
Making use of financial data from a large sample of Indonesian publicly listed financial
companies, Prihatiningtias (2012) examined gender diversity in the board room and firm
performance, reporting that the increases of female proportion as directors’ share value decreases
creating an unfavourable impact on Tobin’s, which is opposite to the findings reported by
Kersley and O'Sullivan (2012). In their argument, women executives were not senior and
experienced as their male counterparts were. Because of such diversity, companies confronted

losses and to cover the cost, they took loans from various sources thus operating expenses rose,
meanwhile profits and profitability decreased. As a result, Tobin’s Q decreased. Examining the
longitudinal data of the Pakistani listed companies to investigate gender diversity and firm
performance, Mirza et al. (2012) intended to test if potential differences in performances of
women and men owned companies disappear when suitable proxies for profitability were
utilized. The OLS regression findings reported that there is virtually no difference in performance
between women and men owned ventures. Singh and Vinnicombe (2004) observed the impact of


firm’s gender diversity on board among 150 sample UK companies on their shares performance,
proxied by market-to-book ratio, ROE and ROA. Their findings revealed that investors feel
biased, tending to get rid of investing in companies having women holding top executive
positions, which led to a decrease in share prices. This explained by there are so few women in
top UK boardrooms.
It is quite Crystally clear from the above review that gender diversity can be seen as a significant
determinant driving corporate financial profitability despite the fact that its effect on firm
performance is inconclusive since empirical studies vary across countries. Although the effect has
mixed arguments and perspectives, there has been a number of theories putting forward to
explain why gender diversity may carry profound impact on firm’s value.
Smith et al. (2006), who utilized a panel study of 2500 Danish firms to examine the role of
women in top management on firm performance, revealed that companies which have high level
of diversity in boardrooms appear to outperform those which have lower diversity level since
diversity in boardrooms facilitates greater comprehension of marketplace by matching the board
diversity to that of customers and staff thereby improving the ability of market penetration.
Gender diversity as theorized by Singh et al. (2008), results in creativity and innovation since
such characteristics do not have random distribution in the population, therefore creating positive
changes for corporate profitability. An exploration of board diversity in Austraila also produced
similar empirical results. This research examined gender diversity among top 100 public listed
companies’ board, reporting limited practices of gender diversity in the boards of Australian
companies. This is despite the recent public commentary regarding governance practice as well

as the advocacy of board diversity in this nation. The relationship between firm performance and
board diversity was tested based on the agency theory (Jensen & Meckling 1976, Fama & Jensen
1983) who emphasized the self-interest principle and separation of ownership and control could
lead to intensified costly conflict of interests between managers and shareholders. The theory
advocated for board diversity and firm performance. According to the findings reported by both
Singh et al. (2008) and Busta (2007), there is a statistically significant and positive relationship
between board gender diversity and firm performance, showing consistency with the agency
theory that board gender diversity can improve board’s ability to monitor managements. Those
studies explored the proportion of female directors on board who truly increased board’s
independence because they appear to ask questions which their male counterparts might not ask
and the board gender diversity can create a source of competitive advantage for company if it


enhances the firm’s image and positive effect on customer’s behaviour and therefore
performance.
Nevertheless, it is worth acknowledging that the gender diversity role and its contribution
towards the effective functioning of the corporate boards have been left unexplored in developing
and emerging markets in which gender discrimination is popular cultural fact. It is evident that
the empirical evidence on the role of female directors on corporate board and its effect on
commercial banking sector is virtually non-existent, which motivates the current research to
attempt to address this research issue in the context of a sample of commercial banks in Vietnam.

2.7. Female in board and bank performance
The proportion of high-profile women on the executive board, as reported by Smith et al. (2006,
is not positively associated with financial performance. In this research, it was noticed that
family-controlled companies in Malaysia possess higher proportion of women on the board.
Opposing to this perspective, the research conducted by De Andres,and Vallelado (2008, revealed
that financial performance indicators, measured by Tobin’s Q and return on assets, can be driven
by gender diversity. Companies with women occupying CEO positions were reported to generate
more profit margins and return on sales (Singh & Vinnicombe 2004). Utilizing a sample of

leading banks in the UK, the empirical study conducted by Levine (2004) reported that boards
with only one female executive can deliver increased profitability ratios.
Although prior studies tend to observe the significant and positive effect of female directors on
board on the financial performance, the relationship between board size and performance
indicators has neutral association. Nevertheless, in order to acquire appropriate stability for
gender diversity on board, supervisory and law-making attempts must be done (Darmidi 2010). In
the recent research conducted by Kersley and O'Sullivan (2012), female directors in Pakistani
banks tend to reduce financial performance, giving unfavourable signal to investors owing to the
societal stereotype in this developing country criticizing the destructive and disturbing behaviour
of female executives who are not well-educated, not confident and tending to avoid risks.
Research conducted by Hussein and Kiwia (2015) reported that due to cultural differences,
emotional instability and patience matters, female CEOs tend to reduce financial performance
proxies. However, the study done by Brennan (2010) concluded that special characteristics
possessed by female executives needed to have positive impacts on the organizational strategic
implementation are positively associated with return on sales and investments. Sample firms in


this research with at least one female director can assist more productivity and provide effective
managerial oversight to increase more efficient management of resources to generate higher
returns.
Scholars interested in the participation of women on director board and bank performance tend to
support that board diversity with more female directors are positively associated with
effectiveness in board governance and managerial control. According to the research done by
Nielsen and Huse (2010), the impact of board diversity on shareholder’s value was documented.
Despite an unclear association between those two variables since there is no reported statistically
significant relationship, diversity is still a part of exemplary governance structure and enhanced
the board professionalism that might create boosted bottom line. Additionally, as the aftermath of
the 2008 credit defaults and turbulence posited, it is quite critical to elect the director board with
high-profile and responsible directors with high level of expertise and qualifications so that
governance practices can be improved and change management process can be implemented

effectively to recover financial prospect and sustainability of the organization. Indeed, when the
appointment of female directors is not successful, according to Adams and Funk (2012), banks
might face unconscious or conscious discrimination attitudes which might fail the effective
process of the decision-making of the financial entities. In this regard, a key aspect for
appropriate governance practices could rely on more transparency and openness of the leadership
selection process and this might assist the promotion for women to participate into the director
board of the banks as evidenced in the research conducted by Barako et al. (2006) who concluded
that consideration was prioritized for female candidates to apply for the CEO or high ranked
executives in a sample of recapitalized banks in Iceland so that the restoration of the confidence
and normal operation of the banking system can be done.
However, the problems of governance practices inherent in banks for the composition as well as
duties of the director board have been at the core of it. Board diversity is therefore not a matter
which have gained academic attention. Indeed, there is a large number of empirical research on
the role of female directors on bank performance focusing on the examination of the differences
in executing female executives’ performance and other minority owned US commercial banks.
The research conducted by Anderson et al. (2004), concluded that minority-owned banks appear
to be smaller and less profitability but incurred more expenditure than comparable groups of nonminority banks. Another recent research done by Staikouras et al. (2015), on the other hands,
reported that minority-owned banks had improved capital ratios and reduced holdings of liquid


assets meanwhile keeping expansions of the purchased funds by comparing the operating
performance of their sample banks relative to the set of banks with best practices. The findings
indicated that female-owned banks are the most effective in the sample of minority and femaleowned banks.
Grosvold et al. (2007) examined board diversity among a large sample of UK banks and Norway
banks over the year 2003 and their findings revealed no fundamental association between
performance-based ratios including Tobin’s Q, ROE and ROA, and the structure of the director
board. In perspective of the phenomenon of generally traded on an open-market association for
UK banks, it was reported that the growing number of female board directors can establish more
freedom and diverse decision making for the board. With various qualities, this can improve
thinking and decisions for bank strategies and diverse board can have support for banking

activities.

2.8. Literature gaps and hypotheses development
It is quite crystally clear from the above review that gender diversity can be seen as a significant
determinant driving corporate financial profitability despite the fact that its effect on firm
performance is inconclusive since empirical studies vary across countries. Although the effect has
mixed arguments and perspectives, there has been a number of theories putting forward to
explain why gender diversity may carry profound impact on firm’s value. Nevertheless, it is
worth acknowledging that the gender diversity role and its contribution towards the effective
functioning of the corporate boards have been left unexplored in developing and emerging
markets in which gender discrimination is popular cultural fact. It is evident that the empirical
evidence on the role of female directors on corporate board and its effect on commercial banking
sector is virtually non-existent, which motivates the current research to attempt to address this
research issue in the context of a sample of commercial banks in Vietnam.
Following the increasing academic interest in board gender diversity and the effect of the
presence of female directors on the boardroom, especially in developed economies, it is of great
interest to examine the pattern of board gender diversity in Vietnam with a particular emphasis on
the commercial banking sector, in a way to make academic contributions to the limited research
on board diversity from a developing country perspective. The explanatory mode of study applied
in this research intends to shed some practical implications into gender diversity in the banks’
boardrooms in such an economy in which there is a lack of regulatory frameworks related to


board composition. As evidenced from some studies conducted in the Europe, they have begun
regulating the composition of the director board regarding its diversity by establishing gender
quotas, applicable in Sweden, Norway and France. Additionally, there have been some regulatory
recommendations made for maintaining board effectiveness such as the Tyson Report (2003),
Higgs Review (2003), Combined Code (2009, 2010). However, in Vietnam, there is virtually no
such guidelines for board diversity and therefore companies are advised to promote gender
diversity in general as part of the socially responsible business practices. While Ashbaugh-Skaife

et al. (2006) and Grosvold et al. (2007) supplied the characteristics of companies with ethnic
minorities on board for the US and the UK accordingly, the present research addresses that
research gap in the context of Vietnamese commercial baking as one developing economy
utilizing a different dimension for board diversity, for example, gender and nationality diversity.
The present research therefore concentrates on the participation of women directors in bank
boardrooms as board diversity variable which is the predictor for the bank performance. The
empirical effect of this board composition attribute on performance of a selected number of
Vietnamese commercial banks is investigated. According to Zulkufly et al. (2015), the circles of
corporate governance feature board gender diversity which includes the participation of women
on the boardrooms, which is the definition applied in the present research. In addition other nonbanking industries which have been conducted in another economic contexts are not capable of
being generalized to commercial banking since there is a significant difference between banking
and non-banking industries (Zulkufly et al. 2015, Croson & Gneezy 2009). Another motivation
for choosing the commercial banking data is that almost all of the prior research articles have
been dealt with multi-sectoral companies therefore tending to produce inconclusive findings as
acknowledged by Balasubramaniam et al. (2015) and Dobbin and Jung (2011). In order to
contribute to the academic literature, this research seeks to focus merely on the commercial
banking sector and the data for the research is quite easily accessible
This research contributes to the extant literature by supplying updated empirical evidence on the
influence of women presence and board monitoring on the financial performance of commercial
banks in Vietnam. To the best of the researcher’s knowledge, there has been virtually no prior
examination to be implemented regarding the extent to which Vietnamese banking sector has
performed after it has undergone the structure change with a particular attention to gender
diversity in the boardroom. As such, this research intends to provide a number of practical
understandings as well as implications regarding the contribution of female executives in general


or independent female directors in particular. Finally, the results of the present empirical research
promise to generate practical insights and implications into the authority accountable for
controlling the extent of gender diversity as well as oversight mechanism of the board of
directors.

The research question is as follows:
What is influence of women presence in board on profitability of commercial banks in
Vietnam?
As a result of the literature review, the following hypotheses are developed
H1: There is a significant positive relationship between female representation on the board
of directors and commercial bank’s financial performance in Vietnam.
H2: There is no significant positive relationship between female representation on the
board of directors and commercial bank’s financial performance in Vietnam.

Chapter 3.
3.1.

Methodology

Type of research

Saunders, Lewis and Thornhill (2012) asserted that within the field of academic research, there
are three type of researches, which are qualitative, quantitative and a mixed method that combine
both quantitative and qualitative. In which, the quantitative research refers to research method
that use numerical and statistic and non-numerical data such as graph and chart to generate
meaning of founded information, analyse and interpret these data. On the other hand, qualitative
research refers to research methods that use non-numerical data that was obtained from narrative
research and interview, then make senses and interpret these data by using personal knowledge
and understand of researchers. Denzin and Lincoln (2005) mentioned that the nature of
quantitative and qualitative research is different, which lead to distinctive methodologies of each
research type in collecting, analysing and interpreting finding. Thus, qualitative research is
preferred by researchers who want to explore certain event or phenomenon by collecting,
analysing, interpreting and making sense of data that was collected within the natural context and
setting of the research object. This method is applied in order to gain in-depth understanding of
the phenomenon or event, through which, generalize theory for the phenomenon or event. For

this reason, qualitative research process required physical access of researchers to research


objects to have access to data. Thus, qualitative research has a critical limit that it is possible for
the researcher to intentionally or unintentionally interpret the data inaccurately or collect data by
an unappropriated method that lead to bias response of respondent. However, this critical limit of
qualitative, on the other hand, could be considered as a unique advantage because researcher can
flexibly change questions to match with the actual situation. It is rational to assume that the
questionnaire or list of interview questions that researchers develop at home could not fully
address the real situation and the need to flexibly add more question or change questions is
essential, which help to gain more valuable information that could not be think of without actual
research.
In comparison, quantitative research is normally used for examining relationship between various
numerical variable and make sense of data by using statistical techniques and software such as
SPSS. In contrast with qualitative research, quantitative research does not require researcher to
physically interact with research object to collect data. Instead, quantitative researcher could
conduct the research independently from research object, thus, none of the research object could
receive more or less attention or special treatment, which significantly improve the ability to
prevent bias of the research due to emotional or personal reasons. For this reason, research tools
and techniques are used by quantitative and qualitative researchers are different. According to
Saunders, Lewis and Thornhill (2012), research techniques such as interview, semi-structured
interview, narrative and ethnography research should be used for qualitative research while
questionnaires, survey and structured interview are suitable with quantitative research method.
Yin (2009) also asserted that the nature of each research method determine research techniques
that should be used.
Therefore, it can be seen that none research method is better than the other because each research
type has different strengths and weaknesses that could effectively help researcher to explore the
issue or generalize theory. The strategy of researcher in utilizing these research type effectively
and strategically is very important. This give rise to mix research type which chronographically
use both quantitative and qualitative research method to solve the research question (Saunders,

Lewis and Thornhill, 2012)


No.

Bank

Stock
IPO
code______ Year

deduction
researchphilosophy
approach should be used. Reversely, if there is no gap between premises and
3.2.
Research
conclusion, the induction research approach is more suitable to use. In this case, various
researches have defined the relationship between presence of woman in board and firm
performance as well as presence of woman in board and bank performance. Thus, the relationship
between premises and conclusion have been formed and the induction approach is more suitable.

3.4.

Research design

Research design is critical for any research because it provide the backbone for the whole
research to be successfully conducted as well as framework to analyse the study. According to
Ghauri and Gronhaug (2010), exploratory and causal designs are two major streams of research
design. In which, the exploratory research design is suitable to reveal and study problem that has
not been researched or identified before because it enabled researcher to be more open and easier

to adopt with new information, although it also requires more effort to observe and collect more
FIGURE 1. LAYERS

OF RESEARCH

-

ADOPTED FROM

SAUDERS,

LEWIS AND THORNHILL

(2012)

information to construct sufficient explanation for the unknown matter. In comparison, causal
Basically, research could be imaged as an onion with various layers that normally, researchers
research design refers to the research design that aimed at investigating topic or issue by looking
could not fully explore all of these layers due to certain limitations, including budget, time and
at the effect that one variable has on the other. Thus, causal research is frequently used in
resources (Sauders, Lewis and Thornhill, 2012). Therefore, in order to conduct the research, it is
business to identify effect of a factor, such as change in consumer behaviour, on the other factor,
essential for researcher to identify research philosophy or the how could the world be viewed
such as sale revenue of the company. In this case, the researcher aimed to explore the relationship
from their point of view. In which, there are four major research philosophies which are
between presence of woman in board and financial performance of commercial bank in Vietnam.
Pragmatism, Interpretivism, Realism and Positivism. After identifying these research
Therefore, it is clear that the causal research design is more suitable as it matchs with the purpose
philosophies, researcher could based on it to develop other layers of research such as technique,
of the research, which is exploring and investigating the possible causal effect between presence

strategy, approach, sample selection, data analysis and data collection methods. In this paper, the
of woman in board of director and performance of commercial bank. For instance, because there
researcher aims to develop a law-like causal relationship between the presence of woman in
is more woman in board, the bank perform better.
board of director and financial performance of commercial bank in Vietnam Therefore, the
positivism
philosophy
could
be considered as the best suitable research philosophy. Based on
3.5.
Data
collection
method
which,
and research
designthe
could
be presented
as in following
sectors.
Panel the
dataresearch
analysisapproach
is employed
to examine
relationship
between
board gender
diversity and
firm performance. The sample consists of 15 commercial banks listed on the HNX and HOSE for

3.3.

Research approach

the 5-years-period between 2013 and 2017. Data is collected on quarterly basis because financial
According to Bryam and Bell (2015), after defining research philosophy, researcher should
report of listed companies are announced at the end of each quarter or within few weeks of the
define research approach, which could be represent as the next layers of the research framework.
next quarter. Thus, there are 15 banks with 5 years of observation and 4 quarters each year, which
In which, there are three basic approaches: induction, abduction and deduction. In which, the
make the total number of observations is 15*5*4 = 300 observations.
abduction research approach refers to research approach that rely on observation of event, fact or
phenomenon that were incurred unexpectedly. On the other hand, deduction and induction
approaches based on premises. Whereas, if there are gaps between premises and conclusions, the