Tìm hiểu vai trò của các thông lệ tốt về lãnh đạo và quản trị doanh nghiệp trong việc cải thiện đầu tư tổ chức đối với các công ty niêm yết trên thị trường chứng khoán tại Việt Nam

viii

TABLE OF CONTENTS

ACKNOWLEDGMENT i
ABSTRACT ii
TÓM TẮT v
TABLE OF CONTENTS viii
LIST OF FIGURES xii
LIST OF ACRONYMS xiii
INTRODUCTION 1
CHAPTER 1: LITERATURE REVIEW 6
1.1 An overview of institutional investors 6
1.1.1 The impact of having institutional investors involved in a company‟s
ownership 6
1.1.2 What influences the investment decision of institutional investors
(Determinants of institutional ownership) 13
1.2 An overview of leadership and corporate governance 21
1.2.1 Leadership 21
1.2.2 Corporate Governance 24
1.3 Why good leadership and corporate governance practices can help
companies in general and Vietnamese listed companies in particular to
improve institutional investment 31
1.3.1 They become “an increasingly important factor for investment decisions” 31
1.3.2 Mitigate agency problems 31
1.3.3 Create greater value for companies 32
ix

1.3.4 Institutional investors would pay a good premium for well led and governed
companies 33
Chapter summary: 33

CHAPTER 2: ANALYSIS AND ASSESSMENT ON THE APPLICATION OF
LEADERSHIP-CORPORATE GOVERNANCE PRACTICES IN VIETNAM
LISTED COMPANIES 34
2.1 Business environment in Vietnam 34
2.1.1 Vietnam Economic Outlook 34
2.1.2 Vietnam Stock Market 39
2.2 Leadership and corporate governance in Vietnamese listed companies 46
2.2.1 Organization type influences the leadership and corporate governance style . 46
2.2.2 Vietnamese companies are late developers in the area of leadership development 47
2.2.3 A large majority of Vietnamese companies are either state-owned or family-
owned 48
2.2.4 Board of Directors, committees and CEOs issues 50
2.2.5 Ambiguous disclosure practice and weak transparency 52
2.2.6 Weak regulation to protect minority shareholders 53
2.2.7 Weak risk management 54
2.2.8 Remuneration/Compensation 57
2.2.9 Communication (Investor Relation) 59
2.3 Three cases of most attracted Stocks – ABC, FPT and VNM 62
2.3.1 The case of ACB 63
2.3.2 The case of FPT 67
2.3.3 The case of VNM 70
x

Chapter summary 74
CHAPTER 3: RECOMMENDATION 76
3.1 Opportunities and threats to the attraction of institutional investors into
Vietnamese listed companies 76
3.1.1 Opportunities 76
3.1.2 Threats 77
3.2 Recommendation to identify the “right” investors 79

3.2.1 Targeting institutional investors with long investment horizons 80
3.2.2 Institutional shareholders with positive attitude toward mutual benefits 80
3.2.3 Institutional shareholders who have responsibility for their votes 81
3.3 Recommendation on how to improve institutional investment to
Vietnamese listed companies through good leadership and corporate
governance practices 81
3.3.1 Quality of leadership 81
3.3.2 Quality of corporate governance 87
3.4 Action plan 101
3.4.1 Build the Board of Directors of high quality and professionalism 101
3.4.2 Build attractive but reasonable vision, objectives and annual business plan for
the company 102
3.4.3 Make reliable financial statements 102
3.4.4 Improve the role of Internal control 102
3.4.5 Improve the abilities of risk forecast and management 103
3.4.6 Disclosure policy 103
Chapter summary: 105
xi

CONCLUSION 107
REFERENCES 108
APPENDIX 112
Appendix1. Interviewees list 112
Appendix 2. Questionnaire to Buy-side and Securities Corporations 115
Appendix 3. Questionnaire to Sell-side 116
Appendix4. List of fund management companies in Vietnam 118
Appendix 5. The birth and growth of institutional investors 121
Appendix 6. Definition and classification of institutional investors 122

xii

LIST OF FIGURES


Figure 1: Determinants of institutional ownership 21
Figure 2:Leadership Causal Chain 24
Figure 3: Public companies organization chart 26
Figure 4: Corporate Governance Practices and Firm Performance 28
Figure 5: Vietnam GDP growth 2000-2011 35
Figure 6: Market trading volume (Unit: share) 40
Figure 7:Market Trading Value (Unit: VND million) 41
Figure 8: General organizational structure of listed companies in Vietnam 55
Figure 9: Comparison between Chairman and CEO‟s responsibility and duties 88
Figure 10: The “three lines of defense model” 100


xiii

LIST OF ACRONYMS
AGM Annual General Meeting
AR Annual report
BoDs Board of Directors
BoM Board of Management
CEO Chief Executive Officer
EPS Earning Per Share
ERM Enterprise Risk Management
FDI Foreign Direct Investment
FIA Foreign Investment Agency
FII Foreign Indirect Investment

GDP Gross Domestic Product
HASTC Hanoi Stock Trading Center
HNX Hanoi Stock Exchange
HSX Hochiminh Stock Exchange
IR Investor Relation
OECD Organization for Economic Cooperation and Development
POEs Private-owned enterprises
ROA Return on Asset
ROE Return on Equity
SME Small and Medium Enterprises
SSC State Securities Commission
SOEs State-owned enterprises
1

INTRODUCTION
Background of the study
“A key element in modern capital markets is the interplay between firms that
increasingly raise capital internationally, and institutional investors that manage
growing pools of assets”.
1

Capital is an essential input for any business. The bigger the business expansion is,
the more importance of additional capital. Funding plan always plays an utmost
crucial role throughout the companies‟ growth path. Long time ago, companies
mostly relied on state or individual/internal capital when they need a fund raise. In
modern economy, they have a new and more efficient capital pipeline channel to
facilitate this demand which is the stock market.
This special market has their own main players, including Sell-side and Buy-side.
Sell-side basically consists of investment banks and listed companies, who create
stocks and bonds, and sell these securities to investors. Meanwhile, Buy-side

consists of individual investors and institutional investors who are asset managers,
pension funds, insurance firms, hedge funds, etc.
Institutional investors are very crucial forces and receive warm welcome from
almost every stock exchange in the world. On emerging markets like Vietnam,
institutional investors, especially foreign ones, are being needed due to their
positive contribution to the development of local financial markets.
In Vietnam, stock market was born when the country‟s first official trading floor –
Ho Chi Minh Stock Exchange Center (HOSE, latter renamed HSX) – opened on
July 20
th
, 2000, followed by the Hanoi Securities Trading Center (HASTC, latter
renamed HNX) half a decade later. Since inception, the scale of both trading


1
Miguel A. Ferreira,The Colors of Investors‟ Money: Which Firms Attract Institutional Investors From
Around the World, 2006.
2

floorshave been growing strongly and gradually becoming a significant capital
channel in medium and long term, positively contributing to the country‟s
industrialization and modernization. During the period of 2000-2005, market
capitalization stayed only around 1% of GDP. In 2006, it had a strong leap up to
account for 22.7% of GDP and continues to grow at over 43%of GDP in 2007. By
30
th
August 2012, the total market capitalization of HSX and HNX was US
$35.4billion, equivalent to approximately 32% of 2011‟s nominalGDP (US $110
billion).According to the strategies to develop the local securities market during
2010-2020of State Securities Commission (SSC),Vietnam targets to raise its stock

market capitalization to 65%-70% of its GDP in 2015 and to 90%-100% of the GDP
in 2020.
The number of companies listed on the Vietnam stockmarket has been increasing
rapidly, even in the worst time. It went from the first 2 companies in July2000 to
more than 600 ones at the end of 2010. Shares issuance activity to raise capital via
the stock market started to take off since 2006 when 44 listed companies
successfully made new issuance of more than 203 million shares. In 2007, it
reached the extremely high level where 192 companies and four banks made 200
issuances with total capital up to nearly VND 40,000 billion.
The number of investors participating in the stock market increasedstrongly, too,
regarding all individual investors and domestic and foreign institutions. In 2000,
there are approximately 3,000 trading accounts. Steadily, this number increased to
12,000.Of which, there are 1,300 institutional accounts. The number of fund
management companies grew from a few in the 1990s to 47 in 2010, accordingly.
Foreign investors quickly showed their major role, especially in creating market
liquidity.
That is to say, together with foreign direct investment (FDI), foreign indirect
investment (FII) has become an important source of foreign funds to support
Vietnam‟s growing economy. Likewise, the successful economic reform also made
3

Vietnam an attractive frontier - emerging market for many foreign institutional
investors.
During the past decade, business cycles has been going on from the stability,
recessions and boomsand profound inflation.“Many new industries that have
revolutionized society, such as technology, biotechnology, and communications, etc.
And through it all, the need for capital has relentlessly grown, and the role of
investment attraction has grown, which has led to competition for capital”
2
. And

one of the best ways to win the competition for capital is lying in the companies‟
leadership and corporate governance practices.
Statement of the problem
A century ago, companies in the world and in Vietnam almost did not know or care
who their major shareholders were. Today, upon realizing the significance of
institutional investors, companies started to change attitude toward attracting and
keeping institutional investment. In response to shareholder desires, companies are
paying more attention to their leadership and corporate governance.
A common thought of almost Vietnamese listed companies half decade ago was
that: “A company’s record will speak for itself”, say, if companies work well
enough, institutional investors certainly be aware of and come for further
discussions. However, how to attain good and better performance with better
business results, becoming a good and better company in order to be discovered and
welcomed by investment community are an open question.
The answer largely comes from the good leadership and corporate governance
practices. Various former study did research on leadership, corporate governance
alone or in relation with companies performance, but very few studies have
examined the dynamic interactions between the good leadership and corporate


2
The Nasdaq Stock Market, The Strategy and Practice of Investor Relations, p.112.
4

governance practices and the attraction of institutional investors. Therefore, the role
of leadership and corporate governance and their relationship to corporate
performance in successful investment is in need of further research.
Purpose of the study
From own experience in working with both Buy-side and Sell-side during career,
the author has felt the need for specific pointers on implementing good leadership

and corporate governance practices in Vietnamese listed companies. This study
therefore investigates the impact of good leadership and corporate governance
practices on investor decision-making and the extent to which they are leading
indicators of future financial performance. It also aims to serve as a guide for those
who wish to strengthen leadership and corporate governance practices in their
organizations.
This aim drives into two objectives. The first objective is to show why good
leadership and corporate governance practices are important in terms of a means to
achieve better corporate performance to help Vietnamese companies attract
institutional investment. The second objective is to provide guidance on how to
perform this function efficiently and effectively to add value to companies,
including but not limited to two parts: The first is Quality of leadership and the
second is the Quality of corporate governance.
Quality of leadership was represented in four main factors: 1). Quality of
companies‟ vision; 2). Quality of company‟s strategy; 3). Execution of company‟s
strategy and 4). Quality of leaders.
Quality of corporate governance is built from 5 aspects: 1). Constituting an
independent and objective board; 2). Compensation/Remuneration issue; 3).
Improve transparency; 4). Improve communication quality and 5). Improve risk
management.


5

Methodology
At this time, little is known about the processes that Vietnamese listed companies‟
leaders use in order to lead their companies to success. Therefore, a variety of data
collection methods, interviews, observations and case study method were used. This
technique provided a comprehensive illustration of the effectiveness and necessity
of good leadership and corporate governance practices in association with

successful attraction to institutional investors.
Scope and limitations of the study
Scope:
The study looked at companies listed on HSX and HNX in Vietnam only as they are
the most public companies in terms of information disclosure. The author then
picked up 3 listed stocks for making observations and conclusions on the topic.
Limitations:
 The study is mostly based on available public information and discussions with a
group of ten analysts from ten securities companies and investment funds and three
Investor Relations specialists from three listed companies as the author did not have
the opportunities to discuss with BODs and BOM in persons.
 Vietnam is a new emerging country with young stock market, lacking industry
practices and no standardized corporate governance norms. Therefore, some
recommendations may be customized for suitable purposes.
Due to above mentioned limitations, the recommendations might not cover all
necessary aspect and may not bring readers a convincing conclusion, but it opens a
question to other students in examining the leadership and corporate governance
application in Vietnam.

6

CHAPTER 1: LITERATURE REVIEW
Chapter 1 provides an economic rationale for why leadership and corporate
governance matters to the institutional investment. It explored the relationship
between good corporate leadership-governance practices, corporate performance
and the improvement of investment from institutional investors.
1.1 An overview of institutional investors
1.1.1 The impact of having institutional investors involved in a company’s
ownership
Despite the increasing presence of institutional investors in the capital market, there

is considerable controversy regarding their effect on firm performance. Researchers
in this area have presented various mutually exclusive viewpoints which can be
synthetized into into 2 sides: the pros (benefits) and cons (the negative affects) of
the institutional investors‟ involvement.
1.1.1.1. The pros (benefits)
Once having institutional investors as strategic shareholders, companies can get
benefits both fundamentally and technically.
 Fundamentally
- Increase companies‟ performance
This is especially true to “dedicated” institutional investors.
The above-mentioned word - “performance” - can be translated in two different
referential points: 1) A company gets good earnings growth (internally) or 2) Better
business results than its peers (externally).
Regarding internal earnings growth, if after a certain fiscal period, a company posts
a growth rate in its earnings, such rate is easily considered as a benchmark for the
company to maintain its growth in accordance with the values of investor
capitalism.
7

Regarding externally peer comparisons, that means company‟s performance can
also be measured by benchmarking the organization to comparative companies. If
an organization‟s stock returns have previously outperformed the returns of their
comparative peers, then there is a pressure to manage earnings to maintain the
appearance of success.
“Dedicated” institutions usually look for long-term gains from their investments.
That is to say, institutions are able to seek out and invest in companies that are
inherently more effective than their peers. After purchasing stake in such
companies, frequently large ownership, they are able to use the right of big
shareholders to involve into the investee companies‟ corporate governance. The
large holdings of these investors provide them with an incentive to monitor investee

companies‟ BoD and influence their actions, if necessary. Thus, institutional
investors are able to help companies to increase performance, rather than simply
invest and stand aside waiting. Another reason is that “dedicated” institutional
investors cannot easily divest their holdings in the short run. Therefore, they are
interested in the companies which are potentially beneficial in the long run.
Institutions may be motivated to use their “voice” to influence managerial
decisions, closely involved in monitoring companies‟ managers and the strategic
management with the motivation of increasing firm value, ensuring that managers
targeting to maximize long-run value rather than to meet short-term earnings goals
in order to make their future exit from an equity easier.
- Increase companies‟ value
Once an institutional investor establishes a large position, its next motive is
typically to find ways to drive up its value. This is especially true to “transient”
institutional investors. As they trade frequently with a view to maximizing short
term gains (as mentioned above), they use their advantage of possessing superior
information to other market participants, actively seek out situations in which they
can exploit this informational advantage. Their presence, particularly under
8

conditions where company-level information quality is poor, is associated with both
higher returns and higher subsequent company values.
Institutional investors differ quite dramatically in their preferences for this
characteristic, primarily because of differences in both their investment horizons
and ability to collect company specific information. Transient institutional
investors, given their short term and high turnover appetite, are attracted to
companies that perform well (in both an accounting and financial sense) but have a
high level of informational uncertainty. Meanwhile, institutional investors with a
longer term focus (quasi-indexer and dedicated) are attracted to companies with
features that facilitate oversight of managerial behavior. However, the transient
class of institutional investor seems to be consistently associated with higher

company values.
According to Berle and Means (1933)
3
, as a company‟s ownership structure
becomes more diffuse, shareholders‟ ability to control management diminishes. The
resulting shift in power allows managers to act in their own self interest, potentially
destroying shareholder value in the process. This reminds of the classic principal-
agent problem.
 Technically:
- Positive effect on the stock prices
Stock prices are partially impacted by their liquidity on market trading. Liquidity is
understood as the ease with which an asset can be converted into cash. “If a stock is
not regularly traded (in the limit not traded), uncertainty about its underlying value


3
Berle, Adolf A. and Means, Gardiner, C. (1933), The Modern Corporation and Private Property, New York,
Macmillan
9

increases”
4
. A typical characteristic of stock market is that, as investors assemble
information and act upon it, the information becomes reflected into the stock price.
Hence the less trading, the less opportunity for information to be timely
incorporated into the price, and the more uncertainty about the stock‟s underlying
value. Furthermore, as liquidity decreases, fewer investors are interested in the
stock, so that overall information collection tends to decline. Since it is more
difficult to find interested buyers, an illiquid stock is more costly to turn into cash.
As a consequence, the seller of an illiquid stock will have to accept a discount on

the selling price. Consequently, as uncertainty about the underlying value increases,
less investors are interested to buy it and as trading becomes more costly, the share
price decreases.
Therefore, institutional investors are considered to have a positive effect on the
stock prices of the companies in which they invest. This effect materializes through
different mechanisms: institutional investors reduce information asymmetries
between the firm and (other) investors, contribute to the liquidity of the company‟s
stock and improve the firm‟scorporate governance.
If firms fully understand the positive influences of institutional investors and if
benefits are larger than costs, they may do efforts to involve these professional
investors in their ownership.
- Enhance market sentiment
Institutional investors have advantages over individual investors in terms of their
high level of information and their better technology in analysing financially
relevant information. They are investment specialists and are be expected to benefit
from gains of divestment based on scale effects.


4
Merton, R., 1987, A Simple Model of Capital Market Equilibrium with Incomplete Information,
Journal of Finance 42, 483-510.
10

To the extent that institutional investment decisions are influenced by private
information, changes in the institutions’ holdings will convey information
5
. Hence,
once stock markets capture a “buy signal” from institutional investors, the other
investors may feel more confident to follow. This is due to “herd behavior” or “free-
rider” effect. Individual investors, especially in emerging market, put their trust

much on institutional investors. These institutions directly impact the behavior of
other investors. In the plus side, when institutions buy, the others tend to imitate.
Hence, trading volume and stock price are prone to rise. This facilitate the
additional issuance of companies in the future.
1.1.1.2. The cons (negative affects)
 The “myopia” affects
There are some institutional investors look mainly for short-term gains from their
equity investments, called “myopia investment behavior” (or "managerial myopia")
6
.
Rather than looking for long-term value creation from their investments, these
institutions may prefer to profit from portfolio shuffling when there are increases or
decreases in stock prices, even if those changes are temporary. The resulting
“myopia” has often been blamed for being one of the primary causes of the decline in
the competitiveness of listed companies (Graves, 1988; Graves and Waddock, 1990;
Hill, Hitt and Hoskisson, 1988; Porter, 1992)
7
. The reasons are, the frequent trading
and short-term focus of institutional investors encourages companies‟ managers to
engage in myopic investment behaviors, such as to reduce investment intangible
projects such as research and development (R&D), advertising, and employee
training for the purposes of meeting short-term earnings goals.


5
Chakravarty, Stealth-trading: Which traders' trades move stock prices? Journal of Financial Economics
6
Brian J. Bushee, “The Influence of Institutional Investors on Myopic R&D Investment Behavior”, 1998.
7
Rahul Kochhar, Parthiban David, “Strategic Management Journal”, Volum 17, Issue 1 (Jan, 1996), 73-84.

11

By acting as "traders" rather than "owners”, such institutional investors place
excessive focus on short-term developments, leading managers to fear that an
earnings disappointment will trigger large-scale institutional investor selling and
result in a temporary undervaluation of the company's stock price.
 “Herd behavior”
The negative side of “herd behavior” shows when institutions dispose some stocks
or all of their portfolio. The sale of large blocks of equity often leads to substantial
drops in the stock price, potentially making the sale unattractive and their actions
affect the market
8
. Also, even if they do manage to liquidate their investment in a
company, new profitable opportunities will be scarce as the institution's portfolio
already tends to be well diversified.
Institutional investors influence on “herd behavior” by increasing the tendency of
investors to ignore economic fundamentals. Instead, they observe and follow the
behavior of others. The reason stems from the fact that most fund managers are
evaluated primarily on the basis of “relative performance”; that is, they are
penalized for underperformance in relation to the median fund while, at the same
time, are not proportionately rewarded for overperformance. This leads to trend-
chasing behavior because: fund managers will follow the investment decisions of
other fund managers in order to show clients that they know what they are doing. If
they follow other fund managers' decisions and the investment turns out to be
unprofitable, they are more likely to be thought of as unlucky than as unskilled,
since other fund managers will have made the same mistake
9
. Another reason is
relating tothe costs and difficulties associated with the collection and analysis of

8
Rahul Kochhar and Parthiban David, “Institutional Investors and Firm Innovation: A Test of Competing
Hypotheses”, 1996. Strategic Management Journal.
9
Adam Harmes,“Institutional Investors and Polanyi's Double Movement: A Model of Contemporary
Currency”, 2001.
12

fundamental information. As a result, observing the choices of others is often a
cheap and helpful alternative to analysing economic fundamentals. Accordingly,
fund managers may buy and sell securities on the basis of price movements without
assessing whether or not they are in response to underlying fundamentals.
Therefore, in the event that an investor is just accidentally successful but all others
follow his decisions, then the whole market imitates decisions that are not based on
fundamentally relevant information. In addition, herding may characterise a
situation in which all investors similarly react on a non-informative signal, possibly
due to psychological forces. The result is that institutional investors do not rely on
their own fundamental information and do not exploit all available information, but,
be more dependent on the less informed judgment and evaluate stocks only by their
short-term and medium-term performance.
 The take-over risk
Another negative disadvantage of institutional ownership is the risk of being
acquired. This is also an unintended consequence of “myopia” and “herd” affects. If
institutions dispose of their large holdings in a poorly performing firm, the stock
price is likely to decline further, making the company an attractive takeover target
for potential acquirers
10
. Moreover, institutions may sell their holdings in case of a
takeover offer with a premium, even though the firm may be performing well.

 Innovation risk
In such a take-over scenario, control passes easily to the acquiring firm as
institutions generally hold large amounts of equity. Managers like to minimize
possible takeover threats as they are likely to lose their jobs after the event. Thus, to
maintain high stock prices, firm manager may be forced to cut back on risky long-


10
Rahul Kochhar and Parthiban David, “Institutional Investors and Firm Innovation: A Test of Competing
Hypotheses”, 1996. Strategic Management Journal.
13

term investments, such as expenditures on innovative activities
11
. According to the
“myopic investor” viewpoint, institutional holding and company innovation will be
negatively correlated.
1.1.2 What influences the investment decision of institutional investors
(Determinants of institutional ownership)
Generally, each institutional investor has its own investment policy or investment
theory specifying which element is the highest priority. In other words, they have
different investment appetite, different trading and investing strategies.“Different
institutional investors have different trading behaviours and this can impact their
incentive to monitor management. Some institutional investors require short-term
returns and thus have no incentive to expend resources to monitor management.
Other institutional investors have a long-term ownership preference and are
oriented towards longer-term performance, e.g. dividend income or stock price
appreciation”
12
.

Zahra (1996)
13
classified mutual, pension, and retirement funds as long duration
institutional owners while investment banks and private funds as short-term
investors. Based on such characteristics, each segment pursues different kind of
stocks. A hedge fund usually invests aggressively and looks for companies of
market‟s favor and prices rise rapidly. Banks, whose portfolios are often so large,
tend to prefer the liquid stocks. Growth fund looks for substantial growth with long-
term. Meanwhile, pension fund looks for companies that will not only grow steadily


11
Hayes, R. H and W. J. Abernathy (1980), “Managing our way to economic decline”, Harvard Business
Review, pp 67-77.
12
Bushee, B.J.(1998). The influence of institutional investors on myopic R&D investment behavior.
TheAccounting Review 73, 305-333.
13
Zahra, S. A. 1996. Governance, ownership, and corporate entrepreneurship: The moderatingimpact of
industry technological opportunities. Academy of Management Journal, 39
14

and appreciate over the longer period of time, but have a measure of safety within
the fund‟s definition of needed return.
Essentially, the institutional investors are convinced by the success and potential of
a company. These are factors that attempt to demonstrate to the investors the ability
of a company to succeed in the future, say, to increase the value of its equity and to
use its capital effectively. These factors can be synthezied into four basic points,
some of which are measurable while others are judgmental. They are: Industry
prospect, Financial data, Management and Plans.

1.1.2.1 Industry prospect
The prospect of an industry is important because it will determine whether a
company operating in that industry can stay well or be in troubles due to the
common conditions of the industry. An economy is comprised of various industries
with different characteristics. Each of them has a unique combination of inputs and
outputs condition, supplies and demands, and business characteristics. Accordingly,
investors consider carefully an industry outlook to evaluate whether an investment
in a company today can bring big return in the future or not.
Institutional investors to Vietnam are usually be recommended to hold a
concentrated portfolio of stocks in the consumer goods, utility and export-driven
agricultural industries. The reason for selecting consumer good stocks is mainly
based on the fact that Vietnamese consumers have been gaining increasing
purchasing power. Urban residents are prone to upgrade their expenditure habits to
resemble those in developed countries, and spend more on entertainment,
automobiles, travel and luxury goods. Meanwhile, rural residents will adopt urban
consumption patterns as they migrate to cities. Such demand growth will help boost
industries like fast moving consumer goods (FMCG), wholesale or retail with
strong brand names.
In terms of utility industry, Vietnam‟s rapid industrialization and urbanization
create big potentials for it. The utility industry is essential and has wide room to
15

grow in developing countries like Vietnam. It enjoys fast growth over the last
decade. Demand for electricity by civil, industrial, commercial and services will
continue to increase, nurturing the growth in sales, return and expansion prospect of
the companies operating in electric-power generation, transmission and distribution,
natural gas distribution, water supplies, etc.
Regarding agriculture export sector,Vietnam has abundant resources given the
country‟s long coastline, extensive network of rivers and lakes, cheap labour and
the agricultural base. For the last decades, exporting agricultural products like rice,

seafood, rubber, garment and textile, etc. has experienced high growth which
generates steady cash flow and fosters stable operation of companies in the sectors.
Those companies accordingly are considered safe and sound investment shelters.
1.1.2.2 Financial data
Overall, investors looks at companies‟ financial data to measure their financial
health. Basic financial data is embodied in the company‟s audited and non-audited
financial statements, its governance filings, including its board of management
meeting minutes, annual general meeting‟s resolution, decision, annual and interim
reports and others. They are released over the internet, on web sites of companies,
state securities commission and financial media. From financial statements,
institutional investors will translate them into popular criteria or ratio to find
whether they meet their requirements, including but not limited to:
 Growth
Certainly, investor of all types are interested in investing in growing companies. A
company with high potential to grow always grasp investors‟ attention as it can
promise them a good return. Furthermore, when a company is in growing phase,
expansion is nearly a must and therefore it needs to source for additional capital.
This opens the investment opportunities for institutional investors who are ample of
cash. Therefore, institutional investors are attracted by companies with stronger
investment opportunities and in need for external financing.
16

A common criteria used to measure growth of a company is the compound annual
sales growth rate (CAGR).
 Good returns
Institutional investors like outperforming stocks. In the same industry, or in the
same conditions of economy, of industry‟s climate, the companies which have
outstanding performance, showed by criteria such as better growth rate in earnings
per share (EPS) but lower price to EPS (P/E) and/or lower price to book value
(P/B). That means, investors find a better but cheaper stock which are potential for

high returns in the future.
 Return on equity (ROE)
ROE ratio measures return in relation with stockholders‟ investment (owner‟s
equity). A company which get higher ROE will be favored as it utilized the
shareholders‟ equity efficiently.
 Dividend yield
Dividends are of prime importance to some stockholders, but a secondary factor to
others. Some investors invest primarily to receive regular dividend income, while
others expect of rising market prices. If a company is profitable and retains its
earnings for expansion of the business, the expanded operations should produce an
increase in the net income of the company and thus tend to make each share of
stock more valuable.
Dividends per share divided by market price per share determine the yield rate of a
company‟s stock. Dividend yield is especially important to those investors whose
first objective is to maximize the dividend revenue from their investment.
 Liquidity
Liquidity is a very important factor to determine whether to trade and invest in a
stock market or a certain stock. “Essentially, liquidity represents the ease with
which financial instruments like stocks and options can be traded. Liquidity is the
17

volume of trading activity that allows a trader to buy or sell a security or derivative
and receive fair value for it”
14
. When there is high volume of people active in a
particular market, it provides the trader with an opportunity to move in and out of
positions without difficulty.
Institutions demand more liquidity in their investments than individual investors
because they trade in large volume. As a result, they prefer stocks that have a deeper
market, where they can enter and exit easily.

 Risks
Certainly, institutional investors are subject to “risk adverse”. With the same level
of returns, they choose to invest in lower risk stocks. One of a common factor to
weigh riskof the company is its “Leverage”. Institutions invest in companies with
less debt. Most of the cases there are quite rare institutional ownership in companies
that have high levels of debt, and where managers actions are strictly monitored by
major debt-holders. Especially, in the event that bank interest rate rises, companies
with high debt/equity ratio are in worse trouble and their bottom line are hard
injured. The other internal risks may be related to the management quality.
External risks vary from the macro changes, natural environment issues,
demographic changes, etc. which are hard to predict but have big impacts on
companies operation.
In short, regarding financial data, institutional investors would like to know all basic
financial factors such as revenue, profit, profit margin, various kind of ratios, cost of
capital and the likes to understand the past performance and the future prospect of a
company.
1.1.2.3 Management


14
Jeff Neal, “Back to Basics: The Importance of Liquidity”, November 14, 2005,

18

Many great companies of today started as small companies. But not all small
companies can grow to large ones. Many of them even go bankrupt within the first
five years. The difference between two companies that started small, and of which
only one thrived, partly, thanks to capitalization. The other and major part is
management, in other words, is leadership and corporate governance, which, to be
more exact, is the management‟s role in raising capital and utilize successfully that

capital. Good leadership and corporate governance lead companies into success.
A survey of investors by McKinsey
15
reported that 80 percent of global investors
said they would pay a premium for a company that was visibly well governed. 63
percent said that governance considerations might lead them to avoid certain
individual companies.
Assessment of leadership talent and skills can be difficult, not only because they are
intangible and qualitative than quantitative, but because they are highly subjective.
They can be seen and felt, but hard to configurate into business results. When
business grows complicatedly, the requirements on management become more
complex, too. Accordingly, the analysis and assessment of management in most
cases are speculative.
Generally, when shareholders invest in a company, they entrust their capital to the
directors of that company, as the BoD are representatives for all shareholders and
were voted by the previous Annual General Meeting to help run the company in the
best way it should be. Shareholders are the company‟s owners and theoretically
have voices in how that company is run. In fact, they are too many and most of
them are of the minority shareholders which their single voices less matter.
Therefore, it is better to express their right through votes a competent BoD at the
company‟s Annual General Meeting and Extraordinary General Meetings. Through


15
Dominic Barton, Paul Coombes, and Simon Chiu-Yin Wong, “Asia's governance challenge”, 2004,
McKinsey Quarterly
19

their votes, shareholders play a vital role in electing the most qualified and ethical
BoD who then appoint the company‟s management. That is the common way in

which leadership and corporate governance are created in a public company.
In exchange, good leadership and good corporate governance result in better
performing stocks. Investors seek outperforming stock to earn the highest return
possible. Then, they seek the companies whose Board of Directors are capable of
making the companies be outperform. When institutional investors have large
portion of a company‟s ownership, they may choose to participate into the BoD to
become responsible owners of the businesses which they are invested in. Because,
intelligent investors are responsible owners. It is in their interest to ensure the long-
term performance of the company. Investors who make the effort to improve
governance in the companies they invest will eventually make them be good over
the long-term.
That is to say, the relationship between the institutional investors and corporate
governance is mutual. Institutional investors are attracted by good governed
companies where they are quite sure their capital is seeded in the right land for
growth and mutually, when they invest and engage in corporate governance,they
have the right and duty to have a voice in the companies‟ operation. Institutional
investors are crucial to the encouragement of good governance. They help ensure
management accountability for financial and ethical actions. This point shapes a
significant part in this study and therefore is discussed deeper in next parts.
1.1.2.4 Plans
As mentioned earlier, investors invest in a company with expectation to collect
good profit in the future. They always look at a certain company to see its prospect
and potential. Money has its own time value. Investors choose to invest in where
they believe to generate the biggest profit. Companies‟ plans are a vital channel for
them to derive their assumption, valuation and decision. The future of a company is,
after all, what investors are concerned with.