Corporate governance and firm value the case of vietnam

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY
-----o0o-----

NGUYỄN ĐỐI NỘI

CORPORATE GOVERNANCE AND FIRM VALUE:
THE CASE OF VIETNAM

MAJOR: BUSINESS ADMINISTRATION
MAJOR CODE: 60.34.05

MASTER THESIS
SUPERVISOR :

Dr. VÕ XUÂN VINH

HO CHI MINH CITY, 2012


i

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to my advisor and supervisor Dr.
Võ Xuân Vinh for his clear guidance, direction, motivation, and especially his
enthusiasm and patience extended to me in a ll the time of my research and
writing of this thesis. Thanks to his profound knowledge, appropriate
methodology and timely guidance, I have cleared the pending issues, got over
obstacles, finalized and completed my thesis.
I would like to thank my profes sors at Faculty of Business Administration and

Postgraduate Faculty, University of Economics Ho Chi Minh City for their
teaching, their guidance and support during my MBA course.
I wish to thank my family, friends and colleagues for their continuous
support, encouragement and comments during my research and preparation of
this thesis.
Last but not least, my special thanks go to my wife for her love, timely
encouragement and strong support extended to me in my completion of this
thesis.


ii

ABSTRACT

Purpose: The thesis aims to investigate the relationship between corporate
governance (representing by three variables: Size of Board of Directors, CEO
and Chairman Duality and Shareholder/Ownership Concentration) and firm
value (measured by Tobin’s Q) on a sample of 271 firms listed on Hochiminh
Stock Exchange in 2010.
Methodology: This thesis uses the model developed by Rashid and Islam
(2008) to investigate the relationship between corporate governance and the
value of a firm in Vietnam stock market . We use some data analysis methods
in conducting the research such as descriptive statistics, correlation matrix,
and OLS regression with Eviews 6 for Windows.
Findings: The result suggests a positive relationship of board size and the
value of a firm, but it is not yet significant. The result also shows a lack of
significant negative relationship of other two independent corporate
governance variables (shareholder concentration and CEO duality) and the
value of a firm; however, based on their negative co efficients, we can learn
that to some extent, too high shareholder concentration and CEO duality have

negative impacts to the firm value. From result, we also learn that control
variables such as price-to-book value ratio and return on total assets have
significant and positive impacts on the value of a firm, while the market
capitalization has a negative relationship with the value of a firm.
Key words – corporate governance, firm value, CGVF, shareholder
concentration, CEO duality, board size, Tobin’s Q


iii

CONTENTS

ACKNOWLEDGE ................................ ................................ ...............

i

ABSTRACT ................................ ................................ ..........................

ii

CONTENTS................................ ................................ ..........................

iii

LIST OF TABLES ................................ ................................ ...............

iv

ABBREVIATIONS ................................ ................................ ..............

v

CHAPTER 1: INTRODUCTION ..........................................................

1

1.1 Background ................................ ................................ .....................

1

1.2 Research Problem ................................ ................................ .............

3

1.3 Research Objective ................................ ................................ ..........

3

1.4 Research Methodology and Scope ................................ ....................

3

1.5 Structure of Research ................................ ................................ ......

4

CHAPTER 2: LITERATURE REVIEW ................................ ............

5

2.1 An Overview of Corporate Governance ................................ ............

5

2.1.1 Definition of Corporate Governance ................................ ..............

5

2.1.2 Potential Benefits of Good Corporate Governance ........................

7

2.2 The Corporate Governance Framework in Vietnam ..........................

11

2.3 Concepts relating to Corporate Governance and Value of a Firm .....

13

2.3.1 Concepts relating to Corporate Governance ................................ ...

13

2.3.2 Concepts relating to Value of a Firm (Tobin’s Q) .........................

15

2.3.3 Concept relating to financial variables (control variables) .............

15

2.4 Literature Review ................................ ................................ .............

17

2.4.1 Shareholder Concentration and the Role of Majority Shareholders

17

2.4.2 Board of Directors’ Size ................................ ................................

18

2.4.3 CEO Duality................................ ................................ ..................

19


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2.4.4 Tobin’s Q ................................ ................................ ......................

20

2.4.5 Control variables ................................ ................................ ...........

21

2.5 Hypotheses ................................ ................................ .......................

21

CHAPTER 3: DATA AND RESEARCH METHOD ..........................

23

3.1 Corporate Governance Evaluation Model ................................ .........

23

3.2 Explanation of Variables used for the Study ................................ .....

24

3.3 Data Collection and Methodology ................................ ....................

25

CHAPTER 4: RESULTS AND DISCUSSION OF RESULTS ..........

27

4.1 Descriptive Statistics and Correlations ................................ .............

27

4.2 Multiple Regression Results and Analysi s................................ ........

34

4.3 Incremental Regressions ................................ ................................ ...

38

CHAPTER 5: CONCLUSIONS ............................................................

39

5.1 Conclusions ................................ ................................ ......................

39

5.2 Limitations and suggestions for future researches ............................

41

REFERENCES ........................................................................................

42

APPENDIX A: Results of the ordinary least squares multiple regressions for
the whole model ................................ ................................ .....................

47

APPENDIX B: Incremental Regression: remove Board Size.................

48

APPENDIX C: Incremental Regression: remove CEO Duality .............

49

APPENDIX D: Incremental Regression: remove Agency Cost (shareholder
concentration) ................................ ................................ ........................

50


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LIST OF TABLES

Table 3.1: Variable definition ................................ ...............................

24

Table 4.1: Summary statistics ................................ ...............................

27

Table 4.2: Statistics of Board Size ................................ ........................

28

Table 4.3: Statistics of Market Capitalisation ................................ .......

31

Table 4.4: Correlation matrix ................................ ...............................

33

Table 4.5: Multiple Regression Results ................................ ................

35

Table 4.6: Results of Incremental Regression removing corporate governance
variables ................................ ................................ ..............................

38


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ABBREVIATIONS

CEO

Chief Executive Officer

BOD

Board of Directors

CG

Corporate Governance

CGFV

Corporate Governance and Value of a Firm

HOSE

Hochiminh Stock Exchange

IFC

International Finance Corporation

OECD

Organisation for Economic Cooperation and Development

GMS

General Meeting of Shareholders

SOE

State-Owned Enterprises

ROA

Return On total Assets

PB

Price-to-Book Value Ratio

AC

Agency Cost (Ownership Concentration)

MC

Market Capitalisation

TQ

Tobin’s Q

OLS

Ordinary Least Square


1

CHAPTER 1: INTRODUCTION

1.1 Background
In the past 15 years or so, the corporate governance area has emerged as one
of the most important area of concentrated research endeavor across the fields
of finance, economics, and accounting. This is all the more in Asia, where
following the Asian financial crisis of 1997 – 1998, regulators, academics,
policy advisors and others were forced to take a long hard look at the various
governance regimes underlying leading corporations in a number of the

worst-affected countries. Most would contend that the ensuing reform to both
the internal and external regulation of such countries, especially within those
countries tellingly affected by Asian financial crisis, has helped shape more
transparent and resilient economies.
It is widely believed that good corporate governance is an important factor in
improving the value of a firm in both developin g and developed financial
markets. The relationship between corporate govenance and the value of a
firm is important in formulating efficient corporate management and public
regulatory policies. According to Black (2001), Klapper and Love (2002) and
Beiner and Schmid (2005), corporate governance plays an improtant role in
improving the performance of a firm and t here is a direct relationship between
the two in both developing and developed financial market s.
During the past decade, the Vietnamese securities market has made large
strides and secured a firm position as a channel for mid -term and long-term
capital mobilization for national economic development. In Vietnam, the legal
and regulatory framework has changed considerably in recent years and it is


2

recognized there is still room for improvement. Corporate governance is a
reasonably new concept to Vietnam, int roduced largely as a result of changes
to the Law on Enterprises in 2005 and with the introduction of CG
Regulations for listed companies (in 2007) which were developed based on
the OECD Principles of Corporate Governance. The purpose of the CG
Regulations is to implement the best corporate governance practice on
corporate mangement suitable to the conditions of Vietnam to ensure a stable
development of stock market and a transparent economy in Vietnam.
Improvement in corporate governance can serve a number of public policy
objectives such as enhancing market stability, increasing investor confidence

and trust, encouraging investment into Vietnam from foreign sources and
reducing the cost of capital for companies.
There is evidence that Vietnamese companies have tried to implement
elements of good corporate govenance. However, it seems that corporate
govenance in Vietnam is at the rudimentary stage and ripe for improvement.
The corporate governance developments seem to have been led by investment
in regulatory and legislative developments – a rule driven “Top down”
approach. Besides a lack of awareness, corporate govenance practices in
Vietnamese companies have been driven by compliance with regulatory
requirement than commitment to higher practice of sound go vernance. To
incourage companies adopt best international corporate govenance practices
and to provide some implications for regulatory improvement, we wish to
conduct an empirical investigation of the CGVF relationship in Vietnam stock
market.


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1.2 Research Problem

According to Rashid and Islam (2008), good corporate governance is an
important factor in improving the value of a firm. Many researches have been
done in both developed and developing markets to investigate the relationship
between corporate governance and the value of a firm (the CGVF
relationship). This thesis aims to conduct an empirical investigation of the
CGVF relationship in Vietnam stock market which is one of the emerging
stock markets in the world and still in the early s tage of its development.

1.3 Research Objective

The objective of this thesis is to examine the relationship between corporate
governance and the value of a firm on Vietnam stock market with the sample
of 271 listed firms in Ho Chi Minh Stock Exchange in the year 2010.
The above objective of this thesis leads to the research question:
RQ1: Does Corporate Governance have effect on the value of a firm?

1.4 Research Methodology and Scope

The subject of this research is 271 listed firms in Ho Chi Minh Stock
Exchange in the year 2010. This thesis uses the model developed by Rashid
and Islam (2008) to investigate the relationship between corporate governance
and the value of a firm in Vietnam stock market. We use some data analysis


4

methods in conducting the research such as descriptive statistics, correlation
matrix, and OLS regression with Eviews 6 for Windows.

1.5 Structure of Research
Chapter 1 covers introduction. Chapter 2 reviews theoretical background and
literatures regarding corporate governan ce and the value of a firm in previous
researches. Chapter 3 describes the model, data and analysis methodology.
Chapter 4 contains the result and discussion of the results while Chapter 5
concludes.


5

CHAPTER 2: LITERATURE REVIEW

2.1 AN OVERVIEW OF CORPO RATE GOVERNANCE

2.1.1 Definition of Corporate Governance:
There is no single definition of corporate governance that can be applied to all
situations and jurisdictions. International Finance Corporation (IFC ) defines
corporate governance as “the structures and processes for the direction and
control of companies”. The Organization for Economic Cooperation and
Development (OECD), which in 1999 published its Principles of Corpora te
Governance, offers a more detailed definition of corporate governance as:
“The internal means by which corporations are operated and controlled […],
which involve a set of relationships between company’s management, its
board, its shareholders and other stakeholders. Corporate governance also
provides the structure through which the objectives of the company are set,
and the means of attaining those objectives and monitoring performance are
determined. Good corporate governance should provide proper ince ntives for
the board and management to pursue objectives that are in the interests of the
company and shareholders, and should facilitate effective monitoring, thereby
encouraging firms to use resources more efficiently.”
According to Professor Steen Thoms en, Director, Center for Corporate
Governance Copenhagen Business School, in “ An introduction to Corporate
Governance”, corporate governance is as “the control and direction of
companies by ownership, boards, incentives, company law, and other
mechanisms”.


6

Most definitions that center on the company itself (an internal perspective)
do; however, have certain elements in common, which can be summarized as

follows:
 Corporate governance is a system of relationships, defined by
structures and processes: For example, the relationship between the
shareholders and management consists of the former providing the
capital to the latter to achie ve a return on their (shareholders’)
investment. Managers in return are to provide shareholders with
financial and operational reports on a regular basis and in a transparent
manner. Shareholders also elect the Board of Directors and Supervisory
Board, to represent their interests. Board of Directors provides strategic
directions to, and control over, the company’s managers. Mangers are
accountable to Board of Directors, which in turn is accountable to
Shareholders through the General Meeting of Shareholder s (GMS)
 These relationships may involve parties with difference and
sometimes contrasting interests. Different interests may exist
between Board of Directors, CEO, Board of Management, etc in terms
of short term vs. long term, executive vs. non -executive, inside vs.
outside, dependent vs. independent perspectives. Conflicts may also
exists between shareholders (majority vs. minority; individual vs.
institutional; controlling vs. non -controlling). Each of these contrasting
interests or conflicts need to be c arefully observed and balanced.
 All parties are involved in the direction and control of the
company. The General Meeting of Shareholders (GMS), representing
shareholders, takes fundamental decisions, for example the distribution
of profits and losses. The Board of Directors is generally responsible


7

for guidance and oversight, setting the company strategy and
controlling managers. Executives, finally, run the day -to-day

operations, such as implementing strategy, drafting business plans,
managing human resources, developing marketing and sales strategies,
and managing assets.
 All this is done to proper distribute rights and responsibilities and
thus increase long-term shareholder value: For example, how
outside and minority shareholders can prevent a controll ing shareholder
from gaining benefits through related party transactions or similar
means.
The external aspect of corporate governance, on the other hand, concentrates
on relationship between the company and its stakeholders. Stakeholders are
those individuals or institutions that have an interest in the company.
Stakeholders include investors, employees, creditors, suppliers, consumers,
regulatory bodies and state agencies.
Distinguishing Corporate Governance
Corporate governance must not be confused with corporate management.
Corporate governance focuses on a company’s structure and processes to
ensure fair, responsible, transparent and accountable corporate behavior.
Corporate management, on the other hand, focuses on the tools required to
operate the business. Corporate governance is situated at a higher level of
direction that ensures that the company is managed in the interests of its
shareholders.
2.1.2 Potential Benefits of Good Corporate Governance
+ Stimulating Performance and Improving Operational Efficiency


8

An improvement in the company’s governance practices leads to an
improvement in the accountability system, minimizing the risk of fraud or
self-dealing by the company’s officers. Accountable behavior, combined with

effective risk management and internal controls, can bring potential problems
to the forefront before a full -blown crisis occurs. Corporate governance
improves the management and oversight of executive performance, for
example by linking executive remuneration to the company’s financ ial results.
This creates favorable conditions not only for planning the smooth succession
and continuity of the company’s executives, but also for sustaining the
company’s long-term development.
Adherence to good corporate governance standards also helps to improve the
decision-making process. For example, managers, directors and shareholders
are all likely to make more informed, quicker and better decisions when the
company’s governance structure allows them to clearly understand their
respective roles and responsibilities, as well as when communication
processes are regulated in an effective manner. This, in turn, should
significantly enhance the efficiency of the financial and business operations of
the company at all levels. High quality corporate gover nance streamlines all
the company’s business processes, and this leads to better operating
performance and lower capital expenditures, which, in turn, may contribute
to the growth of sales and profits with a simultaneous decrease in capital
expenditures and requirements
An effective system of governance practices should ensure compliance with
applicable laws, standards, rules, rights, and duties of all interested parties.
Furthermore, it should allow companies to avoid costly litigation, including
costs related to shareholder claims and other disputes resulting from fraud,


9

conflicts of interest, corruption and bribery, and insider trading. A good
system of corporate governance will facilitate the resolution of corporate
conflicts between minority and c ontrolling shareholders, executives and

shareholders, and between shareholders and stakeholders. Also, company
officers will be able to minimize the risk of personal liability.
+ Improving Access to Capital Markets
Corporate governance practices can determ ine the ease with which companies
are able to access capital markets. Well -governed firms are perceived as
investor friendly, providing greater confidence in their ability to generate
returns without violating shareholder rights.
Good corporate governance is based on the principles of accessibility,
accuracy,

completeness,

efficiency,

timeliness

and

transparency

of

information at all levels. With the enhancement of transparency in a company,
investors benefit from being provided with an opportunity to gain insight into
the company’s business operations and financial data. Even if the information
disclosed by the company is negative, shareholders will benefit from the
decreased risk of uncertainty.
Of particular note is the observable, if recent trends among investors to
include corporate governance practices as a key decision -making criterion in
investment decisions. The better the corporate governance structure and

practices, the more likely that assets are being used in the interest of
shareholders and not being tunneled or otherwise misused by managers.
Finally, new listing requirements on many stock exchanges around the world
require companies to adhere to increasingly strict standards of governance.


10

Companies wishing to access both domestic and internat ional capital markets
will need to adhere to specific corporate governance standards
+ Lowering the Company’s Cost of Capital and Raising the Value of Assets
Companies committed to high standards of corporate governance are typically
successful in obtaining reduced costs when incurring debt and financing for
operations. As a result, they are able to decrease their capital costs. The cost
of capital depends upon the level of risk assigned to the company by investors
- the higher the risk, the higher the cost of capital. These risks include investor
rights violations. If investor rights are adequately protected, the cost of equity
and debt capital may decrease. It should be noted that investors providing
debt capital, i.e. creditors, have recently tende d to include a company’s
corporate governance practices (for example, a transparent ownership
structure and appropriate financial reporting) as a key criterion in their
investment decision- making process. Thus, the implementation of a good
corporate governance system should ultimately result in the company paying
lower interest rates and receiving longer maturity on loans and credits.
The level of risk and cost of capital also depend on a country’s economic or
political situation, institutional framework a nd enforcement mechanisms.
Corporate governance at a particular company thus plays a crucial role in
emerging markets, which often do not have as good a system of enforcing
investors’ rights as countries with developed market economies
This holds particularly true in countries such as Vietnam where the legal

framework is relatively new and still being tested, and where courts do not
always provide investors with effective recourse when their rights are
violated. This means that even modest improvements in c orporate governance


11

relative to other companies can make a large difference for investors and
decrease the cost of capital.
+ Building a Better Reputation
In today’s business environment, reputation has become a key element of a
company’s goodwill. A comp any’s reputation and image effectively
constitute an integral, if intangible, part of its assets. Good corporate
governance practices contribute to and improve a company’s reputation.
Thus, those companies that respect the rights of shareholders and credit ors,
and ensure financial transparency and accountability, will be regarded as
being an ardent advocate of investors’ interests. As a result, such companies
will enjoy more public confidence and goodwill.
This public confidence and goodwill can lead to gre ater trust in the company
and its products, which in turn may lead to higher sales and, ultimately,
profits. A company’s positive image or goodwill is known to play a
significant role in the valuation of a company. Goodwill in accounting terms
is the amount that the purchase price exceeds the fair value of the acquired
company’s assets. It is the premium one company pays to buy another.

2.2 THE CORPORATE GOVERN ANCE FRAMEWORK IN VI ETNAM

The legal and regulatory framework in Vietnam has some unique
characteristics resulting from Vietnam’s history and development of
Vietnam’s economy. Prior to 1987, under the “Central -Planning or

Command market economy”, only State -Owned Enterprise (SOEs) were
created and existed as corporate bodies. The introduction of the Foreign


12

Investment Law in 1987 brought the first concept of corporate governance
to Vietnam, although it only applied to foreign invested companies. Over
the next 10 years, Vietnam’s legal and regulatory framework for corporate
governance has improved dram atically, but actual implementation by
Vietnamese companies is still in its early stage. From 2004 to 2006,
Vietnam accelerated its efforts to get its legal framework ready to join the
WTO. Since 2006, Vietnam has been making more efforts to update its
legal frameworks and comply with the commitments made when it joined
WTO. Vietnam National Assembly, Government and its related Ministries
adopted and issued many new laws and regulations which have significant
impacts on the operations and corporate governan ce as follows:
 The Law on Foreign Investment in 1987, its amendments in 2000 and
its unification with the Law on Domestic Investment in 2005
 The Law on Enterprises in 1999 and its replacement in 2005
 The Law on State Bank in 1997, and the Law on Credit In stitutions of
1997, amendments to both laws in 2003 and 2004 respectively, the new
Law on the State Bank of Vietnam 2010 and the new Law on Credit
Institutions 2010
 The Law on Insurance Business in 2000
 The Competition Law in 2004
 The Law on Securities in 2006 and its amendments in 2010
 Model Charter: Mandatory for listed joint stock companies. Non mandatory, but advisable for non -listed joint stock companies.
 Hochiminh city Stock Exchange (HOSE) and Hanoi Stock Exchange
(HNX) Listing Requirements

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 Circular No. 09/2010/TT-BTC mandatory governing the disclosure of
information on the securities market, applicable to all public and listed
companies.
 The Vietnam CG Regulations, developed based on the OECD
Principles Corporate Governance, were issued by Ministry o f Finance
(MOF) on March 13, 2007 through Decision 12 QD/BTC.

2.3 CONCEPTS RELATING TO CORPORATE GOVERNANCE AND
VALUE OF A FIRM

2.3.1 Concepts relating to Corporate Governance :

Board Size

Board size refers to the number of directors on the board and is an important
variable in the study of the CGVF relationship. The variable is widely used in
the literature of corporate governance and its value is found by counting the
number of directors in a firm. Board size plays an important role in affecting
the value of a firm. The role of a board of directors is to discipline the CEO
and the management of a firm so that the value of a firm can be improved. A
larger board has a range of expertise to make better decisions for a firm as the
CEO cannot dominate a bigger board because the collective strength of its
members is higher and can resist the irrational decisions of a CEO. On the
other hand, small boards are more efficient in decision -making. In our current
study, we support a positive relationship between th e larger board and the
value of a firm in Vietnam stock exchange.

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CEO Duality

CEO duality plays an important role in affecting the value of a firm. A single
person holding both the Chairman and CEO role improves the value of a firm
as the agency cost between the two is eliminated. On the negative side, CEO
duality lead to worse performance as the board cannot remove an
underperforming CEO and can create an agency cost if the CEO pursues his
own interest at the cost of the shareholders. CEO duality is wide ly used as a
dummy variable in the literature about corporate governance and the value of
a firm. In this thesis, CEO duality is also represented by a dummy variable.
The value of the variable is 1 if a single person plays both the roles, and is 0 if
the role is separated. The division of role of CEO and Chairman is important
as it enables the board to carry out its duties more effectively. Therefore, in
the current study, we support a negative relationship of CEO duality with the
value of a firm.
Agency Cost & Concentrated Ownership
The shareholders’ vote plays an important role in improving the value of a
firm and there is a positive relationship between the value of a firm and
shareholders rights. Each shareholder is delegated with a vote to play a r ole in
the operations of a firm and can use their vote in removing and appointing the
board of directors. Shareholding tend to be concentrated in developing
financial markets and the blockholders play an important role in monitoring
the activities of a firm in these financial markets. However, majority
shareholders have tendency not to allow the minority shareholders to
participate in the affairs of these firms. In Vietnam, big shareholders are those
holding from 5% of the company’s shares upwards. In our s tudy, we will add

15

all the percentage of the actual ownership of the large shareholders to test the
relationship with the value of a firm. We also support a negative relationship
between the value of a firm and the role of majority shareholders.

2.3.2 Concept relating to Value of a Firm (Tobin’s Q)
There are different concepts of the value of a firm such as social value
(including intangible values, external values, clean environment, job creation,
employment benefits, etc) and market value. However, in our study, we just
focus on measuring the market value (monetary value) represented by Tobin’s
Q.

Tobin’s Q
Tobin’s Q serves as a proxy for company performance in a financial market.
A value of Tobin’s Q greater than one shows that a company creates value fo r
its shareholders. On the contrary, a value of the variable lower than one shows
that the firm does not perform well. A well -performing firm is likely to add
value to the shareholders. Tobin’s Q is used as a dependent variable in the
study about the CGVF relationship by Malaysian market by Rashid and Islam
(2008). We also use their method to calculate the Tobin’s Q by first adding
market capitalisation and total assets, and then subtracting sh areholders funds.
The final value is obtained by dividing the numerator by total assets.

2.3.3 Concepts relating to financial variables (control variables)

Return on Total Assets

16

Return on total assets is used to gauge the profitability and efficiency of
converting assets into value for shareholders. Return on total assets shows the
performance of the assets of a firm as it reflects the efficiency of assets in
generating returns and earnings. We support a positive relationship between
the value of a firm and the return on total assets, as a higher ratio is associated
with a higher rate of return and better corporate governance. The variable is
widely used on the literature on corporate governance and the value of a firm.
Market Capitalisation
Market capitalisation measures the percentage of market captured by the
securities of a firm. Market capitalisation can be calculated by multiplying the
share price with the number of outstanding shares. Higher market
capitalisation is a reflection of higher investo r confidence. Investment in firms
with higher market capitalisation is quite safe compared to firms with lower
market capitalisation because the shares of a firm having higher market
capitalisation are more liquid.

In contrast, the companies having lower

market capitalisation are sometimes more profitable because of a higher
growth potential. The shares of a company having lower market capitalisation
are more risky, but they can have higher financial returns. We support the
positive relationship between t he value of a firm and its market capitalization.
Price to Book Value Ratio
Price to book value ratio shows the performance of a . Among
271 listed companies in Hochiminh City Stock Exchange in 2010, there are
95 companies whose chairman and CEO is the same person (around 35.8% of
the whole sample). In many Vietnam companies, there is still little separation

of ownership and control. Most co ntrolling shareholders also act as Chief
Executive Officer (CEO) and also sit on the Board of Directors as Chairman.
Failure to separate ownership and management would result in weak
accountability, abusive related party transactions, and poor information
disclosure.

Return on Total Assets
The minimum value for return on total assets for firm s listed in Hochiminh
Stock Exchange in 2010 is -0.237 and the maximum value is 0.55. The mean


30

for return on total assets is 0.0766, bigger than 0.048 of Malaysia market but
smaller than 0.088 of Australia market (Rashid and Islam 2008).

The minimum value for return on total assets for firms of Malaysia market is 0.586 and the maximum value is 0.5 499. This compares with the minimum
value for return on total assets for firms of Australia market equal to -0.3543
and maximum value 0.8567. The mean for return on total assets is 0.0766,
bigger than 0.048 of Malaysia market but smaller than 0.088 of Australia
(Rashid and Islam 2008).
After comparison, we can see that the mean, maximum, and minimum values
of return on total assets of firms of Australia market (more developed market
with better corporate governance practices) are higher than those of firms in
Malaysia and Vietnam stock markets which are still developing and
emerging.

Price-to-Book Value Ratio

The minimum value for price -to-book value ratio for firm listed in Hochiminh

Stock Exchange in 2010 is 0.3874 and the maximum value is 3.8093. The
mean for price-to-book value ratio is 1.3264. This compares with a minimum
value of price-to-book value ratio in firms of Malaysia market equal to 0.29
and of Australia market equal to 0.27. The maximum value of Malaysia
market is 8.32 and of Australia market is 36.90. The mean for price -to-book
value for firms of Malaysia market is 0.29 and the mean vale of Australia
market is 0.27 (Rashid and Islam 2008). The descriptive statistics show that
the Australia market (more developed market) is willing to pay higher
benefits to companies operating in a market where market participants follow


31

better corporate governance practices than developing markets like Vietnam
stock exchange.

Market Capitalisation

Table 4.3: Statistics of Market capitalisation

LOGMC

MKT_CAP

Mean

13.2495

2,113,753

Median

13.0372

459,200

Maximum

17.5762

42,977,072

Minimum

10.6549

42,400

Std. Dev.

1.3628

5,994,233

Skewness

1.0008

5

Kurtosis

3.9957

29

Jarque-Bera

56.4343

8,505

Probability

0.0000

0

3,590.6100

573,000,000

501.4257

9,700,000,000,000,000

271

271

Sum
Sum

Sq.

Dev.

Observations

The minimum value for market capitalisation for firm listed in Hochiminh
Stock Exchange in 2010 is 42,400 and the maximum value is 42,977,072. The
mean for market capitalisation is 2,113,753.