Tác động của quản trị công ty đến rủi ro và hiệu quả tài chính của các ngân hàng thương mại ở việt nam tt anh

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

PHAM HOANG AN

IMPACTS OF CORPORATE GOVERNANCE ON
RISKS AND FINANCIAL PERFORMANCE OF
COMMERCIAL BANKS IN VIETNAM

SUMMARY OF PHD THESIS
Major: Finance - Banking
Code: 9.34.02.01

Scientific instructors:

Dr. NGUYEN VAN THUAN
Dr. TRAN DUC THUC

HO CHI MINH CITY – 2020


1

CHAPTER 1: OVERVIEW OF THE RESEARCH
1.1. Research issues and urgency
Corporate governance (CG) is a topic that has attracted a lot of attention from researchers
and business managers around the world and especially the recent crisis of 2007-2009 has
revealed some weak points in corporate governance mechanisms in different countries.
The crisis initially began in the financial sector in the United States (such as: Lehman
Brothers and IndyMac), the UK (such as Northern Rock, Bradford and Bingley, Alliance

and Leicester, HBOS and Royal Bank of Scotland) and other developed economies and led
to significant losses in financial institutions around the world for several months (Erkens et
al, 2012). Therefore, concern about good corporate governance is an urgent requirement,
especially corporate governance in banks.
Banking activities are always accompanied by risk acceptance and the level of bank risk
can increase very quickly and easily. Banks can conceal (in part) their true level of risk that
is not visible to any outside investor (Becht et al., 2012). Moreover, the bank’s corporate
governance is different from the corporate governance of other companies as the bank’s
related parties are not only shareholders but also depositors and managing bodies (Becht et
al., 2012). Another special feature is that the ratio of equity in a bank’s total assets is often
much lower than that of non-financial companies.
Since 2011, foreign banks with strong financial resources and strong international
experience have been given equal rights in all fields with domestic banks. Market share in
the banking and financial sector in Vietnam is becoming increasingly crowded with many
business enterprises in the industry. Keeping market share and growing business in a
fiercely competitive environment is becoming more difficult than ever. The key to leading
the success of commercial banks can confidently stand and thrive in the context of fierce
competition with foreign banks, Vietnamese commercial banks need to change their minds
about modern banking management, with special emphasis on risk management and
meeting international governance standards.
Corporate governance (CG) is a topic that has always attained a lot of attention during the
development of the economy. Many large organizations such as OECD, World Bank ...
have made great efforts to develop healthy and effective corporate governance principles.
For the banking and financial sector, due to the important and specific role of commercial
banks (commercial banks) for the stability and sustainability of the entire economy, due to
the boom of the financial crisis accompanying the weaknesses and failures in the
operations of many commercial banks over the past time, corporate governance and risks
in commercial banks are becoming the top concern in many countries around the world,
from developed countries with outstanding finance such as the United States, Europe,
Japan... until developing countries with new financial and banking markets which are at an

early stage including Vietnam.


2

Internal corporate governance mechanisms are often responsible for developing and
executing strategic decisions in most organizations. The consequence of the crisis has been
evaluated by the researchers and has a high consensus that it is related to the performance
of the Board of Directors and is considered as one of the main reasons for the crisis (De
Andres and Vallelado, 2008; and Erkens et al, 2012). The Board of Directors is also held
responsible for not protecting shareholders’ rights and focusing on short-term rather than
long-term organizational goals (Erkens et al., 2012).
Recognizing the importance of the relationship between corporate governance, risk and
financial performance of the bank, the Basel Committee on Banking Supervision has
issued regulations to solve issues related to risk management and corporate governance in
banks. In 1988, Basel I was issued focusing on credit risk and bankruptcy risk. In 2004,
Basel II was issued guiding capital safety, risk management requirements and information
disclosure. And by the end of 2010, Basel III made many new proposals on capital,
leverage and liquidity standards to strengthen the regulations, supervision and risk
management of the banking sector.
The Basel Committee on Banking Supervision (2010), points out that effective Corporate
Governance practices are essential to building and maintaining public trust in the banking
system. These are essential elements for the healthy operation of the banking industry as
well as the whole economy. Weak corporate governance can lead to the collapse of banks,
causing serious social and economic losses due to the negative effects on the deposit
insurance system, as well as to impact large macroeconomic impacts, such as chain risks,
adversely affect payment systems. In addition, weak Corporate Governance can cause the
market to lose confidence in the bank’s ability to effectively manage assets and liabilities,
including deposit assets. This can ignite a sudden withdrawal of deposits and lead to a
solvency crisis of the bank. In fact, in addition to responsibilities for shareholder, banks are

also responsible for their depositors and other relevant stakeholders.
The Corporate Governance rules of banks announced by the Basel Committee also
specifically emphasize the role and importance of the Board of Directors. The Board of
Directors not only prevents ineffective management practices leading to business mistakes
but also ensures that the bank always takes advantage of opportunities to add value to all
stakeholders. In addition, the Board of Directors affects the supervisory mechanism for
senior managers, and also affects the appointment, dismissal, suspension and remuneration
policies (BCBS, 2010).
In the scheme of restructuring the system of credit institutions (CIs) in the period of 20111015 and the period of 2016 - 2020, there is a proposal to restructure the banking
governance system, including: increasing transparency in public disclosing information,
changing the capital ownership ratio of commercial banks, improving the conditions and
standards of management capacity, working experience and professional qualifications for
leading and managing titles of credit institutions (Chairman of Board of Directors/Board of
Members, General Director/Director, Members of Board of Directors/Board of


3

Members, ...) (Government, 2012, 2017). During this period, many banks have gradually
improved their governance capacity towards international standards. But through the event
on August 20, 2012 occurred at Asia Commercial Joint Stock Bank and most recently,
especially at Ocean Commercial Joint Stock Bank, Construction Commercial Joint Stock
Bank, Global Petroleum Commercial Joint Stock Bank and Dong A Commercial Joint
Stock Bank made managers and the public is really worried about the personnel,
management and performance of commercial banks.
Stemming from the aforementioned issues, the author chooses the topic: “The impact of
corporate governance on risks and financial performance of commercial banks in
Vietnam” as his research topic.
1.2. Objectives of the study
The overall objective of the thesis is to study the impact of corporate governance on risks

and financial performance of commercial banks in Vietnam. From the research results, the
thesis will also discuss policy implications to improve corporate governance capacity, limit
risks and improve the financial performance of commercial banks in Vietnam.
To achieve the overall objective, the thesis respectively resolves three specific objectives
as follows:
- Objective 1: Testing the impact of corporate governance on the risks of commercial
banks in Vietnam.
- Objective 2: Testing the impact of corporate governance on the financial performance of
commercial banks in Vietnam.
- Objective 3: Proposing some policy implications to improve corporate governance
capacity, limit risks in order to improve the financial performance of commercial banks in
Vietnam.
1.3. Research question
To achieve the above research goal, the research focuses on finding answers to the
following questions:
- Question 1: What factors of corporate governance affect the risks of commercial banks in
Vietnam?
- Question 2: What factors of corporate governance affect the financial performance of
commercial banks in Vietnam?
- Question 3: What policy implications can be applied to improve corporate governance
capacity, limit risks to improve the financial performance of commercial banks in
Vietnam?
1.4. Object and scope of the study


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1.4.1. Research subjects: The impact of corporate governance on risks and financial
performance of commercial banks in Vietnam.
1.4.2. Research scope:

- In terms of space: Research of commercial banks in Vietnam
- In terms of time: The study focuses on the period from 2011 to 2017. Because in this
period, Vietnamese commercial banks began to apply the Law on Credit Institutions in
2010, including many new regulations on organization, administration and management in
accordance with international practices. At the same time, in this period, Vietnamese
commercial banks also performed a comprehensive restructuring of their operations,
including restructuring the banking management system.
- In terms of content: There are many ways to measure corporate governance such as
corporate governance index or use of representative variables, so the scope of this study
only uses variables that represent corporate governance to analyze the impact of corporate
governance on the bank’s risk and financial performance.
1.5. Research Methods
- To solve the set goals, the research uses the following research methods:
+ Building regression models to test and estimate the impact of corporate governance on
the bank’s risk and financial performance. Specifically, the research conducts to build
econometric models based on the models of previous studies with appropriate adjustments
to study the impact of corporate governance on risks and financial performance of
commercial banks in Vietnam.
+ Researching to use the method of panel regression analysis with the methods (OLS,
FEM, REM) to estimate the models. In addition, the research also uses a number of
methods to test for some hypothetical errors as well as ensure the correctness of the model
used in the study.
In addition, the research also uses SGMM (System Generalized Method of Moments)
method to deal with endogenous problems (if any) in the research model.
- Research data: Data used in this study are taken from annual reports, corporate
governance reports, audited financial statements of 29 commercial banks in Vietnam, and
World Economic Outlook (WEO) of the International Monetary Fund (IMF), General
Statistics Office of Vietnam, 2011 - 2017.
1.6. Achievements and new contributions of the topic
With the above research objectives and research methods, the results have shown that in

the context of Vietnam, the results are: (i) the factors of corporate governance that impact
on bank risk, including: percentage of independent members of Board of Directors
(Bindep), percentage of female members of Board of Directors (Femdir), percentage of
foreign members of Board of Directors (Fordir), percentage of members of Board of


5

Directors taking part in management (Execdir); (ii) factors of corporate governance
affecting the financial performance of the bank, including: ratio of independent members
of Board of Directors (Bindep), percentage of female members of Board of Directors
(Femdir), percentage of members of Board of Directors taking part in the management
(Execdir), the education level of the Board of Directors (Edu).
As compared to the previous experimental studies, the thesis has some new contributions:
+ The thesis analyzes for the first time the impact of corporate governance on risks and
financial performance on commercial banks in Vietnam.
+ The thesis presents briefly and fully the theory of corporate governance about the risks
and financial performance of banks. This is the basis for arguing and developing
experimental studies of previous authors into this thesis.
+ The thesis has codified experimental studies analyzing the impact of corporate
governance on bank risk and experimental studies analyzing the impact of corporate
governance on the bank’s financial performance.
+ The thesis has proposed to use a variable of the percentage of members of Board of
Directors taking part in management in accordance with the provisions of Paragraph 1,
Article 34 of the 2010 Law on Credit Institutions.
+ The thesis has provided experimental evidence on the factors of corporate governance
affecting the risks and financial performance of commercial banks in Vietnam.
1.7. The structure of the thesis
CHAPTER 2: THEORETICAL BASIS ON THE IMPACT OF CORPORATE
GOVERNANCE ON RISKS AND FINANCIAL PERFORMANCE OF THE BANK

2.1. Theoretical basis
2.1.1. Corporate governance concept
2.1.2. The difference between corporate governance in banks and other companies
2.1.3. Measure corporate governance
Table 2.1. Corporate governance metrics
No.

Name of
factor

Signification

Method of calculation

1

Bsize

Members of Board
of Directors

Number of members of
Board of Directors

2

Bindep

Independent
Members of Board

Number of independent
numbers of Board of

Scientific bases
De Andres and Vallelado
(2008), Belkhir (2009),
García-Meca et al (2015),
Kusi et al (2018)
De Andres and Vallelado
(2008), Liang et al


6

No.

3

4

5

6

Name of
factor

Signification

Method of calculation

of Directors

Directors

Femdir

Female members
of Board of
Directors

Number of female
members of Board of
Directors

Fordir

Foreign members
of Board of
Directors

Number of foreign
members of Board of
Directors

Execdir

Members of Board
of Directors taking

part in
management

Number of members
taking part in
management of Board
of Directors

Edu

Education level of
Board of Directors

Number of members
with postgraduate level
of Board of Directors

Scientific bases
(2013), García-Meca et al
(2015)
Pathan and Faff (2013),
García-Meca et al (2015),
Dong et al (2014),
Mamatzakis and Bermpei
(2015)
Dong et al (2017)

The author proposes to
comply with Paragraph 1,
Article 34 of the Law on

Credit Institutions 2010
of Vietnam
Berger et al (2014), Chan
et al (2016), Setiyono
and Tarazi (2018)

Source: Author’s proposal
2.1.4. The theory of corporate governance
2.1.4.1. Agency theory
2.1.4.2. Stewardship theory
2.1.4.3. Stakeholder theory
2.1.4.4. Resource dependence theory
2.1.5. Risks in banking business
2.1.5.1. Concept of risk
2.1.5.2. Types of risks in banking business
2.1.6. Financial performance in banking and measurement method
2.2. The impact of corporate governance on risks and financial performance of the
bank
2.2.1. The impact of corporate governance on bank risk
2.2.1.1. Scale of Board of Directors and bank risk


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2.2.1.2. Independent members of Board of Directors and bank risk
2.2.1.3. Female members of Board of Directors and bank risk
2.2.1.4. Foreign members of Board of Directors and bank risk
2.2.1.5. Members of Board of Directors taking part in management and bank risk
2.2.1.6. Education level of Board of Directors and bank risk
2.2.2. The impact of corporate governance on the financial performance of the bank

2.2.2.1. Scale of Board of Directors and financial performance of the bank
2.2.2.2. The percentage of independent member and financial performance of the bank
2.2.2.3. The percentage of female members of Board of Directors and the financial
performance of the bank
2.2.2.4. The percentage of foreign members of Board of Directors and the financial
performance of the bank
2.2.2.5. Percentage of members taking part in management of Board of Directors and
financial performance of the bank
2.2.2.6. The percentage of members of Board of Directors with postgraduate level and
financial performance of the bank
2.2.3. The relationship between risk and financial performance in the context of corporate
governance.
2.3. Research gaps
2.3.1. Research gaps
The subject is conducted for the following reasons:
First, through a review of previous studies, although there is evidence that banks’
compliance with Corporate Governance has increased, the impact of Corporate
Governance on risks and financial performance of banks has differences in results from
different studies such as positive, negative or non-relational effects, even mixed effects or
no conclusions in previous studies in developed countries and these studies when verified
in emerging markets give inconsistent results like those in developed markets. Controversy
occurs, the researchers argue that there are two reasons: (i) there are economic and political
changes in developing countries, and all of these changes affect mechanisms of Corporate
Governance; The result is an impact on the bank’s risk and financial performance.
Therefore, Corporate Governance is likely to continue to grow. (ii) there are a significant
differences in Corporate Governance in emerging markets and developed countries, that
the development of financial markets is still limited, and therefore, the use of traditional
financial channels become popular; high concentrated ownership structure; low
institutional ownership; the market is less efficient because of less transparency, greater

8

information asymmetry, higher supervision and enforcement costs; the government and its
related organizations not only establish laws but also participants are active in the
economy, for example through state-owned or state-controlled companies; trend-following
investment is common, partly as a result of the inefficient market, but partly due to social
practices. Vietnam is a developing country and the legal environment is in the stage of
completion to integrate with other countries in the region, therefore, there is a need for a
study on the impact of Corporate Governance on risks and financial performance of banks.
Second, current researches in Vietnam also focus on giving the concepts of Corporate
Governance and Corporate Governance in banks, international practices on Corporate
Governance in banks. From there, to assess the status of Corporate Governance in banks
and make recommendations and solutions to improve Corporate Governance capacity to
improve banking performance. As researched by Ha Thi Thieu Dao (2012) assess the
status of Corporate Governance of Vietnamese commercial banks according to
international practices on Corporate Governance. Meanwhile, Le Thi Huyen Dieu and
Nguyen Trung Hau (2012) proposed to change the Corporate Governance management
thinking in Vietnamese commercial banks, especially focus on risk management and meet
international management standards; and Le Hoang Nga (2012) mainly gives cognitive
thinking and some focused measures, which need to be done immediately to implement
Corporate Governance in Vietnamese commercial banks. There are very few experimental
studies in Vietnam that analyze the impact of Corporate Governance on risk and financial
performance of banks.
Third, experimental studies in Vietnam now only analyze the impact of Corporate
Governance on banking performance (Le Vinh Trien and Nguyen Duc Thinh, 2012; Dao
Thi Thanh Binh and Huynh Thi Huong Giang, 2012 ; Tu et al, 2014). There are very few
experimental studies in Vietnam that analyze the impact of Corporate Governance on bank
risk or the impact of Corporate Governance on risks and financial performance of banks.
Finally, studies in the world mainly use data until 2013 and the researches conducted in

Vietnam only stopped in 2012. There have been no updated studies for commercial banks
in Vietnam until the latest in 2017. Especially, in the period of 2011 - 2017, Vietnamese
commercial banks implemented comprehensive restructuring of operations, including
restructuring of banking management system. The implementation of research during this
period will help bank administrators and policy makers see the overall picture of the
impact of Corporate Governance on risks and financial performance of commercial banks
in Vietnam to adopt policies for improvement of the Corporate Governance management
capacity, minimize risks and improve financial performance of the bank.
The above reasons suggest that there should be an evaluation study of the impact of
Corporate Governance on risks and financial performance of commercial banks in
Vietnam.
2.3.2. Analytical framework


9


10

Figure 2.1. Analytical framework of the study

Control variables

(1) Scale of BOD

(2) Female members
of BOD

Bank risk

(3)
Independent
members of BOD

Z-Score
NPL

(4)
Foreign
members of BOD

ROA
ROE
NIM

(5) Members of
BOD taking part in
management
(6) Education level
of BOD

Conclusion of chapter 2
CHAPTER 3: RESEARCH METHODS
3.1. Research process

Financial

(1) Bank size
(2) Scale of loan
operation

(3)
Scale
of
owner’s equity
(4) The ratio of
outstanding loans
to
mobilized
capital
(5) Bank liquidity
(6) Management
effectiveness
(7) Listed banks
(8)
Economic
growth


11

Figure 3.1. Research process
Research issues
Impact of Corporate Governance on risks and financial efficiency

Objectives of the study
- Testing the impact of CG on risks of commercial banks in Vietnam.
- Testing the impact of CG on financial efficiency of commercial banks in Vietnam.
- Proposing a number of policy implications to improve the CG management capacity,
limit risks and improve financial efficiency of commercial banks in Vietnam.

- Theoretical foundations of CG, risks and financial efficiency
- Research overview of the impact of CG on risks and financial efficiency of banks

Study gaps and analytical framework

Proposing an experimental research model

Research Methods
Collecting and processing data, analyzing and estimating models

Using the SGMM method for goal 1

Using GLS method for goal 2

Results and discussions

Conclusions and recommendations


12

3.2. Research data
The study uses secondary data with a data sample of 29 commercial banks in Vietnam
from 2011-2017. As of December 31, 2017, according to the State Bank’s statistics, the
number of commercial banks is 35 banks (including 7 State-owned commercial banks and
28 joint-stock commercial banks). The total assets of 35 commercial banks as of December
31, 2017 are VND 8,598,594 billion, while the total assets of the 29 commercial banks
used by the author as of December 31, 2017 are VND 7,761,728 billion, accounting for
90.3% of total assets of commercial banks. Thus, 29 commercial banks are selected by the
author which ensure to represent commercial banks in Vietnam (Appendix 1).

In which, the State-owned commercial banks include 7 banks: Vietnam Bank for
Agriculture and Rural Development, Vietnam Joint Stock Commercial Bank for Industry
and Trade (CTG), Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB),
Joint Stock Commercial Bank for Investment and Development of Vietnam (BID),
Vietnam Construction Commercial Joint Stock Bank, Global Petro Sole Member Limited
Commercial Bank, Ocean Limited Company. In the sample, due to limited information, the
state-owned commercial banks are included 3 banks by the author: CTG, VCB and BID.
The remaining 26 banks of the sample belong to joint stock commercial banks. According
to updated data as of December 31, 2017, the number of banks listed on HOSE and HXN
exchanges was 10 banks, including: CTG, VCB, BID, ACB, EIB, MBB, NCB, SHB, STB
and VPB. The remaining samples are unlisted banks.
Data for calculating internal variables inside the bank are collected from annual reports,
audited consolidated financial statements, corporate governance reports, annual
shareholder meeting documents of commercial banks.
Data for calculating external factors in the macro environment are collected from official
sources such as the World Economic Outlook (WEO) data set of the International
Monetary Fund (IMF), General Statistics Office of Vietnam.
The data is collected and selected after eliminating banks that does not disclose
information or disclose incomplete information, resulting in a sample of balance sheet data
study consisting of 29 banks with 203 observations to be used for research purposes.
Therefore, the data set will be in a balanced form and is presented in Appendix 2.
3.3. Measuring the impact of corporate governance on the risks of commercial banks
in Vietnam
3.3.1. Research models
+ Based on the research models of Pathan and Faff (2013), Dong et al (2017), this study
applies the following regression model 1 as follows:
𝐑𝐢𝐬𝐤 𝑖𝑡 = 𝛼0 + 𝛼 ∗ 𝐑𝐢𝐬𝐤 𝑖𝑡−1 + 𝛾 ∗ 𝐶𝐺𝑖𝑡 + 𝛿 ∗ 𝑋𝑖𝑡 + 𝜀𝑖𝑡

Of which:

(1)


13

𝛼0 : Coefficient of original coordinates;
i: Cross data of banks;

t: Current year (t = 1,….,k);
Risk 𝑖𝑡 : Risk of bank i (Z-score, NPL) at time t;

CGit: The variables representing the Corporate Governance of bank i at time t, including:
size of the Board of Directors (Bsize), Number of Independent Members of Board of
Directors (Bindep), Number of female members of Board of Directors (Femdir), The
percentage of foreign members of Board of Directors (Fordir), the percentage of members
of Board of Directors taking part in management (Execdir), and Education level of Board
of Board of Directors (Edu).
The variable adjusted to suit the Vietnamese context in the research model is the variable
of the percentage of members of Board of Directors taking part in management (Execdir),
as defined in Paragraph 1, Article 34 of the 2010 Law on Credit Institutions of Vietnam:
“Chairman of the Board of Directors, Chairman of the Board of Members of a credit
institution must not concurrently be the executive of that credit institution and of other
credit institutions”. Therefore, in this thesis, the author uses the variable of the members of
Board of Directors to participate in the management as compared to the previous studies,
the majority used the duality variable (Chairman of the Board of Directors cum CEO).
Xit: The control variables include bank characteristics and macro variables: bank size
(SIZE), size of lending activities (LAR), equity size (CAP), Loan to Deposit ratio (LDR),
Bank Liquidation (LIQ), Management Effectiveness (CTI), Listed Bank (List) and
Economic Growth (Ecogrow).
𝛼 ,γ,δ: Are the estimated coefficient vectors.

ε𝑖𝑡 :: Is the standard error.

3.3.2. Measurement of variables in the research model
3.3.2.1. Risk dependent variable
The thesis measures the risks of Vietnamese commercial banks by the Z-score bankruptcy
risk index inherited from the research of Boyd and Graham (1986), Goyeau and Tarazi
(1992); Barry et al (2011) and Lepetit and Strobel (2013) and ratio of bad debts (NPL).
- Z-score is calculated based on the following formula:

In which:

𝑍𝑖𝑡 =

𝑅𝑂𝐴𝑖𝑡 + 𝐸𝑇𝐴𝑖𝑡
𝜎(𝑅𝑂𝐴)

+ ROA: Return on assets of bank i at time t.

+ ETA: Equity to asset ratio of bank i at time t.


14

+ σ(ROA): Standard deviation of returns on the assets of the entire sample.
A higher Z-score indicates that the bank is more stable and less risky. Because the Z-score
has a high deviation, according to Laeven and Levine (2009), to reduce the bias, the
natural logarithm of Z-score should be used. Z-score is often used in studies to measure
bank risk (for example: Angkinand and Wihlborg, 2010; Barry et al, 2011; Demirgüç-Kunt
and Huizinga, 2013; Laeven and Levine, 2009) .
- The traditional risk of banks is often related to lending and is measured by the ratio of

bad debt to total outstanding debt (NPL), which reflects the quality of a bank’s assets
(Demirgüç –Kunt et al, 2006; Shehzad et al., 2010; and Delis and Kouretas, 2011).
Because bad debts cause losses for banks, high NPL ratios lead to high credit risks (Delis
and Kouretas, 2011).
3.2.2.2. Independent variables for corporate governance in the model
a) Size of Board of Directors
Hypothesis 1a (H1a): Large size of Board of Directors is positively correlated with the
bank’s Z-Score.
Hypothesis 1b (H1b): Large size of Board of Directors is negatively correlated with the
bank’s NPL.
b) Independent members of Board of Directors
Hypothesis 2a (H2a): The percentage of independent members of the Board of Directors is
positively correlated with the bank’s Z-Score.
Hypothesis 2b (H2b): The percentage of independent members in the Board of Directors is
negatively correlated with the bank’s NPL.
c) Female members of Board of Directors
Hypothesis 3a (H3a): The high percentage of female board members is positively
correlated with the bank’s Z-Score.
Hypothesis 3b (H3b): The high percentage of female members in the Board of Directors is
negatively correlated with the bank’s NPL.
d) Foreign members of Board of Directors
Hypothesis 4a (H4a): The high percentage of foreign members of Board of Directors is
positively correlated with the bank’s Z-Score.
Hypothesis 4b (H4b): The high percentage of foreigner members of Board of Directors is
positively correlated with the bank’s NPL.
e) Percentage of members of Board of Directors taking part in management
Hypothesis 5a (H5a): The high percentage of board members taking part in management
is negatively correlated with the bank’s Z-Score.

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Hypothesis 5b (H5b): The high percentage of members of Board of Directors taking part
in management is negatively correlated with the bank’s NPL.
f) Education level of Board of Directors
Hypothesis 6a (H6a): The high percentage of members of Board of Directors with
postgraduate degrees is significantly correlated with the bank’s Z-Score.
Hypothesis 6b (H6b): The high percentage of board members with postgraduate degrees is
significantly correlated with the bank’s Z-Score.
3.3.2.3. Control variables in the model
Table 3.1. Description of the variables used in the regression model 1
Expected mark
Variable

Measurement method

Scientific basis
Z-Score

NPL

Dependent variable (Risk)

NPL

Z-Score

NPL to total outstanding
loan

= ln(

𝑅𝑂𝐴𝑖𝑡 + 𝐸𝑇𝐴𝑖𝑡
)
𝜎(𝑅𝑂𝐴)

PL NPL to total outstanding
loan Dong et al (2014),
Berger et al (2014), Berger
et al (2016), Calomiris and
Carlson (2016), Dong et al
(2017), Skała and Weill
(2018)
Pathan (2009); Anginer et al
(2014); Dong et al (2014);
Chan et al (2016); Berger et
al (2016); Mollah et al
(2017); Ben Zeineb and
Mensi (2018); Skała and
Weill (2018); Setiyono and
Tarazi (2018)

Independent variable (Corporate Governance - representative variable of Corporate
governance)
Berger et al (2014), Dong et
al (2017), Ben Zeineb and
Mensi (2018)

+

-

Percentage of independent Chan et al (2016), Dong et
members of Board of al (2017)
Directors/Total members

+

-

Natural logarithm of BOD
Bsize

Bindep


16

Expected mark
Variable

Measurement method

Scientific basis
Z-Score

NPL

Femdir

Percentage of female Dong et al (2014), Dong et
members of Board of al (2017)
Directors/Total members
of Board of Directors

+

-

Fordir

Percentage of foreign Dong et al (2017)
members of Board of
Directors/Total members
of Board of Directors

+

-

Execdir

Percentage of members of
the Board of Directors
taking
part
in
management/Total
number of members of
Board of Directors

-

-

Edu

Percentage of members of Berger et al (2014), Chan et
Board of Directors with al (2016), Setiyono and
postgraduate level/Total Tarazi (2018)
number of members of
Board of Directors

+

-

Size

Natural logarithm of total Pathan (2009), Berger et al
(2014), Dong et al (2014),
assets
Chan et al (2016), Ben
Zeineb and Mensi (2018),
Setiyono and Tarazi (2018)

+

-

LAR

Outstanding loans divided Berger et al (2014), Dong et
by total assets
al (2017)

+

-

CAP

Equity divided by total
assets

Chan et al (2016), Mollah et
al (2017)

+

-

LDR

Outstanding loans divided Dong et al (2017), Ben
by customer deposits
Zeineb and Mensi (2018)

-

-

LIQ

Liquidated assets divided Dong et al (2017)
by total assets

+

-

of Board of Directors

The author proposes to
comply with Paragraph 1,
Article 34 of the Law on
Credit Institutions in 2010
of Vietnam.

Control Variables


17

Expected mark
Variable

Measurement method

Scientific basis

Z-Score

NPL

CTI

Total
operating
cost Dong et al (2014)
divided by total income

-

+

List

By 1, the listed bank, by 0 Dong et al (2014)
otherwise

+

-

Ecogrow

Annual growth ratio of
GDP

+

-

Dong et al (2017), Ben
Zeineb and Mensi (2018)

3.4. Measuring the impact of corporate governance on the financial performance of
commercial banks in Vietnam
3.4.1. Research models
+ Based on the research models of Pathan and Faff (2013), Dong et al (2017), this study
proposes the Regression Equation 2 as follows:
FPit = α0 + γ * CGit + δ * Xit + εit (2)
In which:
α0: Coefficient of original coordinate;
i: Cross data of banks;
t: Current year (t = 1, ...., k);
FPit: Financial performance of bank i (ROA, ROE, NIM) at time t;
CGit: Are variables representing the Corporate Governance of bank i at time t, including:
size of the Board of Directors (Bsize), the percentage of Independent Members of Board of
Directors (Bindep), Number of female members of Board of Directors (Femdir), the
percentage of foreign members of Board of Directors (Fordir), the percentage of members
of Board of Directors taking part in management (Execdir), and Education level of Board
of Directors (Edu).
The variable adjusted to suit the Vietnamese context in the research model is the variable
of the percentage of members of Board of Directors taking part in management (Execdir),
as defined in Paragraph 1, Article 34 of the 2010 Law on Credit Institutions of Vietnam:
“Chairman of the Board of Directors, Chairman of the Board of Members of a credit
institution must not concurrently be the executive of that credit institution and of other
credit institutions”. Therefore, in this thesis, the author uses the variable of members of
Board of Directors taking part in management as compared to the previous studies, the

majority used the part-time variable (Chairman of Board of Directors cum CEO).


18

Xit: The control variables include bank characteristics and macro variables: bank size
(SIZE), size of lending activities (LAR), equity size (CAP), Loan to Deposit ratio (LDR),
Bank Liquidation (LIQ), Management Effectiveness (CTI), Listed Bank (List) and
Economic Growth (Ecogrow).
𝛼 ,γ,δ: Are the estimated coefficient vectors.
ε𝑖𝑡 :: Is the standard error.

3.4.2. Measure of variables in the research model
3.4.2.1. The variable depends on financial performance
- The thesis measures the financial performance of Vietnamese commercial banks by the
ratios: Return on Assets (ROA) is a key parameter of management performance. It shows
the ability of the Board of Directors in the process of converting a bank’s assets into net
income and inherited from research by De Andres and Vallelado (2008); Lin and Zhang
(2009); Grove et al (2011); Adams and Mehran (2012); Liang et al (2013); García-Meca et
al (2015). ROA is calculated based on the following formula:

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
- Return on equity (ROE) is an indicator measuring the percentage of income for the
bank’s shareholders. It represents the income that shareholders receive from investing in a
bank and inherited from research by Staikouras et al (2007); Lin and Zhang (2009); Rowe
et al (2011); Westman (2011); Fahlenbrach and Stulz (2011); Aebi et al (2012); Liang et al
(2013); Elyasiani and Zhang (2015). ROE is calculated based on the following formula:
𝑅𝑂𝐴 =

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥
𝐸𝑞𝑢𝑖𝑡𝑦
- Net Interest Margin (NIM) is one of the most important measures for measuring financial
performance in a deposit taking institution (Golin, 2001). Because it usually accounts for
70-85% of a bank’s total income, the higher the percentage, the higher its profit. In
particular, in Vietnam, credit activities make up the main profit in banking activities. Net
Interest Margin is calculated by the following formula:
𝑅𝑂𝐸 =

NIM =

Interest returns – Interest paid
Total assets

3.4.2.2. Independent variables for corporate governance in the model
a) Size of Board of Directors
Hypothesis 1c (H1c): The size of the Board of Directors has positive impacts on the
financial performance of the bank.


19

b) Independent members of Board of Directors
Hypothesis 2c (H2c): The percentage of independent members in the Board of Directors
has positive impacts on the financial performance of the bank.
c) Female members of Board of Directors
Hypothesis 3c (H3c): The high percentage of female members in the Board of Directors
has positive impacts on the financial performance of the bank.
d) Foreign members of Board of Directors
Hypothesis 4c (H4c): The high percentage of foreign members in the Board of Directors

has positive impacts on the financial performance of the bank.
e) Ratio of members of Board of Directors taking part in management
Hypothesis 5c (H5c): The high percentage of members of the Board of Directors taking
part in management has negative impacts on the financial performance of the bank.
f) Education level of Board of Directors
Hypothesis 6c (H6c): The percentage of members of the Board of Directors with
postgraduate degrees has positive impacts on the financial performance of the bank.
3.4.2.3. Control variables in the model
3.5. Measuring the relationship between risks and financial performance of
commercial banks in Vietnam
+ Regression equation 3 is as follows:
𝐑𝐢𝐬𝐤 𝑖𝑡 = 𝛼0 + 𝛼 𝐅𝐏𝑖𝑡 + 𝛾 ∗ 𝐶𝐺𝑖𝑡 + 𝛿 ∗ 𝑋𝑖𝑡 + 𝜀𝑖𝑡 +

(3)

𝐅𝐏𝑖𝑡 = 𝛼0 + 𝛼 ∗ 𝐑𝐢𝐬𝐤 𝑖𝑡 + 𝛾 ∗ 𝐶𝐺𝑖𝑡 + 𝛿 ∗ 𝑋𝑖𝑡 + 𝜀𝑖𝑡

(4)

+ Regression equation 4 is as follows:

In which:

α0: Coefficient of original coordinates;
i: Cross data of banks;
t: Current year (t = 1, ...., k);
Riskit: Risks of bank i (Z-score, NPL) at time t;
FPit: Financial performance of bank i (ROA, ROE, NIM) at time t;
CGit: Are variables representing the Corporate Governance of bank i at time t, including:
size of the Board of Directors (Bsize), the percentage of independent members of Board of

Directors (Bindep), Number of female members of Board of Directors (Femdir), the
percentage of foreign members of Board of Directors (Fordir), the percentage of members


20

of Board of Directors taking part in management (Execdir), and Education level of Board
of Directors (Edu).
Xit: The control variables include bank characteristics and macro variables: bank size
(SIZE), size of lending activities (LAR), equity size (CAP), Loan to Deposit ratio (LDR),
Bank Liquidation (LIQ), Management Effectiveness (CTI), Listed Bank (List) and
Economic Growth (Ecogrow).
𝛼 ,γ,δ: Are the estimated coefficient vectors.

ε𝑖𝑡 :: Is the standard error.

3.6. Methods of data analysis and processing
3.6.1. Methods of estimation
3.6.3. Testing the errors of the model
3.6.4. Handling endogenous phenomena of the model

However, the weakness of the above regression models is unable to handle the potential
endogenous phenomena in the model. To solve this problem, previous studies have used
instrumental variables (IV) estimation. However, the problem arising when using the
instrumental variable estimation is that it is often difficult to find the appropriate
instrumental variables because if you choose weak instrumental variables, the IV
estimation may be skewed (Mileva, 2007). In other words, using the IV estimation without
choosing the appropriate instrumental variables, the problems of OLS estimation will not
be improved. Since then, the GMM dynamic panel data model is proposed to be used
according to the research of Arellano and Bond (1991).

One of the advantages of the GMM model over the instrumental variable estimation model
is that it is easier for the GMM model to select instrumental variables because using
exogenous variables at other time or taking the latency of the variables can be used as
instrumental variables for endogenous variables at the present time. Therefore, GMM has
introduced many instrumental variables to easily achieve the condition of a standard
instrumental variable (Overidentification of Estimators). Moreover, the estimation of
Arellano and Bond are consistent with short panel data with small T time series (7 years)
and large N (29 banks). Therefore, the GMM method introduced by Arellano and Bond
(1991) will be used in this study.
Specifically, the data of the project is as follows: The first, after checking the data, it shows
that the change of variable phenomenon has occurred for the research model. To eliminate
this phenomenon, the regression model is run with robust command in Stata software if it
detects that this phenomenon occurs in the model. The second, the author examines the
multi-collinearity and finds that this was not a problem for the analysis of the topic through
the results of the correlation coefficients between the variables and presented in the data
content description. The last, the relationship between Corporate Governance and bank risk


21

can occur as endogenous phenomena because of the possible causal relationship between
Corporate Governance and bank risk (Lehn et al. 2009; Wintoki et al, 2012). Therefore, it
commonly selects FEM regression models to reduce endogenous problems in case the
research does not find appropriate instrumental variables to handle (Cheung et al., 2010).
Studies of Pathan (2009), Dong et al (2014), Chan et al (2016), Dong et al (2017, Moilah et
al (2017) use the 2-step GMM method to measure the impacts of Corporate Governance on
bank risk. Therefore, in this study, the author uses the 2-step GMM analysis method to
handle potential endogenous problems in the model of measuring the impacts of Corporate
Governance on bank risk.
Studies of Mollah et al (2017), Kusi et al (2018) use the GLS method to measure the

impacts of Corporate Governance on financial performance of banks. Therefore, in the
model to measure the impacts of Corporate Governance on financial performance of banks,
the author uses the GLS analysis method for analysis.
Conclusion of chapter 3
CHAPTER 4: STUDY RESULTS AND DISCUSSION
4.1. Actual situation of commercial banks in Vietnam in the period of 2011-2017
4.2. Descriptive statistics of study variables
Table 4.2. Table of descriptive statistics of study variables
Variable

Observation
number

Z-Score

203

NPL

Average
value

Standard
deviation

Minimum
value

Maximum
value

29.9281

0.7711

0.5081

126.7510

203

0.0236

0.0142

0.0034

0.088

ROA

203

0.0063

0.0066

-0.0551

0.0253

ROE

203

0.0692

0.0847

-0.8200

0.2682

NIM

203

0.0256

0.0120

-0.0064

0.0742

Bsize

203

6.9891

0.2473

5

15

Bindep

203

0.1439

0.0710

0

0.4

Femdir

203

0.1794

0.1619

0

0.625

Fordir

203

0.0930

0.1251

0

0.4286

Execdir

203

0.1528

0.1271

0

0.4444

Edu

203

0.5391

0.2559

0

1

SIZE

203

89.349

1.0938

13.224

1.202.283

LAR

203

0.5284

0.1271

0.1473

0.7313

22

Variable

Observation
number

CAP

203

LDR

Average
value

Standard
deviation

Minimum
value

Maximum
value

0.0970

0.04192

0.035

0.2384

203

0.8391

0.2015

0.3719

1.805

LIQ

203

0.1878

0.0959

0.0452

0.611

CTI

203

0.9880

6.0192

0.2875

86.3019

List

203

0.3448

0.4764

0

1

GDP

203

0.0608

0.0054

0.0525

0.0681

4.3. Analyzing the correlation between variables
4.4. Measuring the impacts of corporate governance on the risks of commercial banks
in Vietnam in the period of 2011 - 2017
Table 4.4. Regression analysis results by the 2-step SGMM method
Variable
Z-Score
NPL
0.8924 ***
Z-Scoret-1
(0.000)
0.3082 ***
NPLt-1
(0.000)
-0.0613
-0.0014
Bsize
(0.264)
(0.601)
-0.4723 **
-0.0197
Bindep
(0.035)
(0.158)
0.3121 ***
-0.0043 **
Femdir
(0.000)

(0.028)
0.2316 **
0.0002
Fordir
(0.015)
(0.954)
-0.2592 **
-0.0017
Execdir
(0.031)
(0.646)
0.0275
-0.0018
Edu
(0.746)
(0.302)
0.1313 ***
-0.0004
SIZE
(0.000)
(0.693)
0.3475**
-0.0080
LAR
(0.034)
(0.360)
5.9788 ***
0.0764***
CAP
(0.000)

(0.007)
-0.3608 **
0.0066
LDR
(0.000)
(0.142)
0.0982
-0.0145
LIQ
(0.625)
(0.106)
CTI
-0.0144
0.0102**


23

Variable
List
GDP
Constant
AR(1)
AR(2)
Hansen test
F-test

Z-Score
(0.856)
0.0334

(0.271)
6.2399 ***
(0.001)
-2.8070
(0.000)
0.050
0.661
0.203
0.000

NPL
(0.021)
0.0034 **
(0.011)
-0.5134 ***
(0.000)
0.0501
(0.056)
0.003
0.223
0.245
0.000

Note: *, ** and *** are statistical significance at 10%, 5% and 1% respectively
The suitability of regression by the SGMM method was assessed through F test, Hansen
test and Arellano-Bond test (AR). The F test examines the statistical significance of the
estimated coefficients. Hansen test examines excessive constraints, the rationality of
representative variables. The AR test determines whether there is a residual correlation of
the model.
In both models, the Hansen test with p-value of 0.203 and 0.245 respectively is greater

than 0.1, so we accept the Hypothesis H0: the model is correctly defined, the representative
variables are reasonable. The F test in both models has p-value of 0.000 which is less than
0.01, so we reject the Hypothesis H0: all the estimated coefficients in the equation are
equal to 0, or estimated coefficients of explanatory variables with statistical significance.
So both models are appropriate.
The AR test (1) of both models with p-value of 0.050 and 0.003 respectively, is less than
0.1, so we reject the Hypothesis H0: there is no first-degree line of correlation, that is, there
is first-degree line of correlation. The AR test (2) of both models with p-value of 0.661 and
0.223 respectively is greater than 0.1, so we accept the Hypothesis H0: there is no seconddegree correlation line in the residual of regression model.
4.5. Measuring the impact of corporate governance on the financial performance of
commercial banks in Vietnam in the period of 2011 - 2017
Table 4.5 (d). Results of regression analysis by the GLS method
ROA
ROE
NIM
Variable
(p-value)
(p-value)
(p-value)
0.0010
0.0063
-0.0006
Bsize
(0.362)
(0.579)
(0.755)
-0.0031
-0.0302
-0.0147**
Bindep

(0.335)
(0.412)
(0.032)
0.0005
0.0093
-0.0056*
Femdir
(0.756)
(0.631)
(0.097)


24

Variable
Fordir
Execdir
Edu
SIZE
LAR
CAP
LDR
LIQ
CTI
List
GDP
Constant
Wald chi2

ROA

(p-value)
-0.0021
(0.371)
-0.0041**
(0.039)
0.0013
(0.271)
0.0008
(0.129)
0.0002
(0.946)
0.0609***
(0.000)
0.0047***
(0.000)
0.0128***
(0.000)
-0.0006***
(0.000)
0.0022**
(0.023)
0.0650
(0.074)
-0.0268
(0.008)
620.24
(0.000)

ROE
(p-value)

-0.0191
(0.519)
-0.0666***
(0.004)
0.0090
(0.487)
0.0188***
(0.002)
0.0633*
(0.078)
0.1984**
(0.046)
0.0362***
(0.013)
0.1857***
(0.000)
-0.0100***
(0.000)
0.0209*
(0.079)
0.8794**
(0.025)
-0.4464
(0.000)
1277.38
(0.000)

NIM
(p-value)
0.0036

(0.478)
-0.0137***
(0.001)
0.0054**
(0.037)
-0.0014
(0.141)
0.0443***
(0.000)
0.0934***
(0.000)
0.0012
(0.662)
0.0223***
(0.001)
-0.00009
(0.194)
0.0027
(0.118)
-0.0678
(0.347)
0.0207
(0.257)
188.57
(0.000)

Note: *, ** and *** are statistical significance at 10%, 5% and 1% respectively
The regression results in Table 4.5 (d) have shown that the variables proposed in the model
affecting the financial performance of commercial banks in Vietnam are the percentage of
independent members of Board of Directors the percentage of female members of Board

of Directors the percentage of members of Board of Directors taking part in management,
the percentage of members of Board of Directors with postgraduate degrees, size of banks,
size of loans, size of equity, percentage of outstanding loans of mobilized capital, liquidity
accounts, management performance, listed banks and economic growth. As for the Board
of Directors size variables, the percentage of foreign members of Board of Directors is not
statistical significance.
4.6. Measuring the relationship between risks and financial performance of
commercial banks in Vietnam in the period of 2011 - 2017
Table 4.6 (a). Regression analysis results of the impacts of risk on the financial
performance of commercial banks by the GLS method