Corporate Governance and Agency Cost: Empirical Evidence from Vietnam

Abstract

This study examines the impact of corporate governance, reflecting a wide spectrum of board characteristics and ownership structure on agency costs in 281 listed companies on Ho Chi Minh Stock Exchange (HOSE) in Vietnam in the period 2013–2018. For this purpose, three board characteristics were chosen: (1) the size of board of directors, (2) equilibrium between non-executive and executive members of the board of directors, (3) the CEO chair duality and three types of ownership structures were chosen: (1) management ownership, (2) government ownership, (3) foreign ownership. An inverse proxy of agency costs is used: asset utilization ratio (asset turnover), which reflects the managerial efficiency. The research methodology includes three statistical approaches: Ordinary least squares (OLS), fixed effects model (FEM) and random effects model (REM) are considered to employ to address econometric issues and to improve the accuracy of the regression coefficients. The results can create effective corporate governance mechanisms in controlling the managerial opportunistic behavior to lower agency conflicts, and hence lower agency costs.

Brand and Firm Value: Evidence from Arab Emerging Markets

“…In other words, the reduction of the negative impact of interests' conflict between the two parties is perfectly applicable to a public listed company where shareholders need to monitor nonowner managers' behavior (Jensen and Meckling 1976;Singh and Davidson 2001;Chandler 2018). Inherently, governance mechanisms aim to minimize unfavorable repercussions of the agency problem, and hence lower agency costs (Huu Nguyen et al 2020). Because of the purpose of this kind of cost, agency costs connect to firm performance through cash flow channels in two ways.…”

“…Additionally, agency costs increase with high ownership, and vice versa, in the case of state ownership in China's emerging markets (Rashid Khan et al 2020). In conjunction with agency problems, the literature assays the role of corporate governance factors in their resulted costs with some lower agency costs, such as the duality of the chair-CEO position and institutional members of board, while board size and board independence are related to higher incurred agency costs (Vijayakumaran 2019;McKnight and Charlie 2009;Huu Nguyen et al 2020).…”

Does Corporate Governance Compliance Increase Company Value? Evidence from the Best Practice of the Board

“…Compliance with board best practice is our explanatory variable. Due to the essential role of corporate governance, we focus on compliance with recommendation on the supervisory board (Seidl et al 2013;Huu Nguyen et al 2020). Specifically, we include information on the presence of independent directors on the board, chairman status, the formation of an audit committee and other committees within the supervisory board, and publication of the compliance statement included in the annual report and its size (length).…”

“…In countries characterized by concentrated ownership and wedge between control and cash-flow rights, the conflicts between majority and minority shareholders become the prime concern of corporate governance (La Porta et al 1999;Bennedsen and Nielsen 2010;Hamadi and Heinen 2015;Huu Nguyen et al 2020). While the flexibility of the codes and the universalism of best practice enable the adoption of code guidelines for a concentrated ownership environment, in compliance terms, it remains the decision of powerful blockholders as to whether they constrain themselves in exerting their power over the company and their willingness to share "control of control" (Perezts and Picard 2015).…”

“…The gap between "formal adoption of structures and their actual daily use" (Perezts and Picard 2015, p. 833) or the lack of congruence between enacted values and espoused values (Fotaki et al 2019) are more likely to occur in countries with insufficient investor protection, inadequate transparency standards, and weak institutions. These conditions, accompanied with ownership concentration, happen to materialize in developing countries, as well as emerging and post-transition economies (Huu Nguyen et al 2020). Implementing codes of best practice in the context of what is termed "emerging governance" reveals a different logic, since "arrangements adapt and evolve over time", as a result of "the co-habitation of different institutional, regal and ownership tradition and assumptions from more established governance models" (Mahadeo and Soobaroyen 2016, pp.…”