Ownership structure and performance of professional service firms in a declining industry: Evidence from Vietnamese securities firms

Abstract

This study posits that the declining industry is a good institutional environment to examine the relationship between ownership structure and firm performance of Vietnamese securities firms. This downturn decreases the return on investment of the industry and creates incentives for managers to expropriate shareholders more severely. In addition, different groups of shareholders recognizing the status of the industry may have their own reactions which are likely to affect firm performance. Using pooled OLS regression with a sample of 240 observations from 56 Vietnamese securities firms over the period from 2009 to 2016, we find supporting evidence of convergence-of-interest with a significantly negative relationship between insider ownership and profitability. In addition, foreign ownership is also positively related to firm performance. Firm size affects positively firm performance while number of employees has a negative impact on profitability. JEL Classifications: M1, G34

The Productivity and Efficiency of Vietnamese Securities Firms, 2009 to 2017

“…The larger the size in terms of total assets, the more productively efficient the firms are. This finding supports other works on the correlation between larger size, lower unit costs and greater economies of scale such as Weber (1999, 2008), Johnston and Madura (2000), Demirbag et al (2016), Lee, Kim and Kang (2014), Nguyen et al (2017); Hu and Fang (2010), Liao (2018). However, it is against the finding of Goldberg et al (1991) that small companies had economies, while large and diverse companies had diseconomies of scale.…”

“…Fourth, the firms which have foreign ownership have a less efficient performance than domestic institutional shareholder ownership. This finding is contrary to the studies of Demirbag et al (2016), Nguyen et al (2017) and Bayyurt and Akin (2014), however, it supports the findings of Phung and Mishra (2016) in their study on foreign ownership and listed firms' performance in Vietnam. They found that the performance of listed firms decreased when the level of foreign ownership was higher than 43 per cent.…”

“…There is an insignificant correlation between bank ownership and efficiency. This result is not strong enough to support the findings of Demirbag et al (2016), Johnston and Madura (2000), and Nguyen et al (2017). The findings also show that there is a statistically significant impact of domestic ownership by individual shareholders on the firms' performance.…”

“…In most studies of the performance of securities firms' revenue is used to indicate the output (including total revenue, brokerage revenue, and commission revenue) (Demirbag et al, 2016;Weber, 1999 and2007;Harimaya & Okuyama, 2006;Bayyurt and Akin, 2014;Hu and Fang 2010). In addition, sales (Yeh et al, 2010), market share (Hu & Fang 2010) and the return on assets (Nguyen et al, 2017) have also been used. Given the nature of the operation of the securities firms in Vietnam, this study uses net revenue (RE) as the firms' output.…”

“…Although securities firms play a significant role in the capital markets of Vietnam, there have been to date only a limited number of studies on the performance of these firms in that country. The two main studies to date are those by Nguyen, Nguyen, Nguyen and Tran, (2017) and Tran (2017). Additional work on the performance of this industry in the Vietnamese context is useful, as an efficient functional financial market is an important pre-requisite to the development of any country.…”