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CORPORATE GOVERNANCE AND PERFORMANCE OF THE EQUITISED COMPANY IN VIETNAM Tung Thanh Dao PhD Candidate University of South Australia Postal address: School of Commerce Division of Business University of South Australia GPO Box 2471 ADELAIDE SA 5001 Tel: (+61) 8302 0226 Fax: (+61) 8302 0992 Email: thanh.dao@postgrads.unisa.edu.au


This paper investigates the current practice of corporate governance and evaluates its effectiveness in the nascent equitised companies of Vietnam. I identify a comprehensive set of governance mechanisms for Vietnam’s equitised companies and constructs relevant measures for them. I then create a rating index, known as the V-index, to reflect the overall level of governance practice in Vietnam’s equitised companies. The paper finds that better governed companies according to our index are associated with better company’s performance. The result indicates that good corporate governance matters in Vietnam, however, its impact remains modest. The paper also provides implications for both Vietnamese policy makers.

Keywords: Corporate governance, firm performance, Vietnam

INTRODUCTION Corporate governance is of much interest for both professionals and academics, particularly following a collapse of many large companies in the U.S. and U.K such as Worldcom, Enrol, and Arthur Andersen... In Asia, it is widely believed that weak corporate governance is one of the main reasons for economic crisis in 1997. In Vietnam, CG is now becoming hot topic in the top government official discussion, particularly since the government commits to accelerate the state sector reform. Indeed, reforming the State-Owned Enterprise (SOE) sector has been a key element of the economic renovation process in Vietnam since 1986. A recent program is the so-called ‘equitization’ (broadly similar to privatisation, entailing partial divesture of state ownership) of the SOEs. One of the underlying objectives of the reform of Vietnamese SOEs is to introduce financial transparency and other characteristics of good governance principles, so as to improve performance of state sector and attract foreign investment. Another important perspective would be to regard CG as a catalyst for long-term change, in which more transparent business and financial practices would have an opportunity to take root and gradually change the mindset of the Vietnamese, help them become more capable of dealing with foreign investors and a global economy. Taking these perspectives, the paper focuses attention on two related aspects of CG in relation to the management of the equitized companies. First, the paper will appraise the current state of corporate governance practice in Vietnam’s equitised companies. Second, the paper analyses the relationship between corporate governance practice and firm performance to see whether CG works in Vietnam. The paper relies mostly on the primary data - survey conducted with the senior managers of the equitised companies. Multiple regression analysis is used to analyse the relationship between CG and firm performance. The paper structures into three parts following the Introduction. Part 1 briefly reviews CG literature: definition of CG, the relationship between CG and firm performance and CG policies in Vietnam. Part 2 presents the research methodology and actual practices of CG in the equitised companies. Section 3 examines the relationship between CG and performance of the Vietnam’s equitised companies. A discussion on implications for policy makers concludes the paper LITERATURE REVIEW The literature review is structured into two main sections. Section one reviews overall ideas of what corporate governance is (defined and described). As an integral part of this research it is useful to refer to literature on the relationship between CG and firm performance. In section two, I focus my discussion on the Vietnamese corporate governance system. A. A review of corporate governance 1. Emergence and meanings of...
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