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Tiêu đề The Dynamic Relationship Between Managerial Ownership And Firm’s Performance In Vietnam
Tác giả Nguyen Thi Thanh An
Người hướng dẫn Dr. Vo Hong Duc
Trường học University of Economics
Chuyên ngành Development Economics
Thể loại Thesis
Năm xuất bản 2016
Thành phố Ho Chi Minh City
Định dạng
Số trang 94
Dung lượng 320,12 KB

Cấu trúc

  • A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS

  • Academic Supervisor

  • DECLARATION

  • ACKNOWLEDGEMENTS

  • ABSTRACT

  • TABLE OF CONTENTS

  • LIST OF TABLES

  • LIST OF FIGURES

  • LIST OF ABBREVIATION

  • Chapter 1 INTRODUCTION

    • 1.1 Problem statement

    • 1.2 Research objectives

    • 1.3 Research questions

    • 1.4 Contributions of the thesis

    • 1.5 Research scope

    • 1.6 Structure of the thesis Chapter1: Introduction

    • Chapter 2: Literature review

    • Chapter 3: Research methodology and data

    • Chapter 4: Results and discussions

    • Chapter 5: Conclusions and policy implications

  • Chapter 2 LITERATURE REVIEW

    • 2.1 The theoretical background of managerial ownership and firm’s performance.

      • 2.1.1 The agency approach

    • Figure 1.1 The relationship between insider ownership and firm’s performance.

      • 2.1.2 The managerial discretion approach

      • 2.1.3 The timing approach

    • 2.2 Endogeneity of managerial ownership

    • 2.3 The empirical evidences of relationship between managerial ownership and firm’s performance and limitations

      • 2.3.1 The research in worldwide and the limitations

      • 2.3.2 The empirical evidence in Vietnam

    • 2.4 The corporate governance of Vietnamese listed firms

    • Figure 1.2 The management structure of Shareholding Company

    • Figure 1.3 The internal governance structure of a listed company

    • 2.5 The conceptual framework

    • Conclusion of this chapter

  • Chapter 3

    • 3.1 Data sources

    • 3.2 Measurement variables

      • 3.2.1 Definition and measurements of firm’s performance

      • 3.2.2 Definition and measurement of managerial ownership

    • 3.3 Research methodology

    • Table 3.1 Tests are utilized to find the appropriate model

    • 3.4 The empirical model

      • 3.4.1 The determinants of firm’s performance and optimal managerial ownership

    • The independent variables in regression of firm’s performance in equation (6) Size

    • Leverage

    • Growth

    • Risk

    • Table 3.2 The determinants of optimal managerial ownership level

    • The independent variables in equation (7) Size

    • The scope for discretion spending

    • Managerial risk aversion

      • 3.4.2 The explanation of the large change in managerial ownership.

    • Econometric model

    • Table 3.3 The summary of variables employed in Probit model.

    • Econometric model

  • Chapter 4 RESULTS AND DISCUSSIONS

    • 4.1 Data description

      • 4.1.1 Descriptive statistics

    • Table 4.1 Summary statistics: the firm’s characteristics of 285 firms listed on HOSE from 2010 to 2015.1

    • Table 4.2 The statistical summary of variables separated by year.

    • Table 4.3 The statistical summary of variables separated by industry

    • Table 4.4 Correlation coefficients between managerial ownership and firm’s attributes.

      • 4.1.2 Correlation analysis

    • 4.2 The determinants and movement of managerial ownership

    • Table 4.5 The relationship between level of managerial ownership and firm’s performance.

      • 4.2.1 The determinants of managerial ownership

    • Table 4.6 The determinants of managerial ownership level.

      • 4.2.2 The movement of actual managerial ownership.

    • Table 4.7 The movement actual managerial ownership level toward to estimated optimal level.

    • 4.3 The explanation of the large change (decrease or increase)

      • 4.3.1 The statistics by group

    • Table 4.8 Summary statistics of data by data source.

      • 4.3.2 The likelihood regression of large change (increase or decrease) against the change in firms’ characteristics and market condition.

    • Table 4.9 Large change in managerial ownership against change in firm’s attributes and market condition

    • 4.4 Dynamics of managerial ownership and firm’s performance.

      • 4.4.1 Firm’s performance: accounting-based measurement

    • Figure 4.1 The nonlinear relationship between the lagged change in managerial ownership and the change in return on total assets (ROA)

    • Table 4.10 The effect of lagged change in managerial ownership (MO) on change in firm’s performance in terms of accounting-based measurement.

    • 4.4.2 Firm’s performance: market-based measurement.

    • Figure 4.2 The nonlinear relationship between the lagged change in MO and the change in market evaluation of firm’s performance (Tobin’s Q)

    • Table 4.11 The effect of lagged change in managerial ownership (MO) on firm’s performance in terms of market-based measurement.

    • Conclusion of this chapter

  • Chapter 5

    • 5.1 Concluding remarks

    • 5.2 Policy implications

      • 5.2.1 The implications for enterprises

      • 5.2.2 The implications for the Vietnam’s relevant authority and the Government of Vietnam

    • 5.3 The limitations and further research.

      • 5.3.1 The limitations

      • 5.3.2 The further research

  • REFFERENCES

  • APPENDICES

    • APPENDIX A: THE CLASSIFICATION OF FIRM BY INDUSTRY.

    • APPENDIX B: TEST FOR ENDOGENEITY OF MANAGERIAL OWNERSHIP AND FIRM’S PERFORMANCE.

    • APPENDIX C: THE RESULT OF REGRESSION ESTIMATED OPTIMAL MANAGERIAL OWNERSHIP.

Nội dung

Problem statement

In the corporate world, the separation between principals (owners) and agents (managers) leads to the agency problem, which can be mitigated through managerial ownership The optimal level of managerial ownership has garnered significant attention from both academics and practitioners within modern corporate governance The primary goal of any firm is to maximize its value or the owner's wealth; however, managers may prioritize their own welfare under certain conditions (Kuhnen & Zwiebel, 2006; Lambrecht & Myer, 2007) Three main approaches have been proposed to explain how managerial ownership impacts firm performance, including the agency approach.

Recent empirical studies have highlighted a non-linear relationship between managerial ownership (MO) and firm performance, with notable findings from McConnell and Servaes (1990) identifying a reversed U-shaped relationship between Tobin's Q and insider ownership Their research indicated that MO positively influences firm performance up to a threshold of 40% to 50% Additionally, Morck, Shleifer, and Vishny (1988) discovered a W-shaped relationship using data from 500 Fortune firms However, critics like Kole (1995) and Himmelberg et al (1999) argue that cross-sectional data fails to adequately capture changes in a firm's environment and the endogeneity of MO While many recent studies have attempted to address the endogeneity issue through various approaches, limitations persist, leading to ongoing debates regarding the interpretation of results.

KoleandLehn(1997)addressedanimportanti s s u e o f governances t r u c t u r e t h a t haschan geovertime.Theyalsoinvestigatedthequestionastowhatforcesdrivethechange.Inreality,Hol derness,

2 d firmschangedovert i m e Undersimilarcircumstance,a n e w approachi n r e l a t i o n t o t h e re lationshipbetweent h e c h a n g e i nm a n a g e r i a l ownershipandfirm’sperformancev i at h e c hangei nT o b i n ’ s Q i n Americanf i r m s investigatedbyFahlenbrachandS t u l z (2008).T h e stu dyattemptedt o e x a m i n e t h e effecto f t h e dynamic

The analysis of Tobin's Q over the years reveals that changes in managerial ownership significantly influence managers' decisions regarding stock transactions McConnell, Servaes, and Lins (2008) employed an event study approach and found that managers did not purchase shares to reach an optimal level, contradicting the agency theory Their findings indicated that insider managers failed to achieve abnormal returns, which aligns with the timing approach This outcome is consistent with the study by Fahlenbrach and Stulz (2008), suggesting that the shifts in managerial ownership can be partially attributed to managerial discretion theory.

InVietnam,severalstudiesinvestigatedtheimpactofthestructureofownershipincludingt heexistenceofstateownership,andforeignownershiponfirm’sperformance(Le

&Phung,2013).TheirfindingswereaninversedU- shapedrelationshipbetweenstateownershiplevelandT o b i n ’ s Q , andforeigno w n e r s h i p c a n b o o s t f i r m ’ s performance.Inadditiont o t h a t , t h e empiricalr e s u l t s confirmedt h a t t h e r e w a s n o s t a t i s t i c a l l y significantevidenceofmanagerialownershiponfirm’sperfor manceinaccounting-basedmeasurement(ROA,ROE)

Managerial ownership can negatively impact a firm's market performance, particularly in terms of the price-to-earnings (P/E) ratio, due to potential expropriation by blockholders (Do & Wu, 2014; Nguyen & Giang, 2015) It is challenging to fully assess managerial power solely through their shareholdings, as managers may also influence decisions through the ownership stakes of their relatives in certain organizations In Vietnam, family-owned corporations are common, and a survey by the IFC (2012) indicates that family ownership adversely affects accounting benefits Family ownership is considered a unique form of blockholder in Vietnam (Tsao, Chen, Lin, & Hye, 2009; Nguyen & Giang, 2015) Holderness, Kroszner, and Sheehan (1998) define managerial ownership as encompassing both direct and indirect ownership, where direct ownership refers to the percentage of stock held by managers that entitles them to financial benefits such as dividends and capital gains.

),andtheyalsoexercisethevotingright.Otherwise,indirectmanagerialownershipwasconsider edast h e p e r c e n t a g e o f s t o c k s h e l d byt h e i r relatedpeoplea n d t h e i r represented organizations.T h e previousstudieso n t h e r e l a t i o n s h i p betweenmanagerialownershipand firm’sperformancehavelimitation sincetheyjustcapturedthedirectmanagerialownership whichmightnot fullyreflectmanagers’power tomakefinancialdecision.

InV i e t n a m , t h e regulationo f S t a t e SecuritiesCommission(SSC)andtheEnterpriseLaw 2014requireddisclosureinformationofmanagerialtransactionthemselvesortheirrelatedparties.Th ed i s c l o s u r e o f informationa l s o helpsauthorcollectdatao f changesi n managerialownership ,butthiscollectionislimitedbecauseitistime- consumingandobtainabledataisavailableinshorttimespan.To sumup,thestudyattemptstoprovidebetteru n d e r s t a n d i n g abouttheeffectofmanagerialo wnershiponfirm’sperformanceandanexplanationofmanagers’decisionofpurchasingandsellings tock.

Researchobjectives

(i)estimatingtheoptimallevelformanagerialownership;and(ii)e x a m i n i n g andquantifyingt h e r e l a t i o n s h i p betweenmanagerialownershipandfirm’sperformance.Inaddition,thisstu dyattemptstoexplainthebehaviorofmanagersandtheirrelativesinrelationtosellingandpurchasin gfirm’sshare.Assuch,theresearchobjectives forthis studycanbesummarizedasbelow.

(ii) Observingthemovementofactualmanagerialownershipleveltowardtheoptimallevel; (iii) Figuringoutthefactorswhichimpactthedecisionsonthesellingandpurchasingstocks whichhavebeenusedbyt h e boardo f directorsthemselvesand/ort h e i r relatedparties; (iv) Examiningtherelationshipbetweenthe change in managerialownershipandthe chang e in firm’sperformance(bothaspectsareconsideredas:market-based(forward-

Researchquestions

Toachievet h e objectiveso f t h e s t u d y , t h e f o l l o w i n g researchq u e s t i o n s have b e e n raised.

(i) Whataret h e determinantso f o p t i m a l levelo f managerialownershipi n Vietnam eselistedfirms?

(ii) Have managersadjustedtheirproportionoffirm’ssharetoward theoptimallevel?

(iii) Whatfactorshavebeenconsideredtoprovideanimpactonthemanagers’decisionso npurchasing andsellingstocks?

(iv) Ist h e r e anyr e l a t i o n s h i p betweent h e changei n managerialo w n e r s h i p andt h e changeinfirm’sperformanceinbothaspectsaccounting- basedandmarketbasedmeasurement?

Contributionsofthethesis

(i) First,anewmeasurementofmanagerialownership(bothdirectandindirectownership)i s conducted.T h i s resultcreateda detaileddatabaseo f managerialownershipofVietna meselisted firms.

(ii) Second,providedm o r e empiricalevidencea b o u t t h e relationshipb e t w e e n mana gerialownershipandfirm’sperformancewithadifferentapproachcomparedt o previou sstudies.T h e co nt em po ra ry approach envisagedo n t h e changes(increaseo r decr ease)i n managerials t o c k ownershipandt h e changesi n firm’sperformanceinsteado ftheleveloftwomentionedvariablesliketraditionalapproach.

ResearchScope

Structureof thethesis

Inthischapter,thegapofpreviousresearches,theobjectivesofstudy,scopeofstudy,t h e mo tivation,andcontributionsof this studyarepresented.

Thechapterreviewstheexistingtheoreticalframework,mechanismandempiricalevidenceso f t h e r e l a t i o n s h i p betweenmanagerialownershipandfirm’sperformance.T h e legalfra meworkofcorporategovernanceinVietnam,aswellasthemeasurementso f firm’sperforman ceandmanagerialownershipisalsoclarified.

Thestatisticald e s c r i p t i o n , resultso f estimationandinterpretationso f t h e resulta r e dis cussedandcomparedtopreviousstudies.

Int h i s c h a p t e r , t h e r e l a t i v e l y theoreticalframework,mechanismo f managerialowne rshipandfirm’sperformance,togetherwith empiricalevidencesaround theworldandVietnamar epresented Thestructureofthesecontents isorganizedasfollowing:

(i) Therelatedtheoreticalframeworkhelpsu s e x p l a i n t h e mechanismo f th is relationshi p;

(ii) Theempiricalevidenceso f t h e r e l a t i o n s h i p betweenmanagerialo w n e r s h i p an dfirmperformancea r o u n d t h e worldandVietnamw i t h cross- sectionalo r paneldata(mightbefound);

Thetheoreticalbackgroundofmanagerialownershipandfirm’sperformance

Theagencyapproach

Agency theory, as articulated by Jensen and Meckling (1976), posits that ownership structure significantly impacts agency costs due to conflicts between managers (agents) and shareholders (principals) in firm operations Managers may prioritize personal investment plans that benefit themselves rather than maximizing firm profits, leading to potential harm for shareholders One potential solution to mitigate this conflict is increasing managerial ownership, which can lower monitoring costs associated with management Zwiebel (1995) noted that while ownership monitoring cannot completely eliminate the risks of managerial decisions, Beyer, Czarnitzki, and Kraft (2012) found that higher levels of managerial ownership encourage managers to act more like owners, thereby reducing principal-agent divergence up to a certain threshold However, they also cautioned that once the board of directors gains sufficient power, managers may prioritize their own interests over maximizing firm value Cosh, Fu, and Hughes (2007) further highlighted the interplay between innovation and entrenchment as managerial ownership levels rise.

Tos u m u p , ani n c r e a s e i n managerialo w n e r s h i p createsb o t h c o u n t e r v a i l i n g i nterestalignmentande n t r e n c h m e n t effect.S o , therea r e t w o o p p o s i n g i m p a c t s : t h e in centiveandentrenchmenteffectsofmanagerialownershipandfirm’sperformance.Theeffectsar eprovokedbytheseparationbetweenprincipal(s)(theowners)andagent(s)

(managers)whent h e agentsmakethe decision to maximizeprincipal(s)’welfare.

JensenandMeckling(1976)arguedthatmanagersholdstocks;theyhaveanincentive t o adoptinvestmentstrategiesthatarebenefitforallcompanybyaugmentingthecashflowoffirmandr educingo u t s i d e payment.T h e higherpercentageo f managerialownershipwasconsistentwith thehigherfirm’sperformance.

LelandandPyle(1977)claimedthatmanagerialownership canalsoserveasasignalforc o m p a n y quality.Theyarguedthatinsidersownsharestomaximizet heirwelfare,sotheyarealsorisk- aversewhichi n d i c a t e s t h a t theyc o n s i d e r c a r e f u l l y t h e i r i n v e s t m e n t opportunities.Ma nagersi n c r e a s e t h e i r percentageo f s h a r e h o l d i n g t o signalizem o r e valuablefirm andoutsidersareconvincedthatitisgoodinvestment.Inadditiontothat,Stulz(1988)arguedthathighe rmanagerialownershipcausedthe lower probabilityofhostiletakeovers.

Thereisanegativerelationshipbetweenmanagerialownershipandprofitabilityorfirmval ue,especiallyatconsiderablyhighlevelofmanagerialownership.Thehighermanagerialow nershiplevelis,themoredifficultyforoutsideownerscontrolthemanagement,somanagerscould makedecisions fortheirownbenefitinsteadof thewholefirms.

Morck,ShleiferandV i s h n y (1988),andS t u l z (1988)arguedt h a t w i t h higherv o t i n g rig ht,theappearanceofentrenchmenteffectwhichindicatesthehighermanagerialownershipwouldin ducethenegativeimpactonfirm’sperformance.Since,itisdifficultforexternalandm i n o r i t y s hareholders tomonitorandcontrolthefirm.

Moreover,HirshleiferandThakor(1994)indicatedthatineffectivemanagementhasther o o t s oftheinefficientlyvaluableinformationgettingfromtakeovermarket.Otherargumentpresent edbyFahlenbrachandStulz(2009),whoclaimedthatthecostofholdingmoresharet e n d s toin creasesincemanagers’portfoliobecomeslessdiversified.Theyarewillingtoholdm o r e stockwh enthecompensationisproportionalormore.

Agency theory suggests a trade-off between the advantages and disadvantages of higher managerial ownership, indicating a nonlinear relationship between managerial ownership and firm performance, with an optimal level of ownership existing McConnell and Servaes (1990) identified an inverse U-shaped relationship, where lower levels of managerial ownership lead to significant incentive effects that outweigh entrenchment effects, but negative impacts become dominant as ownership increases Additionally, Larcker, Randall, and Itner (2003) noted that factors such as a firm's lifecycle stage, R&D expenditure, asset structure, and growth opportunities can influence the optimal level of managerial ownership The impact of managerial ownership on firm performance can be illustrated in Figure 1.1.

INOWNS Convergencesof Entrenchment Convergencesofinterests interests effect

Themanagerial discretionapproach

Managerial discretion theory, introduced by Hambrick and Finkelstein in 1987, defines the latitude managers have in making strategic decisions, influenced by environmental variances, organizational characteristics, and the managers themselves High R&D and advertising expenditures signal greater managerial discretion, while limited financial resources constrain strategic choices Additionally, organizational inertia, particularly in large firms with strong corporate cultures, restricts managerial latitude Finkelstein and Boyd (1998) further explored the link between managerial compensation and discretion, revealing that higher firm performance often correlates with increased managerial pay Subsequent developments by Stulz (1990) and Zwiebel (1996) posited that managers choose ownership levels to maximize personal utility rather than enterprise value, indicating that managerial ownership is endogenous This behavior can lead to a negative relationship between managerial ownership and firm performance, as managers may exploit their discretion to serve their own interests.

AccordingtoFahlenbrachandStulz(2008),threek ey motivations areexplored whenman agersheldstockundermanagerialdiscretionapproach.

Whenenterprisesexercisedconstrainedf i n a n c i a l resources,e s p e c i a l l y s t a r t - u p firms,managerialownershipcouldhavecheapercostofcapitalcomparedtootherexternalsour ces.Firmswithhigherinformationasymmetrieswillbelimitedtoaccessotherexternalresource sl i k e bankloanorequityfromoutsiderinvestors.Whenthefirmbecomesmature,thecostofi s s u i n g share orbankl o a n reduces,s o f i n a n c i n g m o t i v a t i o n o f managersi s s e c o n d a r y ro le.Therefore,theypredicted t h a t t h e percentageofs t o c k heldbymanagers w i l l decreaseovert i m e

Theinterestofmanagersandminorityshareholderscanalignviathemanagerialownershipas l o n g ast h e fractiono f t h e i r s t o c k d o n o t excesso f specificthreshold.T h e b o n d i n g m o t i v a t i o n i s emphasizedi n t h e casemanagersb e i n g lowerr e p u t a t i o n o r widermanag erialdiscretionspace.Whenthefirmoperatedwithhigherratiointangibleassets,lowergrowthopport unitieso r managersb e i n g m o r e w e l l - k n o w n , t h e r o l e o f t h i s m o t i v a t i o n wasdiminished.Thisphenomenonoccurredwhenorgan izationsoperatedstablyandrelativelyfullgrown.

Boardofdirectorstendstoacquiremoreshareswhentheircontrolisthreatened.Increasingman agerialownershiplikelyoccurswhenbusinessisnotperformingwellandthe abilityofmanagershasn o t beenw i d e l y r e c o g n i z e d Theiractionhelpst h e m convincet h e ow nersthattheywillendeavortoworkandreducethe probabilityofhostiletakeovers.

Insummary,w i t h t h e e x p l a n a t i o n o f m a n a g e r i a l discretionapproach,t h e incre asingmanagerialownershipoftentakesplaceintheyoungerorfinanciallyconstrainedfirms.Th isphenomenonalsolikelyoccursinpoor- performingfirmsorinthecaseofmanagedskillsofboardofdirectorshasbeennotpublicly re cognized.This approachalsointerpretedthat themanagerswould selltheir stockwhenfirmsp erform wellorinthecasemarketbeingm o r e l i q u i d Thankst o t h e managerialdiscretionap proach,p a r t i a l explanationo f t h e a c t i o n o f purchasingandsellingshareso f managersc o u l d achieve.So,authorscanconcentrateo n changei n managerialo w n e r s h i p andc h a n g e i n firm

Thetimingapproach

Theconcentratedcontentoftimingapproachisthattheinsiderswillhavemoreinformation o f operationo f enterprisesc o m p a r e d t o o u t s i d e i n v e s t o r s , s o t h e y couldgainabnorm alreturn.Itindicatesthatthemanagersprobablypurchasefirmstockwhenthefirmsperformedwel llikelysignifyingtheovervaluedfirmshareandvice versa(Jenter,2005)).Themarkettimingtheorysuggestedthatmanagersefficientlybeatthemarket togetextraordinaryreturn.T h i s approachp r o v i d e s t h e s a m e r e s u l t s w i t h t h e manag erialdiscretionapproach,however,twoapproacheshavedifferentroot.McConnell,ServaesandLin(2008)investigatedtherelationchangeininsiderownershipandabnormalreturnbyobserving6- dayintervalreturnandt h e i r conclusionwaschangei n insiderownershipimpactingo n firm’sperfo rmance.

Endogeneityofmanagerialownership

Theresearchin worldwideandthelimitations

Therearevastnumberofempiricalstudiesinvestigatedtherelationshipbetweenmanageri alownershipandfirm’sperformanceusingcross- sectionaldata,andtheseresearchesshoweddifferentshapesoftherelationship.However,generalcon clusioncouldbethatrelationshipbetweenfirm’sperformanceandmanagerialownership isnonlinear.

(1988)examinedtherelationshipbetweenmanagerialownershipandT o b i n ’ s Q w i t h c r o s s -sectionaldataof5 0 0 Fortunefirmswhichw e r e l i k e l y l a r g e - s c a l e enterprisesandoperatingstably.Theyexploredthethresholdofmanagerialownershipfl uctuatingfromzeropercentupto5percentwhichprovidedpositiveeffectonTobin’sQiso n e of proxiesforfirm’sperformanceintermsmarket-

13 basedmeasurement.Then,theTobin’sQ w o u l d reducei f managerialownershipincreasesupt o

2 5 percentandt h e r e p e a t e d l y positiveimpactagaini n t h e casemanagerso w n e d 2 5 percentexcessively.T h e nonlinearrelatio nshipisillustratedsimilarlyFigure2.1.

A study by McConnell and Servaes (1990) analyzing 1,173 companies listed on NYSE and AMEX in 1976 and 1986 revealed a reversed U-shaped relationship between Tobin's Q and insider ownership levels Their findings indicated that managerial ownership positively impacts firm performance, with an optimal threshold between 40% and 50% The research focused on the relationship between Tobin's Q as the dependent variable and two control variables: the fraction of insider ownership and its square The results showed a significantly positive coefficient for insider ownership and a negative coefficient for its square, confirming the non-monotonic relationship.

Short and Keasey (1999) bolstered the argument by providing empirical evidence from the United Kingdom, using two proxies for firm performance: the ratio of market value of total assets to the book value of equity (VAL) and return on equity (ROE) They regressed these measures against a cubic function of managerial ownership levels, revealing that VAL fluctuated in accordance with the relationship identified by Morck et al (1988) Notably, the thresholds for managerial ownership varied, with a positive threshold identified at 12.99 percent, followed by a negative relationship until reaching a threshold of 41.99 percent, after which the positive impact resumed Similarly, for the accounting-based measure ROE, a correlated graph with VAL was examined, indicating turning points at 15.58 percent and 41.84 percent, respectively.

Kole(1995)conductedexperimentsof352firmsinsteadof500Fortunefirmslikestudyo f Mor cketal.(1988)andexploredthatN- shapedrelationshipbetweenlevelofmanagerialownershipandTobin’sQ,buttheturningpoints considerablyaltered.ThepositiveeffectofmanagerialownershiponTobin’sQismoresign ificantlysustainedinsmallfirmthanlargefirm.

Hermalin and Weisbach (1991) conducted an analysis of triennial data from 142 firms listed on the NYSE during the years 1971, 1974, 1977, 1980, and 1983, revealing a W-shaped relationship between managerial ownership and Tobin’s Q Initially, there is a positive correlation between managerial ownership and firm value up to 1 percent ownership However, as managerial ownership increases from 1 percent to 5 percent, this relationship reverses Beyond 5 percent ownership, a positive effect emerges again, but this is ultimately overshadowed by a negative impact once managerial ownership exceeds the 20 percent threshold.

Tos u m u p , m o s t o f t h e resultshaves h o w n t h a t t h e relationshipb e t w e e n managerialo wnership,o r i n s i d e r o w n e r s h i p andfirm’sp e r f o r m a n c e i s n o n - m o n o t o n i c T h e m e n t i o n e d empiricalevidencesa r e characterizedbya s s u m p t i o n o f m anagerialownershipb e i n g exogenousandutilizingcross- sectionaldataonly.So,thelimitationoftheseempiricalevidencesisimpossibletocontroladequa telyforunobservablefirmheterogeneitythatmeanschangeinfirm’senvironment.

Demsetz and Lehn (1985) highlighted the significance of unobserved heterogeneity in contracting environments In a study by Himmelberg, Hubbard, and Palia (1999), the relationship between managerial ownership and firm performance was examined using panel data from 600 U.S firms between 1982 and 1992, addressing endogeneity issues Their fixed effect model revealed no econometrically significant impact, suggesting that previous regression results may have reflected a spurious relationship Despite numerous researchers validating the concept of endogenous managerial ownership, the debate continues over whether changes in managerial ownership genuinely affect firm value.

Using panel data and fixed effects can help address unobserved heterogeneity, particularly when it is assumed to be time-invariant However, this method may be inefficient in eliminating spurious relationships between managerial ownership and firm performance, as fixed effects models assume omitted variables are stable over time Zhou (2001) highlighted this limitation, noting that even minor changes in managerial ownership can significantly impact firm value, especially Tobin's Q He also pointed out the challenges in explaining the relationship between these two subjects due to the reduced power of such tests In summary, Holderness, Kroszner, and Sheehan (1998) indicated that the level of managerial ownership in firms listed on the NYSE and AMEX has varied over time.

Theovertimechangeincludedsystematicandunsystematicchange.TheZhou’sexplanationindicat edt h a t t h e origino f systematicc h a n g e couldb e t h e changei n c o n t r a ctingfirm’senviro nment.Additionally,therootofunsystematicchangeshouldcomefromrandomincentivessuch asmarketconditions.Therefore,FEm o d e l cannotcomplet ely eliminatethes p u r i o u s rela tion.

The use of alternative instrumental variables (IV) in various studies is essential, as highlighted by Hermalin and Weisbach's (1991) research, which proposed lagged control variables as instruments for managerial ownership Potential candidates for these instrumental variables include the natural logarithm of sales and its square, which serve as proxies for firm size, alongside idiosyncratic risk measures (SIGMA, SIGDUM) that reflect managerial risk The authors contend that while the Hausman test addresses the presence of endogeneity issues, it does not validate the effectiveness of the chosen instrumental variables Finding completely efficient instrumental variables for managerial ownership remains challenging, as lagged unobserved explanatory variables may still be endogenous Consequently, the use of instrumental variables does not entirely resolve the endogeneity problem and may lead to unreliable estimations.

A study by Cui and Mak (2002) explored the relationship between managerial ownership and firm performance in intensive R&D firms listed on AMEX, NASDAQ, and NYSE during 1996 and 1998 Utilizing various piecewise regressions and Two Stage Least Squares (2SLS), they identified a W-shaped relationship between managerial ownership and Tobin's Q, contrasting with the findings of Hermalin and Weisbach However, their regression results showed inconsistency in two aspects of firm performance: market-based and accounting-based measurements Additionally, Drakos and Karathanassis (2004) found an insignificant relationship in 59 Greek listed firms from 1996 to 1999 after controlling for fixed and random effects.

8 period.Thestudybasedonexogenousmanagerialownershipassumption,however,thed e f i c i e n c y ofdataleadstotheimpossibletoimplementrobustregression.Therefore,DrakosandB ekiris( 2 0 1 0 ) c o n t i n u e d t oinvestigatet h e impacto f ownershipstructureo n firm’sperfor manceof146firms listed onAthensstockexchangefrom2004to 2010.

Theyimprovedt h e i r researchbyemployedbysimultaneouse q u a t i o n s and2SLSand3SLS(Th reeStageLeastSquare)withlagernumberoffirmsthanthepastsampletoovercometheendog enous

16 ownershippossessinallthreeregressions,anddividendpayoutratioisusedastheinstrumentvariable. Wu(1973)andHausman(1978)proposedthetesttocheckthevalidofinstrumentvariable,andalli nstrumentspassthistestwhichindicatesinstrumentvariablesbeingexogenous.

Lastbutnotleast,MuellerandSpitz(2002)examinedtheeffectofmanagerialownershipin 1300mediumandsmallGermanfirmsovertheperiodfrom1997to2000.TheGeneralizedMeth odo f Moments(GMM)anddynamicp a n e l datautilizedi n ordert o t a k e impactofpastfirm’sperfo rmanceoncontemporaneousoneintoaccount.TheresultofstudyconsolidatedtheinversedU- shapedrelation betweenmanagerialownership andfirm’sperformanceandt h e p o s i t i v e r e l a t i o n s h i p betweenpastfirm’sperformanceandconcurrentones.Theyfoundthatmanagersworrie dabouttheconcentratedonholdingonespecificsharebecauseoftheirdemandofdiversifiedportf olio.Theyalsoconcludedthatmanagerialownershipwouldprovide asignaloffirmquality.

Coles, Lemmon, and Meschke (2012) investigated the relationship between managerial ownership and firm performance using a structural model to estimate productivity parameters, denoted as Q* for optimal productivity Their findings revealed a similar connection between managerial ownership and firm performance; however, the impact of unobservable variables, such as productivity, on Tobin’s Q was found to be nonlinear over time The study also utilized firm attributes, including size, R&D or advertising expenditure ratios, and book leverage, as proxies for structural productivity parameters These findings raised questions about model misspecification and did not fully resolve the issue of endogeneity Roberts and Whited (2013) recognized these limitations and proposed alternative measures to address the endogeneity problems in corporate finance.

The limitations of econometric techniques in addressing endogeneity issues highlight the need for a focus on changes in managerial ownership rather than just levels, as suggested by Himmelberg, Hubbard, and Palia (1999) Their research emphasizes that understanding shifts in managerial ownership can provide deeper insights into the relationship between ownership and firm performance Furthermore, Fahlenbrach and Stulz (2008) explored the connection between changes in managerial ownership and variations in Tobin's Q among American firms, incorporating the dynamic nature of ownership changes Their findings indicate that after periods of efficient operation, managers often reduce their ownership stakes.

17 ownershipbecausetheyneedm o r e diversifiedportfolio.However,t h e rateo f managerialownersh ipdoesnotincreaseinthecaseofpoorfirm’sperformance.Theyalsoarguedthattheinformationabout the changeinmanagerialownershipfully absorbedbythemarketafteraperiodsochangeinmana gerialownershipinyeart-

1shouldaffecttoTobin’sQinyeart.ThesameresultconfirmedbyHelwege,PirinskyandStulz(200 7)thatmanagerswouldselltheirs t o c k afterfirmsbeinggoodperformanceandstockmarketbei ngliquidity.TheyalsoutilizedP r o b i t regressiont o e s t i m a t e t h e p r o b a b i l i t y o f inside ro w n e r s h i p r e d u c t i o n regardoft h e changeoffirm’scharacteristics.

McConnell,ServaesandLins(2008)foundthatmanagersdid not purchasefirmsharetom o v e t h e i r ownershipratetowardt h e o p t i m a l managerialo w n e r s h i p levelast h e a g e n c y t h e o r y approach.M o r e o v e r , a regressiono f abnormalreturna g a i n s t t h e c h a n g e i n insiderownership,square ofinsider ownership levelandt h e interacti onofth e change andlevelofinsiderownershipw a s c o n d u c t e d T h e resultw a s p o s i t i v e c oefficiento f changei n insiderownershipandnegativeestimatorsoftwolatervariables, which wassimilartoFahlenbrachandStulz’sstudy

(2008)whichcarriedoutbyemployedeventstudyapproach.Generally,thechangei n managerialo w n e r s h i p c a n b e e x p l a i n e d p a r t i a l l y byt h e managerialdiscretiontheory.

FirdausandK u s u m a s t u t i (2012)investigatedt h e sameissuesi n t h e r e l a t i o n t o firm’sl i f e cycle.Theyfoundthatownershipstructure(insidersownershipspecifically)impactedonfirm

’sperformancedifferentlyineachstage(growingfirms,maturefirmsandstagnantfirms)o f firm’sli fecycle.

Theempiricalevidencein Vietnam

Doan and Wu (2014) examined the impact of ownership structure on the performance of non-financial firms listed on the Ho Chi Minh Exchange from 2009 to 2012 Their findings revealed no statistically significant evidence linking managerial ownership to firm performance, as measured by accounting metrics such as Return on Assets (ROA) and Return on Equity (ROE) Additionally, the study found that the entrenchment effect is more pronounced in state-owned enterprises (SOEs) compared to other types of firms However, a limitation of the research is that performance was assessed using historical accounting measures like ROA and ROE, which can be influenced by accounting methods and estimates, such as depreciation expenditures The authors utilized regression analysis with panel data to support their conclusions.

18 ichestimatedd i r e c t l y t h e impactmanagerialownershipo n f i r m ’ s performance.A s argu menti n p r e v i o u s section,regressionhastrouble in endogeneityproblem orspuriousrelation.

NguyenandGiang(2015)investigatedtherelatedownershipconcentration andfirm’sp erformancei n 3 4 constructionandmaterialconstructionfirmso n HOSE,HNXandU P C O M I ntermso f econometrics,POLSandFEusedt o estimatet h i s relationship.Twop r o x i e s forfirm

E)andROA(returnonassets)areemployed.Theresultshowedthatconcentrationownershiphasnoi mpactonROAwhichrepresentshistoricalp e r f o r m a n c e , b u t n e g a t i v e impacto n P /

E T h e y arguedt h a t n e g a t i v e effectcouldcomefromexpropriationo f block- holder.T h e improvemento f t h i s s t u d y i s firm’sperformancecouldbemeasuredinbothaspe cts:backward(historicalperspective)andforwardlooking(futureperspective).

TheU- shapedrelationbetweentherateoffirmsharesownedbyboardofdirectorandR O A wasshownina nempiricalstudywiththesampleof77firmslisted onHOSEfrom2006t o 2 0 1 1 (Vo& Phan,2013).T h e FlexibleGeneralizedLeastSquares(FLGS) estimationemployedandf o u n d t h e thresholdo f managerialownershipb e i n g 2 2 percent.M o r e specifically,thenegativerelationofMOandROAtakesplaceuntilthelevelofshareownedbyboar d ofdirectorexcess of 22percent,andthenoppositeeffectispredominant.

Hoang,NguyenandHu(2016)exploredtheimpactofownershipstructure whichincludesmanagerialownershipandfirm’sperformanceofnon- financialfirmslistedonHOSEi n (2007–

The study examines managerial ownership and its impact on firm performance, revealing an N-shaped relationship with Tobin's Q It indicates that past performance can influence current outcomes, confirming findings from previous research Specifically, the results show that lower and higher levels of managerial ownership positively affect firm performance, while a moderate level of ownership is associated with a negative impact.

Thecorporate governanceofVietnameselistedfirms

Foremergingmarkets,t h e e n h a n c e m e n t o f c o r p o r a t e governancewase m p h a s i z e d t o protecttheinvestors,andensuredmarkettransparency.Listedfirmshaveoperatedundertwotie

19 rsofcorporategovernancewhichwereGeneralMeetingofShareholders(GMS)andBoardo f Mana gement(BOM),respectively.TheLawonEnterprise2014whichwaseffectivefromt h e beginning of2 0 1 5 h a s s o m e c h a n g e c o m p a r e d t o Lawo n E n t e r p r i s e 2 0 0 5 t o i m p r o v e transparencyofinformationandqualityofmanagement.

(BOM) Chairman BOM Control Board

Them i n i m u m percentagerequiremento f v o t i n g r i g h t andq u o r u m reducedt h e g apbetweenV i e t n a m e s e L a w Enterprisew i t h j u r i s d i c t i o n s (IFC).T h e Lawo f Enterprise

2 0 1 4 alsostipulatedthatminimumof20percentofmembersinboardofdirectorsisindependentan dsupervisedo p e r a t i n g a c t i v i t i e s o f e n t e r p r i s e Inaddition,t h e issueso f t r a n s p a r e n c y an dd i s c l o s u r e informationofinternalandlargeshareholdersreceivedgreaterattentioninthenew legislation.LawofEnterprise2 0 1 4 m a d e a m e n d m e n t t h a t CEO,chairmano r o t h e r manag ementpersonnelhavet o d i s c l o s e t h e i r o w n e r s h i p themselvesa n d relatedp a r t y ofo wnershipi n firmseventhoughi n o t h e r firmsa s l o n g astotalp e r c e n t a g e o fst oc k h o l d i n g exc ess10percent.

LeandWalker(2008)proposedthat“thelegalframeworkandinstitutionalfoundationf o r thecapitalmarketsinVietnamareinanearlystageofdevelopmen t”.Theyalsoarguedt h a t t helistedfirmshavetoabidetheLawofSecurities2006andthatfirmsexperiencedtheinefficientfl exibilityandaccountability.TheLawofEnterprise2014reformedinsomepointst o i m p r o v e t h e flexibilityi n administrativeprocedureandmergeranda c q u i s i t i o n (M&A)activitiessuchasallo wingmultiplelegalrepresentativesinsteadofsoleperson;mergingthebusinesswithoutlimitatio noftype firms.

Secretary Sub-Committees General Director

Accordingtothemechanism,toseparatethecontrolandsupervisoryoffirmoperation,req uirementofonethirdofmembersofBoardofManagementmustbenon- executiveindependentmember.

Change in Managerial Ownership (Increase/ Decrease)

Theconceptualframework

Thischapterprovidedtherelevanttheoriesandempiricalevidencesto exploretherelationshipbetweeno w n e r s h i p s t r u c t u r e andf i r m ’ s performance.T h e endogenousi s s u e hasalsob e e n recognizedandso m e remediesarealsos u g g e s t e d tosolve problem.However,th e e xplanationofregressionresults hasprovokeddisputation Therefore,the st ud y continues investig atinganalternative approachbyfocusingonchangeinstead ofthelevelvariableslikepreviousstudies.

Toachieveresearchobjectives,t h i s chapterd e t a i l s t h e s o m e contentsasf o l l o w s : t h e sa mples i z e anddatasourceemployedi n study.N e x t , t h e measuremento f variablesandconstruct edempiricalmodelarealsofound in thischapter.

Data sources

In Vietnam, firms are listed on two stock exchanges: the Hanoi Stock Exchange (HNX) and the Ho Chi Minh Stock Exchange (HOSE) This study focuses exclusively on firms listed on HOSE to ensure a homogeneous sample, excluding securities and financial companies due to their differing capitalization rules and regulations Data was collected from various sources, including annual reports and firm prospectuses, to address the lack of financial information from official data sources By the end of 2015, there were 341 companies listed on HOSE; however, 28 financial companies were removed from the sample, along with 28 firms that violated security regulations or failed to meet information requirements, resulting in a final sample of 285 companies from 2010 to 2015.

Inthisstudy,managerialownership(MO)includesdirectandindirectownershipwhichmeasur edbythepercentageofshareownedbyboardofdirectorsthemselvesandtherelatedpartieswhich defineda t Article2 8 o f Circular5 2 / 2 0 1 2 - BTCandamendedbyCircular155/2015-

BTC.Indirectownershipisalsodefinedasthepercentageofsharethatthemembersofboarddirect orsdeputizedfororganization(Neely,Gregory&

Platts,1995).Otherargumenthadd o n e byKoufopoulous,ZoumbosandArgyropoulous( 2 0 0 8 ) cla imedt h a t i n managements c h e m e , performancecouldbeviewedi n t w o termsquantificationan daccounting.So,firmsshouldbeenmanagedtheiroperationalprocessestoachievetheirobjectives.

M e a s u r i n g performanceofb u s i n e s s e s i n ordert o assesst h e levelo f successi n managementoffirm’sresourcesinacertainperiodgotconsensusfromgreatnumberresearchers(D emirbag& Zaim,2 0 0 6 ; G e d e n n e s & Sharma,2 0 0 2 ) T h e measurementso f performancec oncepth a v e beendevelopedw h i c h alsohelpcomparef i r m ’sachievementi n spanoftime.

Thecorporategovernanceschemeplayeda k e y r o l e i n t h e developmentoffirm’sperformance,andestablishedappropriatelycorporategovernancewoul denhancetheexpectedfirm’sperformance(Ehikioya,2009).Inpractice,measurementoffirm’sperf ormancerevealsvaluableinformationa n d communicatesw i t h o t h e r entities,e s p e c i a l l y ou tsidersaboutt h e effectivenessoffirm’s operation.With firm’sperformancemeasurements, t hey enablequantification,andunderstandmucheasilyacomplexconceptaswellasmoreconvenie ntfort h e evaluation(Lebas,1995).

Measurementvariables

Definition andmeasurementsoffirm’sperformance

Accounting– basedmeasurementsgenerallyviewtowardsprofitabilityaspectwhichusedforcomparisonwithco mpetitorsorintherelationwithrisk.Inaddition,theseindicatorsareofteninfluencedbytheestimate soffutureexpendituresuchasdepreciationorprovision.Suchindicatorsalsolimitedbecauseof accountingconventionsandthemethodofrecordofvalueofassets(Kapopoulos&Lazaretou,2009)

ROA(Returnonassets-oneofaccounting- basedmeasurements)definedastheratioofearningaftertaxoverbookvalueoftotalassetswhichrepr esentedtheabilitygeneratedprofito f totala s s e t s R O A w a s usedt o demonstratef o r firm’spe rformance( H u & Zhou,2 0 0 8 ; Mehran,1 9 9 5 ; Demsetz& Lehn,1 9 8 5 ; andV o & Nguyen,2 0 1

4 ) M o r e o v e r , IbrahimandAbdulSamad(2011)claimedthatROAreflectstheeffectivenessin usingthefirm’sassetstoservetheeconomicbenefitofitsshareholdersregardlessofthetypeofreso urcesfinancingtototalassets(capitalstructure).AccordingthestatisticalresultofMacrothinkInstitu te,ROAist h e m o s t commonmeasurementoffirm’sperformanceemployedbyscholars.

Market-based measurements reflect investors' expectations regarding a firm's future profit-generating ability, focusing on long-term profitability, while accounting-based indicators assess short-term profits (Bozec, Dia, & Bozec, 2010) Tobin's Q is a widely used metric to evaluate a firm's market performance, calculated as the ratio of the market value of a firm to the replacement value of its assets, as devised by Tobin and Brainard (1969) Specifically, the numerator includes the total market value of common and preferred stock along with total liabilities, whereas the denominator represents the book value of total assets, indicating the replacement cost of production capacity However, due to inefficiencies in the Vietnamese debt market, obtaining the market value of liabilities can be challenging, necessitating alternative calculations for Tobin's Q.

��� �𝑖 ′ ��= Mark etvalu e of c ommonandpreferred s toc k+ bookvalu e of liabilitie s

Tobin’sQhasalsobeenacommonmeasurementoffirm’sperformanceandwaswidelyusedbyl a r g e n u m b e r ofauthors,f o r e x a m p l e (McConnella,Servaes,& Lins,2 0 0 8 ; Kole,1997;Fahle nbrach& S t u l z , 2009;C o l e s , Lemmon,& Meschke,2 0 1 2 ; Firdaus&K u s u m a s t u t i ,

Definition andmeasurementofmanagerialownership

Managerial ownership can be measured in various ways, primarily defined as the proportion of stock held by insiders, including all managers and firm officers (Holderness, 2008) Another perspective focuses on the stock held specifically by the board of directors, excluding stock options (Cho, 1998) Empirical research by Agrawal and Knoeber (1996) utilized a less common measure, calculating managerial ownership based on the fraction of stock held by the CEO Additionally, Short and Keasey (1996) considered the total percentage of stock owned by board directors and their families However, most of these measurements primarily reflect direct ownership To better understand managerial ownership patterns, the Securities and Exchange Commission (SEC) mandated in 1934 that public firms disclose the percentage of stock held by their board of directors, including both direct and indirect ownership.

Tob e clearer,directo w n e r s h i p indicatesm a n a g e r s h o l d t h e title,v o t i n g rightsasw e l l as

25 pecuniarybenefit o f s t o c k l i k e dividendo r c a p i t a l gain(orl o s s ) W h i l e indirecto w n e r s h i p meanst h a t managersc a n controlfirmv i a t h e v o t i n g righte v e n thought h e y d o n o t h o l d s t o c k s ’ t i t l e andp e c u n i a r y benefit.S h a r e s heldbyfamily membersandt h e i r repre sentativeorganizationwhichconsiderasindirect ownership.

Thiss t u d y followedt h e definitiondevelopedb y Holderness,KrosznerandSheehan(1998) whichmeasuredtotalindirectanddirectownershipofmembersofboardofdirectorse x c l u d i n g chiefaccountant asmanagerialownershiplevel.

Researchmethodology

The analysis of optimal managerial ownership is conducted in three parts First, we explore the determinants of the ideal level of managerial ownership and assess whether the actual levels are moving towards this optimal state The second part utilizes Probit regression to examine the factors influencing stock transactions by related parties and managerial decisions Finally, we analyze the relationship between changes in managerial ownership and firm performance using POLS, FE, and RE methodologies Data analysis is performed using Stata 12 software, starting with descriptive statistics, correlation analysis, and VIF calculations to summarize the data by year and industry To determine the specific direction and magnitude of these factors' impacts, multivariate regressions are employed.

POLSregressionassumedt h a t àitandXitareuncorrelated( C o v ( àit,Xit)= 0 ) , s o estimato rsareunbiasedandconsistent.However,ifunobservedindividualeffectisexistent,s o R E o r FEcouldb e m o r e appropriatet h a n POLS.F- testhelpsu s d e c i d e whichm o d e l , POLSo r FE,i s m o r e e f f i c i e n t Breush-P a g a n -

Lagrangemultiplier( LM )t es t helpsd e c i d e whichmodel, REorPOLS,isbetter.Nullhypothes isofthistestisvarianceacrossobservationsb e i n g z e r o whichindicatest h a t POLSi s b e t t e r F urthermore,Hausmant e s t i s alsoconductedtofindoutFEorREmoreefficiency.Thetableshowsov erviewoftheteststob e carriedoutrespectivelyinstudy.

Table3.1 Testsare utilizedto find theappropriatemodel

However,somediagnosticsarecheckedtogetthebestlinearunbiasedestimator(BLUE).TheWaldtestis conductedtocheckg ro up wiseheteroskedasticity andtheWooldridgetestchec kingautocorrelation.So,therobuststandarderrorconductstogetmoreefficientestimators.The magnitudeofestimatorsisunchanged,but thevalueofstandarderrorreduces.

Theempiricalmodel

Thedeterminantsoffirm’sperformanceandoptimalmanagerialownership

 PER isfirm’sperformancemeasuredin two aspectsaccounting-basedandmarket- basedmeasurement

 MOis thelevelofmanagerialownershipmeasuredbythe proportion of shareheldbymanagersandtheirrelatedparties.

The relationship between firm size and performance, including profitability and market evaluation, remains ambiguous according to both theoretical research and empirical evidence Two common measures of firm size are average total assets and annual sales (Lee, 2009; Ozgulbas et al., 2006; Vijayakumar & Tamizhselvan, 2010; Banchuenvijit & Nguyen, 2012), which have been analyzed using various econometric techniques Many studies indicate that larger firm size positively impacts performance; however, contrasting findings have emerged from scholars such as Velnampy (2005) and Amato & Burson (2007), who reported negative effects Additionally, some empirical evidence suggests that firm size may have an insignificant impact on performance (Niresh & Velnampy, 2014).

Numerous studies have explored the relationship between financial leverage and a firm's performance Ilyuklin (2015) provided empirical evidence in Russia highlighting the positive impact of leverage on firm performance, primarily due to the oversight of creditors Similarly, Safieddine and Titman (1999) supported the notion that leverage serves as a takeover defense, contributing to improved performance However, conflicting findings regarding the leverage-performance relationship align with the pecking order theory, as discussed by Javed, Rao, and Akram.

TwoproxiesofgrowthinmodelareexploitedinthisstudyareratioR&Dexpenditureo vertotalassets(RDTA)ratioandbudgetexpenditureovertotalassets(CAPEXTA).Alargen u m b e r ofstudiesprovedthepositiveimpactofgrowthopportunitiesonfirm’sperformancebecausei n v e s t o r s w i l l bew i l l i n g t o p u t m u c h m o n e y t o i n v e s t i n enterprisesw i t h h i g h e r g rowthopportunities.ThehigherTobin’sQusuallyexistsinfirmsinaccordancewithlargerR&De x p e n d i t u r e andhigherinvestmentratio( K i n g & Santor,2 0 0 8 ; D i m i t r i o s & P s i l l a k i , 2010

Someempiricalevidencesrevealedthenegativeeffectofriskonfirm’sperformanceintermso fmarketevaluation Someargumentswould explain therootof thisrelationship.To bespecific,thestockoffirmsoperatingriskierwouldbeunderestimatedbyinvestors(Zeitun&Tia n,2007).BloomandMilkovich(1998)indicatedthattheexcessivevolatilityofcashflow,profitsorhi gherfinancialdistresscostcouldleadtohigherprobabilityofbankruptcy.

Them o d e l e x p l o i t e d byHimmelberg,H u b b a r d , andPalia(1999)w h i c h wasw i d e l y rec ognizedandapprovedbythe vastnumberofscholars.

(naturallogarithm(1- m))whichmisthepercentageofshareholdingbytheboardofdirectori n t w o termsdirectandindire ctownership.A l l o f firmsl i s t e d o n HOSEareclassifiedi n t o nineteenindustries,soeighteendum miesvariablesareutilizedtoshowthedifferencesamongindustries.Thedefinitionandmeasurement ofvariablesinequation(7)arepresentedintablebelow.

Instaticmodelforpaneldata,3regressionsareused:POLS,FE,andRE.Inaddition,i n d u s t r y dummyv a r i a b l e s a r e alsoincludedi n regressiont o s h o w t h e i n d u s t r y effect.T h e m o d e l helpsuspredicttheoptimallevelofmanagerialownershipforeachfirm.

Himmelberg, Hubbard, and Palia (1999) highlighted that the size of a firm has an ambiguous effect on the optimal level of managerial ownership They argued that larger companies, with their complex operations and organizational structures, may incur higher monitoring and agency costs, leading to increased managerial ownership Additionally, large firms often employ skilled administrators, suggesting they are wealthier and likely to hold a greater proportion of firm shares Conversely, the authors noted that larger firms could benefit from economies of scale in monitoring operations, which aligns with findings from previous studies (Fama & French, 1995; Do & Wu, 2015) that indicated larger enterprises are associated with lower optimal managerial ownership levels Firm size can be measured by the natural logarithm of total assets or annual sales (Abor, 1999).

&Palia,1999).Inthisstudy,Ln(S)isexploitedtomeasurethesizeo f firmandsmoothiesdata. And,Ln 2 (S)utilizedtocapturethe nonlinear relationship.

Monitoring firms with higher "hard" investments is more straightforward due to the greater visibility of tangible assets compared to intangible ones The ratio of tangible assets to total assets (KTA) serves as a measure of hard capital, with KTA squared used to examine the nonlinear relationship, as indicated by Wiwattanakantang (2013) Additionally, the ratio of R&D expenditure to tangible assets (RDTA) reflects "soft" investments, while a dummy variable (RDUM) indicates firms that do not report R&D expenditures The lack of separation in R&D reporting may lead to selection bias, as the sample tends to focus on firms with intensive R&D activities Gertler and Hubbard (1988) provided empirical evidence of a positive relationship between R&D intensity and optimal managerial ownership levels, and other researchers have also analyzed the ratio of R&D expenditure to total assets.

& Lalitha,2006;Coles, Lemmon,&Meschke,2012)o r o v e r annuals a l e s (Bebchuk,Cremers,& Peyer,2 0 1 1 ) t o d e m o n s t r a t e t h e growth

30 opportunities.However,t h e r e s u l t s a r e unchangedw i t h differentp r o x i e s o f growthopp ortunities.

Tomeasurethemarketpower,Himmelberg,Hubbard,andPalia(1999)suggestedtwop r o x i e s ; theratiooperatingincomeoverannualsales(YS)demonstratesthecapabilityofthebusi nesstogenerateprofits;orfreecashflowwhichcalculatesbythedifferencebetweencashf l o w gener atingbyfirm’soperationandspendingintheperiod.Jensen(1986)foundempiricalevidence w h i c h confirmedt h a t t h e higherfreecashf l o w w o u l d m a k e managersm o r e spacetomake discretion offirmthus itleadsto thehigherdesiredmanagerialownershiplevel.

There are two main perspectives regarding the impact of risk on the optimal level of managerial ownership On one hand, a trade-off exists between managers' portfolio diversification and the rewards from firm performance, as a larger proportion of their wealth tied up in firm stock reduces diversification Consequently, firms with higher levels of idiosyncratic risk tend to have lower optimal managerial ownership On the other hand, Demsetz and Lehn (1985) noted a negative relationship between idiosyncratic risk and managerial ownership levels, suggesting that higher stock price volatility allows for greater managerial discretion Some studies measure idiosyncratic risk using the standard deviation of the error term from CAPM regression with daily stock prices, while others, like Benson and Davidson (2009), utilize the standard deviation of changes in free cash flow as a risk proxy.

Insummary,a l l c o n t r o l variablesi n m o d e l ( 7 ) w i d e l y acceptedandemployedc o m m o n l y i n theexperimentalstudies(McConnella,Servaes,&Lins,2008).Combinedm o d e l (6)a nd(7),andtheoreticalframeworkcastdoubtaboutthelevelofmanagerialownershipbeingendogenou s.

Asmentionedintheprevioussection,tohandleendogeneityissue,an(orsome)instrumentva riablesemployedineconometricmodel.Theratioofintangibleassetsoverthetotalassets(conside redashardinvestment)couldbeanappropriateinstrument.Durbin-Wu-

Hausmant e s t carriedo u t t o f i n d outwhethermanagerialownershipi s endogenouso r n o t Two conditionso f a suitableinstrumentcouldb e relevantandexogeneity.T h e firsttermindicatesthatth einstrumentvariableshavetobecorrelatedwithendogenousvariable.Additionally,exogeneityreve alsthat the instruments must be strictlyexogenouswith theerrorterm(ornot beingendogenous). Sometestsareimplemented totestthevalidofinstrument.

Thankst o t h e estimatedo p t i m a l levelsuggestedbyHimmelberg,H u b b a r d , andP a l i a (1 999) andtheactuallevelmanagerialownership,wecancalculatethegap(deficitorsurplus)betweenthesel evels.TheOLScanhelpusgivemoreevidencetoanswerthequestionastowhethermanagersadju sttheirownershiptowardtheoptimallevelornotandspeedofadjustmentwhichalsorecommendedby McConnell,ServasandLins(2008).

 MOi,tandMOi,t-1arethelevelofMOin firm i atyeartandyeart-1;

Thiscoefficientrangesf r o m 0 t o 1 i f t h e managerssellandb u y stock t h e m s e l v e s o r t h e i r relatedpartiestoadjusttheactualmanagerialownershipleveltowardtheoptimallevel.Inthene xtpart,wealsoinvestigatethecharacteristicsoffirmsexperiencingtheincreaseordecreaseinmana gerialownershiplevel.

Theexplanationofthe largechangeinmanagerialownership

FahlenbrachandStulz(2009)foundthatthechangeinfirmcharacteristicsinpreviousye argeneratedthechangeincurrentlevelofmanagerialownership.So,Probitregressionisusedt o calculatet h e likelihoodo f t h e changei n managerialo w n e r s h i p hasdrivenbyt h e changei n fir m’scharacteristicsandt h e changei n returno f specificfirm,industry,andt h e entiremarketrepresent edbythechangeinreturnoftheVn-

The study examines the impact of changes in managerial ownership on firm performance, categorizing the sample into groups with significant increases and decreases in ownership, using a 2.5% threshold It aligns with Zhou's (2001) assertion that while managerial ownership tends to change gradually, firm performance can experience considerable fluctuations, particularly in market-based measures To better understand the relationship between managerial ownership and firm performance, the focus is placed on the adjustment of the fraction of shares held by managers, with a one percent change serving as the threshold for classifying significant shifts in ownership According to the Law of Securities 2006, shareholders exceeding a specific ownership threshold are required to disclose information when changes exceed 1%.

Beforeusingmultivariateregressionstofigureoutthefactorsaffectingtheadjustmento f themanagers’portfolio,Mann-Whitney-Wilcoxonrank- sumtestofequalityofd i s t r i b u t i o n willhelpcomparethedifferenceinfirm’scharacteristicsoft hreegroups.The nullhypothesiscouldbethatthereareinsignificantlydifferentfeaturesineachpairgroups.Naturally, p-valueshelpusadjudicaterejectthenullhypothesisornot.

FahlenbrachandStulz(2009)alsosuggestedthatthelaggedchangeinfirm’sattributes(chan gefromyeart-2toyeart-1)impactedon thechangeinconcurrentmanagerialownership(changefromyeart-

1toyeart).Itisarduoustoinvestigatetheimpactofcontemporaneouschangeinmanagerialowners hipagainstthechangeinfirm’sattributesbecauseitcouldleadt o t h e reversec o r r e l a t i o n Gen erally,theys u p p o r t e d t h a t changei n concurrentmanagerialownership levelcouldbecausedbythechangeinfirm’sattributes.

𝜇 12 𝐼 𝑖 ,� + 𝜇 13 𝐼� 𝑖, −1 � + 𝜇 14 �� 𝑖,� + 𝜇 15 �� 𝑖, − � 1 +𝜇 16 ∆�� � − 1 +� (11)Thevariableswhichare utilized in aboveequationrepresentedin table3.3.

Binaryvaluewhichi s equal1 i f theM O levelincreas e(ordecrease)otherwise0.

MO t-1 Managerialownership Thenumber shareownedbymanagers directlyandindirectlyT h e total outstandingshare

Thedummyvariablewhichisequal1iffirm starts(stops)dividendotherwisezero.

∆KTA i,t Change in the ratio tangibleassets

∆RISK i,t Changei n idiosyncratic risk where: SIGMA is standarddeviationfrom � ��� 𝐼 𝑖,� − 𝐼 � ��� 𝑖, − � 1 residualsoftheCAPMregressionofdailyreturno f sp ecificfirm.

IR i,t Returnofindustry Calculatedf r om simplyaverageannualizeddaily dataeachfirminindustry.

MR i,t Marketreturn Theconcurrent(lagged)returno f Vn-Index calculatedfromannualizedaveragedailydata.

Thedynamicrelationshipbetweenmanagerialownershipandfirm’s performance

e n t i o n e d i n literaturereview,t h e m a j o r p r e v i o u s studiesinvestigatedt h e n o n - linearrelationshipbetweenthelevelofmanagerialownershipandtheleveloffirm’sperforman cei n t w o a s p e c t s , b o t h accounting-basedmeasurement( R O A ) andm a r k e t - b a s e d measurement(Tobin’sQ),howevertheymightconfrontthedifficulty ininterpretationt heir resultsduetopotentialendogeneity.

Himmelberg,Hubbard,andPalia(1999)arguedthatsomeunobserveddeterminantsoff irm’sperformancealsoimpacto n t h e l e v e l o f managerialo w n e r s h i p Example,intangibleasse tsaremoredifficultinmonitoringthantangibleassets.So,theprincipalspreferredhigherlevelmana gerialownershiptoavoidmoralhazardormanagers’exposurerisk.Supposetwoidenticalfir ms,thefirmsbeingfavori n intangibleassetswouldhavehigherT o b i n ’ s Q becauseintangibleass etsprobablyhavehighermarketvalueincomparisontothebookvalueo f t h e s e a s s e t s S o , t h e proportiono f intangibleassetscreatesp o s i t i v e correlationbetweenfirm’sperformanceandman agerialownership.

Fahlenbrach and Stulz (2009) developed a model that emphasizes the change in managerial ownership and its impact on a firm's performance, providing valuable insights for the purchasing and selling decisions made by boards of directors Their study highlights the dynamic relationship between managerial ownership and firm performance, particularly in emerging markets, where changes in managerial ownership can significantly influence decision-making processes.

1w i l lb e absorbedbyi n v e s t o r s i n yeart.T h e n , i n v e s t o r s a s s e s s e d t h i s informationan dr e f l e c t e d i n T o b i n ’ s Q i n yeart.

Inpreviousstudies,managerialo w n e r s h i p t r e a t e d asendogenousv a r i a b l e However ,t h e y approvedt h e actualchangei n managerialownershipi s exogenousagainstchangei n firm’ sperformance(Fahlenbrach&Stulz,2009).Oneofanotheradvantagesfocusingonthechangei nsteadoflevelofthesevariableswouldbethattheauthorcanexplaintherootofthischange.Thechang emightcomefromthevariationin numbersharesheldbyb o a r d o f directorsorchangein numberofoutstandingstocks.

The study analyzes Tobin’s Q and ROA using POLS, RE, and FE regression methods on the entire sample of changes Diagnostic tests were conducted to identify issues such as heteroscedasticity and autocorrelation To enhance the understanding of stock purchasing and selling behaviors among managers, the sample was divided into three main groups: those with positive changes, negative changes, and an unchanged group, each affecting the firm's performance differently Additionally, the regression included independent variables representing changes in the firm's attributes and market conditions to control for their impact on the firm's performance.

Int h i s chapter,t h e empiricalresultsh a v e b e e n representedwhichincludest h e determinant sofmanagerialownership,actualmanagerialownershipmovementandtheimpactofchangeinfirm characteristicsandchangeinmanagerialownershiplevelonfirm’sperformance.This chapterhasbeenorganizedasfollows.

(ii) Thedeterminantso f o p t i m a l managerialo w n e r s h i p levelandt h e m o v e m e n t o f actualmanagerialownership;

(iii) Theexplanatoryoflargechangeinmanagerialownership(decompositionoflargeincre ase andlargedecrease);

Data description

Descriptivestatistics

Inoursample,1554observationsfrom285listedfirmsonHOSEfrom2010to2015arecollected Thesefirmsareclassifiedinto19industries:realestate;rubber,informationtechnology,oilandgas;to urism;buildingandmaterials;construction;healthandchemistry;education;m i n i n g andquarr yingo f m i n e r a l ; e n e r g y ande l e c t r i c i t y ; p l a s t i c packing;manufacturingbusiness;s e a

The average level of managerial ownership across various industries is approximately 20 percent, slightly lower than the 22.4 percent observed in U.S firms, but significantly higher than the 16.7 percent in British firms and 9.31 percent in China's civilian-run companies Managerial ownership varies widely, ranging from 0 to nearly 99 percent in family-owned businesses Notably, there was a significant decline in managerial ownership from 25 percent in 2010 to about 12 percent by 2015 The sea-food industry boasts the highest managerial ownership at 41 percent, while the educational sector holds only about 8 percent Firm performance is assessed through two main metrics: accounting-based measurements like ROA, which averaged around 6 percent but fluctuated dramatically between -74 percent and 77 percent during the period, and Tobin's Q, a market-based measure indicating that market value typically exceeds book value Additionally, the percentage of shares held by board directors is notably higher in sectors such as real estate, rubber, and mining, often exceeding double the average levels.

Summarystatistics:t h e firm’sc h a r acteristicso f 2 8 5 firmslistedonH

Variable Obs Mean Std.Dev Min Max

Fiscalyear Number offirms MOlevel ROA TobinQ Positivechange Negativechange DIV

Mean Std Mean Std Mean Std Mean Std Mean Std Mean Std

MOlevel ROA TobinQ Positive change

Mean Std Mean Std Mean Std Mean Std Mean Std Mean Std

Notes:thistablepresentsthecorrelationbetweenvariablesofmanagerialownershipandfirm’sattributeswhichmis thetotalpercentageofstockowndirectlya n d indirectlybyallmanagers.KTAistheratiooftangibleassettototalassets;SIGMAistheidiosyncraticstockpricerisk;YSisth eratiooperatingincomet o saleswhichisproxyformarketpower;RDTAistheratioR&Dspendingtototalassets;RDUMisdummyvariablerepresentsforwhetherthefirms reportR&D expenditureornot;CAPEXTAistheratiocapitalexpendituretototalassets.

Table4 3 presentst h e characteristicso f enterprisesi n eachindustry.A s canb e s e e n fromt hetable,theaveragechangeinmanagerialownershipleveloftwocategories(positivechangeand n e g a t i v e change)i s a p p r o x i m a t e l y 8 percenti n termso f a b s o l u t e value.T h i s chang ei s r e l a t i v e l y l a r g e i n contrastt o t h e judgmento f Zhou( 2 0 0 1 ) T h i s m a j o r s h i f t inm anagerialownershipcouldbeduetotheadjustmentofthepercentagesharesheldbyrelatedpartiesof managersandthemselves.

Correlation analysis

Thepairwisecorrelationmatrixs h o w s t h e relationo f allvariablesi n regressions(11)estimati ngtheo p t i m a l managerialo w n e r s h i p level.T o checkm u l t i c o l l i n e a r i t y amongthese var iables,varianceinflationfactors(VIF)arecalculatedandpresentedinthelastrightcolumn.A l l VIF valued o n o t exceed1 0 , exceptingt h e correlationL n ( S ) andi t s square;

(KTA)and(KTA) 2 M o s t o f correlationcoefficientsa r e r e l a t i v e l y s m a l l whicht h e highestco efficientisabout0.35.Bycorrelationmatrix,initialpredictionabouttheimpactoffirm’scharacteri sticonmanagerialownershiplevelis drawn.Intheonehand, theidiosyncraticstockpricer i s k andratioR & D e x p e n d i t u r e arenegativerelationagainstma nagerialo w n e r s h i p level.Intheotherhand,proxyofmarketpower(theratioofoperatinginco meoversales)isp o s i t i v e relationagainstmanagerialownership level.

Thedeterminantsandmovementofmanagerialownership

Thedeterminantsofmanagerialownership

FollowedmodelconstructedbyHimmelberg,Hubbard,andPalia(1999),weestimatedt h e optimal levelofmanagerialownershipin eachfirm.The transformedlogofmanagerialownershi pu t i l i z e d t o smoothdataandt h e e s t i m a t e d managerialo w n e r s h i p levelarem o r e appropr iateandpositive.Ingeneral,POLS,REandFEareconductedtoexploittheimpactofdeterminantso n managerialo w n e r s h i p l e v e l S o m e t e s t s implementedt o determinewhatm o d e l is moreappropriate.Afterthat,FEmodelshouldbesuggested.Thedetailsofregressionarepresen tedintheTable4.6.

Surprisingly,resultsofregressionslightlydifferfromtheoriginalanalysisofcorrelationm a t r i x Therei s nonlinearitiesrelationship(ani n v e r s e -

The relationship between firm size and optimal managerial ownership level indicates that larger firms tend to have more complex operations and organizational structures, resulting in higher monitoring and agency costs However, these firms can benefit from economies of scale Research by Himmelberg, Hubbard, and Palia (1999) and Do and Wu (2014) supports this notion Additionally, a POLS regression reveals a nonlinear relationship between the ratio of tangible assets to total assets (KTA) and managerial ownership levels, with coefficients being significant at a 10 percent level when applying a fixed effects model After accounting for robust standard errors, the fixed effects model shows a significantly negative parameter for the KTA ratio, suggesting that firms with a higher proportion of tangible assets, or fixed capital intensity, generally experience lower levels of managerial ownership, assuming all else is equal.

In examining R&D expenditure, two proxies are used: the ratio of R&D expenditure to total assets (RDTA) and a dummy variable (RDUM) A significantly positive coefficient for RDTA suggests that increased R&D spending correlates with higher levels of managerial ownership Gertler and Hubbard (1988) noted that a higher ratio of R&D expenditure highlights the importance of "soft capital-technology," which may increase managerial discretion Additionally, RDUM is included in the regression to account for firms that do not separately report R&D expenditure, ensuring a larger and unbiased sample size RDUM is set to 1 if a firm reports R&D spending and 0 otherwise A negative coefficient for RDUM indicates that transparent reporting of R&D expenditures can reduce agency problems and managerial discretion, leading to lower levels of managerial ownership.

Notes:Thistablereportstheresultofestimationtheoptimallevelofmanagerialownershipwiththedependentva riablei s ln(1-m)whichm i s t h e proportiono f managerialownership.T h e regressionincludedindustry- fixedandyear- fixedcouldbefoundintheappendix.Robuststandarderrorconductedtoobtaint h e efficientestimators.Standa rderrorsarei n parentheses.T h e * * *, * * , a n d * markfor 1%,5%,and10%levelofsignificance.

Themovementofactualmanagerialownership

ThedeterminantsofmanagerialownershipwouldusetoestimatetheoptimalMOleveli n ea chcase.Then,thegap(deficit/ surplus)ofactualmanagerialownershipandtheoptimalleveliscalculated.Thestudyinvestigate sthemovementofmanagerialownershipleveltowardtheoptimallevelwhichbasedontheresulto festimationintable4.6.So,thesimplyregressione x p l o i t e d t o answert h i s question.T h e a g e n c y theoryadvocat ed f o r constructingt h e optimallevelofmanagerialownershipandthemov ementtowardoptimallevel.

Notes:thegaps(surplus/ deficit)calculatedfromthedifferentbetweenactuallevelsandoptimalMOlevels.TheoptimalM O obtainedfr om3differentestimations:(1)fixedeffectwithrobuststandarderror,(2)POLSwithcontrollingyeardummies,

( 3 ) POLSwithcontrollingindustrydummies.Theactualchangeisthevariationofpercentageofsharesholding byallmanagersinthisyear.TheotherestimationsresultofoptimalMOlevelcouldbefoundinappendix.FEandr obuststandarderrorwereexploitedin 3regressions,a n d testforheteroscedasticitya n d Hausmantesth a d d o n e t o obtainappropriateestimation.Standarderrorsareinparentheses.The***,**,and*markfor1%,5%, and10%-levelofsignificance.

Theideatotestthemovementofactualmanagerialownershipcomesfromtheresearcho f McConnella,Servaes,andLins(2008)sincetheyarguedthatmanagersorinsiderstradeds t o c k ag ainstchangingfirm’scharacteristics.Assuch,regressionstheactualchangeagainstt h e gaparei mplemented,andallcoefficientsin3regressionsarenegativeandsignificantat1percent.T h e resultr e j e c t s t h e hypothesist h a t t h e managerialownershipadjustst o optimallevelo f ownership.Int h e o t h e r words,actualchanget e n d s t o m o v e a w a y o p t i m a l level.CheungandWei(2006)inve stigatedthedifferenceofoptimalandobservedlevelmanagerial

47 ownership andtheirexplanationwasthesurvivalsofownershipadjustmentcost.Additionally,t h e authorside ntifiedthattheexistingtheoriesinefficientlyexplainthisissue.So,thisphenomenoninducestheq uestionwhatarethedeterminantsforthelargechange(increase/ decrease)inmanagerialownership.

Theexplanationofthelarge change(decreaseorincrease)

Thestatisticsbygroup

Thesampleof1409observationsconsistsof464largedecrease,201largeincreaseand7 4 4 n olargechange.Inthisstudy,1percentdesignatedasthresholdforlargechangebecauseaccordingto Article15ofregulationofdisclosureinformationinHOSEissuedwithDecisionN o 7/2013QĐ- SGDHCM,insidersneedtodisclosuretheirexpectedvolumeandresultoftransactions.Ina d d i t i o n , i n Article1 3 , regulationo f largeshareholdersd e t e r m i n e d whentransactionchangea tleast1percentandownershipratereachedalmost5percent,theinformationof tradinghaveto beannounced.

The Mann-Whitney-Wilcoxon rank-sum test was conducted using Stata 12 to assess the equality of distributions among independent samples This analysis provides insights into the characteristics of firms and market conditions influencing changes in managerial ownership levels The evidence reveals distinct attributes among different groups, such as large drops versus no change, large increases versus no change, and large drops versus large increases Notably, firms that experienced significant changes in ownership displayed higher concurrent and lagged managerial ownership levels compared to the unchanged group Initially, the managerial ownership level in the large increase group was lower than that of the large drop group; however, after adjustments, the concurrent managerial ownership level in the large increase group surpassed that of the large drop group.

Intermspay- outpolicy,thereisnodifferenceindividendamongthreegroups.Tothee x t e n t thatscopeofdis cretionaryspending,GertlerandHubbard(1988)arguedthatthefirmsw i t h higherfixedinvestm entwillgenerallybelowermanagerialownershiplevel.Sinceitismonitoredmoreeasilythani ntangibleassetsandsoftinvestment,andthefirmswith higherratioR&Dexpenditureandlowerr atiooftangibleassetswouldexperiencelargeincreaseinmanagerialownershiplevel.Mentioned tofirmsize,therewasinsignificantdifferencebetweenthetwogroupsnochangeandlargeincrease.Ho

48 wever,thedifferenceinfirmsizeoft h e t w o remainingcomparedgroup,e s p e c i a l l y largeincr easeagainstl a r g e decreases i n c e largeenterprisesc a n t a k e advantageo f t h e m o n i t o r i n g o f outsiderasratingagenciesf o r e xample,resultingt h e l o w e r managerialo w n e r s h i p level.Ins h o r t , t h e ambiguouseffecto f fir msizehasbeenfound.

Theeffectofmarketconditionincluding theconcurrentandlaggedreturn;turnoverofs t o c k markethavebeeninvestigated.Thelargedropcouldbeassociatedwith bettermarketl i q u i d i t y (higherT u r n o v e r V n -

I n d e x ) Incontrast,contemporaneouss t o c k returni s n e a r l y insignificantforthreepairwi segroups.Forlaggedstock return,managerstend tobuystockwheni t d i d undergot h e badpe rformanceandsells t o c k whenfirmsandoverallmarketperformedwell.Apparently,thereisstabl einmanagerialownershiplevel while marketandfirmsoperatedrelativelysteady-going.

(2) Mann - Whitney - Wilcoxon rank-sum test of equality of distribution (p- value )

Notes:t h e tablerepresentst h e meano f mainvariablesi n theregressions.Allo f observationsareclassifiedin tothreegroupswhichincludeslargeincrease,nochange,a n d largedecrease.Thethreelastcolumnsreportp- valueofMann-Whitney–Wilcoxonrank-sumtestofequalityofdistribution.

Variable Mean Mean Mean (1)vs(2) (2)vs(3) (1)vs(3)

Thelikelihoodregressionoflargechange(increaseordecrease)against thechangein firms ’ characteristicsandmarketcondition

Theevidencefromtable4.9emphasizesthefirmsexperiencedlargedroplikelyhigherman agerialo w n e r s h i p level.Coincidentally,w h i l e increasingt h e scaleo f enterprises,t h e perc entageofsharesheldbytheboardofdirectorsalsofellwhichindicatesthediversificationo f managers

’portfoliostoutilizetheadvantageofmonitoringfromexternalparties.Itisalsodifficultforanindivi dualholdslargeproportionofshareinlargecorporationsincemanagers’welfarecannotcoverlargers hareproportion.TheresultisnotconsistentwiththeresearchofFahlenbrachandStulz(2009).How ever,theimpactofchangeinR&Dbudgetisambiguousw h i l e itcausessignificantfluctuationso fbothlargeincreaseandlargedropgroup.Aconcernw i t h thescopeofmanagerialdiscretion,thein creaseintotalinvestmentexpenditureandbookleveragewouldleadtothelargedropinmanagerialow nership.Similarly,companiescantakeadvantageo f s u p e r v i s i o n o f banksandlargerc a p i t a l e x p e n d i t u r e couldresulti n declineo f managerialownershipwhichaccompanieswiththelowerman agers’rightsmanipulatingbusiness.T h e dividendelementsi n c l u d e t h e d i v i d e n d initiatio nanddividendterminationi n s i g n i f i c a n t l y relatedtothechangeinMO.

Table 4.9 illustrates the marginal effects of Probit regression, indicating that the dependent variables in columns (1) and (2) show an increase of at least 1 percent, while the last two columns reflect a significant decrease The positive coefficients of flagged managerial ownership in columns (3) and (4) suggest that firms with higher managerial ownership are likely to experience a reduction in ownership levels Larger firms may be more affected by this reduction due to limitations on managers' properties Additionally, the positive coefficients of the ratio of fixed assets to total assets in columns (3) and (4) imply that firms with more intensive hard investments have a higher probability of experiencing a drop in managerial ownership levels Furthermore, as businesses increase capital spending, the likelihood of a reduction in managerial ownership rates decreases.

Managerialrisk aversionaspects,ifmanagershold larger percentageofspecificstock i mpliesthattheirportfolioislessdiversified.Thereistrade- offbetweenthebenefitofdiversificationands t o c k performancecompensation.S o , t h e increasei n idiosyncraticr i s k (SIGMA)firmwouldlikelyleadstothedropinmanagerialownershiple velandviceversa.T h i s explanationi s advocatedbyD e m s e t z andLehn(1985).T h i s coeffici entsi n t h e t w o groupslargedropandlargeincreasesignificantlyat5percentareobtainedinbothREandPAregression s.

Aconsiderablepoint isthat marketconditionincludes t h e liquidity ofmarketandtheco ntemporaneousrateofreturnwereneithersignificantat10percentlevel.However,laggedperfor manceoftheentiremarketprobablyimpactsontheprobabilityofsellingorpurchasings t o c k ofm anagers.Morespecific,managersproperlytendtopurchasestockwhentheentiremarketperfo rmedp o o r l y i n p r e v i o u s periodandsellt h e i r s t o c k s i n bettermarketperformance.

Largechangei n managerialownershipagainstchangei n firm’sattributesa ndmarketcondition

Notes:thechangesareclassifiedintolargeincreaseandlargedecreasewiththresholdofchangebeing1 p e r c e n t Int h e column( 1 ) and(2)-largeincrease- t h e dependentvariablei s equalto1 i f thepercentageofMOincreasedexceed1percentotherwiseequalto0.I nthecolumn(3)and(4)-largedecrease- thedependentvariableequalto1iftheMOdropsmorethan1percentandzerootherwise.Standarderrorsareinp arentheses.The***,**,and*markfor1%,5%,and10%levelofsignificance.

Dynamicsofmanagerialownershipandfirm’sperformance

Firm’s performance:accounting-basedmeasurement

Accounting-basedmeasurementprovidese f f e c t i v e l y i n f o r m a t i o n o f s h o r t - t e r m historicalprofitability.Twocommonaccountingindicesemployedtomeasurethep r o f i t a b i l i t y offirmsbeingROAandROE.ThestudyonlyexaminesROA(returnonassets)which capturestheabilityofgeneratingprofitfromtotalresources.Kristyand

Diamond(1984)s t a t e d t h a t t h e R O A i s m o r e appropriateande f f e c t i v e t o evaluateo f fir m’sprofitabilityregardless the mixcapitalstructure(theproportion debt andequity).

Thenonlinearr e l a t i o n s h i p betweent h e l a g g e d changei n manageri alownershipandthechangeinreturnontotalassets(ROA)

Thisfigurepresentst h e nonlinearrelationshipbetweenlaggedchangei n managerialownersh ip(changefromt-2tot-1period)andtheconcurrentchangeinfirm’sperformanceinaccounting- basedaspect(changefromt-

1totperiod) whichmeasuredbyROA.As canbe seenfromfigure,t h e r e isvaguecorrelationbetw eenc h a n g e i n R O A andlaggedchangei n managerialownership eventhoughtherewassimilar toflatly invertedU-shaped Theresultfromregressioncouldemphasizeandsupplementof thisrelationship.

Theeffectoflagged changeinmanagerialownership(MO)onchangei n f irm’sperformanceintermsofaccounting-basedmeasurement.

Thistablereportsresultso f t h e relationshipbetweenlaggedchangei n managerialownershipand changeinROA.Themarketconditionalsoincludeslaggedchangeinreturnofspecificstockandthechangei n marketliquidity(TurnoverVn-

Index).The( 1 ) a n d ( 2 ) regressionareallchanges.Thecolumn(3)and(4)decomposethechangesintopositiv echangeandnegativechangegroup.Thetwolastcolumns(5)and(6)focusedonlargechangewiththreshold being1percent.Changeinproxiesformarketcondition(laggedchangestockreturnandchangeinTurnoverVn- Index)addedonthesequence.TheHausmantestandrobuststandarderroralsoimplementedtogetmoreefficien cyandappropriateestimators.Standarderrorsarenotpresented.The***,**,and

Ingeneral,noevidenceof laggedc h a n g e inmanagerialownershipimpacted onROA w asfound.Whileseparatingsampleintopositiveandnegativechange,thelaggedchangeinmanager ialo w n e r s h i p n e i t h e r impacto n R O A i n t w o m e n t i o n e d groups.However,i n all6 regressi ons,thecoefficientofsizeoffirmisnegativeanditssquareispositivewhichrevealsU- shapedrelationbetweenfirmsizeandfirm’sperformance.Itindicateswhenthefirmgrowsu p ; then egativeeffectonROAwouldbeinspireduntilreachingtroughsthe positive effecttakesplace.

A concernw i t h idiosyncraticr i s k , t h e r e i s i n s i g n i f i c a n t impacto f t h i s r i s k o n ROA,exc eptingt h e c o l u m n ( 1 ) and( 2 ) w h i c h areonlysignificantat1 0 - p e r c e n t level.Incolumns(2),

( 4 ) and( 6 ) , afterc o n t r o l l i n g marketconditionincludesreturno f s t o c k andl i q u i d i t y ofmarket,t h e resultseemst o b e unchanged.T h e negativecoefficiento f l a g g e d returnimplie st h a t p o o r l y performedi n t h e p r e v i o u s periodb e i n g alsoa s s o c i a t e d w i t h t h e reductio nofconcurrentperformance.

Firm’s performance:market-basedmeasurement

Themarket-b a s e d measurementrepresentsf o r w a r d - l o o k i n g aspectandreflectst h e expectationo f i n v e s t o r s aboutt h e v a l u e o f firmi n t h e f u t u r e T h e traditionalandp o p u l a r measurementofmarketperformancewouldbeTobin’sQ.The higherTobin’sQindicatesthemarketvalueoffirmbeingsignificantlyh i g h e r thanbookvalueoff irm.AccordingtoKapopoulosandLazaretou(2007)higherT o b i n ’ s Q impliedt h a t firmsuccee dsi n u s i n g leveragetoinvestinfirm.

Thenonlinearr el at io ns hi p betweent h e l ag ge d changei n MOa n d thec hangeinmarketevaluationoffirm’sperformance(Tobin’s Q)

The negative change in lagged managerial ownership signals information that investors absorb in the subsequent period, leading to an underestimated stock value Additionally, when managerial ownership surpasses a certain threshold, it contributes to a decrease in Tobin's Q Focusing on the lagged change in managerial ownership and its impact on firm performance is beneficial, as this change is likely treated as an exogenous variable Contrary to Zhou's (2001) assertion that managerial ownership fluctuates only slightly, this study emphasizes significant changes, specifically those exceeding 1 percent The regression results from econometric models will further validate this relationship.

Theeffecto f l a g g e d changei n managerialownership(MO)o n firm’sperfo rmanceintermsofmarket-basedmeasurement.

Note:theshortversionofmodel:∆Tobin’sQ i,t = α+ β∆MO i,t-1 +γ∆X i,t-1.

Themarketconditionalsoincludescontrollingthiseffect:laggedchangeinreturnof specificstock andthechangeinmarketliquidity(TurnoverVn-

Index).The(1)and(2)regressionswithallchangesa r e presented.T h e column( 3 ) and(4)decomposedt h e c hangesinto2 groupswhicharepositivechangeandnegativechangeagainstunchangedgroup(fundamentalgro up).Thetwolastcolumns(5)a n d (6)focusedonlargechangewiththresholdbeing1 p e r c e n t Changeinproxiesformarketcondition(changei n laggedreturnandchangei n TurnoverVn- Index)addedonthesequence.TheHausmantestandrobusts t a n d a r d erroralsoimplementedt o getmoreeffi ciencya n d appropriateestimators.Standarderrorsarenotpresented.T h e ***,* * , * markfor1%,5%,a n d 10

The analysis indicates that changes in managerial ownership from previous periods do not significantly affect Tobin's Q, even when accounting for lagged specific returns To further investigate the relationship between managerial ownership changes and firm performance, samples were categorized into positive change, no change, and negative change groups Regression results reveal that a negative change in managerial ownership, with a coefficient of -0.055, correlates with a decrease in Tobin's Q, suggesting that reduced ownership may lead investors to perceive a decline in enterprise quality, thereby undervaluing the firm's stock Additionally, the impact of increased lagged managerial ownership on Tobin's Q was found to be insignificant Furthermore, the negative coefficient of the Turnover Vn-Index indicates that illiquid market conditions can adversely affect performance as measured by market-based metrics.

Moreover,column(5)and(6)focusonthelarge changewiththethresholdofchangebei ng1percent(insteadof2.5percentinFahlenbrachandStulz’sstudy).Theresultimpliest h a t ift hemanagerialownershipinpreviousperioddecreasedatleast1percent(theaverageo f largede creasegroupbeingabout1 0 percent),t h e T o b i n ’ s Q w o u l d reduce0 0 5 1 T h e e l a s t i c i t y o f T o b i n ’ s Q againstreductiono f managerialo w n e r s h i p i s l e s s t h a n 1 A l l o f co efficientsofpositivechangeareinsignificant,soanincreasemanagerialownershipdonotaffectthe changein Tobin’sQ.

IntermsofR&Dexpenditure,in6columns,significantlynegativecoefficientofratioR&De x p e n d i t u r e overtotalassetsimpliest h a t t h e firmi n v e s t s s o mucho n researchanddevelop mentw o u l d experiencet h e w o r s e performance.T h e r o o t o f l o w e r T o b in’sQ valuecouldbet hehigherrateofsortinvestmentwhichcreatesthespaceofmanagerdiscretion.So,o u t s i d e i n v e s t o r s w i l l doubtabouttransparencyandm o n i t o r i n g t h e effectivenesso f t h e s e investm entsthereforestockscouldbeundervalued.

This chapter presents empirical evidence on the relationship between managerial ownership and firm performance, utilizing Probit, POLS, RE, and FE models The findings suggest that managerial ownership should be considered an endogenous variable, influenced by firm size and R&D expenditures, which determine the optimal level of managerial ownership During operations, actual managerial ownership often deviates from this estimated optimal level, particularly in larger firms, which may experience a reduction in managerial ownership Additionally, managers tend to avoid purchasing stocks during poor market performance and are more likely to sell when market conditions improve While changes in managerial ownership do not significantly affect Return on Assets (ROA), a reduction in ownership in prior periods may lead to decreased firm performance as measured by market-based metrics like Tobin’s Q.

Thischapterprovidesmainfindingsachievedfromthisempiricalincomparisonwithitsinitialo bjectivesofresearch.Basedontheempiricalresults,thepolicyrecommendationsfort h e Vietna mese’sa u t h o r i t i e s o r t h e Governmentandenterprisesa r e p r e s e n t e d T h i s chapteralsoprovi deslimitationsof this studyandshedlights forfurtherfutureresearch.

Concludingremarks

Toaddressendogeneityofmanagerialownershipintherelationtofirm’sperformance,t h e paneldataof285listed firmsinHOSEfrom2010to2015i s utilized toinvestigatetheimpact o ft h e changei nmanagerialownershiptot h e changei nfirm’sperformance.Keyconclusionsachi evedfrom this studycan besummarizedasbelow.

First,firms i z e , t h e proportiono f tangibleass et andnotifiedR & D e x p e n d i t u r e informat iontransparentlywo u l d impactt o t h e o p t i m a l managerialo w n e r s h i p level.T h e U - shapedrelationshipbetweenfirms i z e andmanagerialo w n e r s h i p levelwasf o u n d i n t h i s s tudy.FirmsintensifiedintangibleassetsandannouncedR&Dexpenditure inatransparentway w o u l d resulti n t h e lowero p t i m a l managerialownershiplevel.Inaddition,a n o t a b l e conclus ionthatactualrateofstockownedbytheboardofdirectorsdoesnotadjusttowardst h e optimalo wnershiplevelwhichissupportedbytheagencytheory.

Second,managersproperlysellstockswhentheentiremarketperformedwellinpreviousye ars.Ino t h e r words,stocksareovervaluedw h i l e t h e managersd o n o t purchases t o c k s inthe caseofaworseperformingmarket.Inaddition,theboardofdirectorsprobablysellsshareswhenbus inessesgrowupduetotheirlimitedpossessionsandbusinessescantakeadvantageofthesupervisi onfromexternalpartners.Thisraisesdoubtabouttherelationshipbetweenmanagerialownership andfirmlifecycle.Interms ofrisk discretion, investors tendtod i v e r s i f y theirportfoliobyreducingtheirinvestment inhigheridiosyncraticrisk firms.

Third,toovercometheendogeneityissue,thisstudyfocusedontheeffectofthechangei n man agerialo w n e r s h i p o n t h e changei n f irm’sperformance.R e g a r d i n g t h e a c c o u n t i n g basedmeasurementoffirm’sperformance;thepastchangeinmanagerialownershipprovidesinsig nificanteffecto n contemporaneousROA.A n d , t h e l a g g e d R O A i s correlatedw i t h t h e contem poraneousreturn.Ingeneral,allchangeinmanagerialownershiplevelalsoprovidesanimpact,whic his statisticallyinsignificantlyonthemarketperformanceoffirms.However,

The study reveals that a reduction in managerial ownership levels leads to a decline in a firm's performance, highlighting the importance of managerial stock ownership as a signal of enterprise quality Furthermore, the elasticity of Tobin’s Q in response to decreasing managerial ownership is less than 1, indicating that Tobin’s Q is more sensitive to changes in managerial ownership than the proportion of shares held by managers Conversely, an increase in managerial ownership from the previous year has an insignificant effect on Tobin’s Q, suggesting that managers purchasing additional stock does not effectively convince investors of improved enterprise quality Additionally, market conditions also play a significant role in influencing firm performance.

Policy implications

Theimplicationsforenterprises

First,managerss h o u l d b e carefulw h e n theya d j u s t t h e i r s t o c k portfolio,e s p e c i a l l y reducingtheir stock SincethereductionofsharesheldbytheBoardofDirectorsandtheir relatedpartiesconveysanegativesignaltoinvestorsinrelationtotheefficiencyofbusinessoper ations.However,managersandtheirrelatedpartiescouldreducetheirownershipunlesst h e firm sincreaseinscaleorhadoperatedstably.Ithasbeenarguedthat,thedeclineshouldhavearoadma p toavoidsuddenchanges.

Managerial ownership is not the sole solution to the agency problem; therefore, boards of directors should ensure transparency by providing detailed information about all soft investments, including R&D expenditures, to outside investors This transparency can help mitigate conflicts of interest between shareholders (principals) and managers (agents) Additionally, companies should regularly update financial reports and adhere strictly to management mechanisms It is widely accepted that effective corporate governance regulations can enhance a firm's performance Furthermore, enterprises can benefit from monitoring by external institutions, such as banks or rating agencies, which can assist in reducing management costs.

TheimplicationsforVietnam’s authorityandtheGovernment

ThefinancialmarketinVietnamhasnotfullydeveloped.Assuch,thetransparencyofinfo rmationi n a t i m e l y mannerimpactss i g n i f i c a n t l y o n investor’sd e c i s i o n A s such,t h e governmentsandtherelevantauthoritiesshouldenacttheguidancewhichrequiresbusinessesn o t i f y t r a n s p a r e n t l y financialinformationandd i s c l o s u r e o f t h e p e r c e n t a g e o f ma nagerialownershipandinsidertransactions.

Therelatedauthoritiesmight promulgatedocuments todefineclearlythedetails ofcostsandrevenueinthenotesoffinancialstatementsinsteadofreportinginaperfunctorymanner Since,i n practice,i t i s impossiblet o assesss o f t investmentoffirms,likeresearchanddevelopmentexpenditure oradvertisingcosts.

Thelimitationsandfurther research

Thelimitations

Inthisstudy,themeasurementofmanagerialownershiplevelincludingthepercentageo f sharepossessedbymemberso f t h e boardo f directorsandt h e i r relatedpartiescannotcaptureper fectlyofthemanagerialpowerinmakingdecision.Inaddition,Vietnamisoneofemergingandtra nsitioneconomies,undevelopedfinancialmarketsostockpricescanbebias.Therefore,thegivenemp iricalevidenceshouldbelessconvincingcomparedtothedevelopedmarket.

Thetheoryofagencycostsadvocatedthetradeoffsbetweenincentiveeffectandentrenchme nteffecto f managerialo w n e r s h i p S o , actualproportiono f shareheld bymanagerss h o u l d b e a djustedt h e o p t i m u m l e v e l Nevertheless,evidencef o u n d s ee ms t o goagainstthis theoryandhas not explainedconvincingly.

Thefurtherresearch

Therelationshipbetweenmanagerialownershipandfirm’sperformanceshouldbeconducted onvariousaspectsoffirm’sperformancesuchasprofitability,marketvalue,grow,andtheriskofbankr uptcy.

Therelationshipbetweenmanagerialownershipandfirm’sperformanceshouldbecarriedout byothermethodssuchaseventapproach.Byobservedtheappearanceabnormalreturnrotatedi n s h o r t periodo f managers’transaction,t h e evidenceso f t h e r e l a t i o n s h i p betweenthechangeinmanagerialownershipandthechangeinfirm’sperformancewouldbem o r e persuasive.

Therequirementofanewtheorytoexplaintherelationshipbetweenmanagerialownershipan dfirm’sperformanceinthe r e l a t i o n offirmlifecycle,aswell asillumin esthe reasonwhythera teof managerialownershipdispersedto theoptimallevelandthedeterminantsof adjustingportfoliocosts.

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Realestate 41 ASM,BCI,CLG,D2D,DIG,DLG,DRH,DTA,HAG,

The article lists various abbreviations representing companies or entities, including HDC, HQC, IDI, IJC, ITA, ITC, KAC, KBC, KDH, LCG, LGL, LHG, NBB, NTL, NVN, NVT, OGC, PDR, PPI, QCG, REE, SC5, SJS, SZL, TDH, TIX, UDC, UIC, VIC, VNI, VPH, and VRC.

Rubber 9 BRC,CSM,DPR,DRC,HRC,PHR,SRC,TNC,TRC

Informationtechnology 9 CMG,CMT,ELC,FPT,ITD,SAM,SGT,ST8,SVT

Oilandgas 10 ASP,DPM,PET,PTL,PVD,PVT,PXI,PXL, PXS,PXT

Tourism 4 DSN,HOT,PAN,VNG

Buildingandmaterials 9 APC,DCL,DHG,DMC,HAI,IMP,J V C , OPC,VFG,

Miningandquarryingof 9 mineral BGM,BMC,KSA,KSB,KSH,KSS,KTB,LBM,LCM

Energyandelectricity 12 BTP,CNG,DRL,GAS,KHP,PGC,PGD,PPC,SEC,

Plasticpacking 9 BMP,DAG,DTT,MCP,RDP,TPC,TTP,VPK

Manufacturingbusiness 21 DHC,DQC,E V E , GDT,GMC,GTA,HAP,KMR,LI,

NSC,PAC,SAV,SHI,SSC, TCM,TLG,TTF,VID,VTB

Steel 8 DTL,HLA,HMC,HSG,POM,SMC,TLH,VIS

Food andnurture 14 BBC,BHS,CLC,KDC,LAF,LSS,MSN,NHS,S B T ,

SCD,TAC,VCF,VLF,VNM

Commerce 13 BTT,CCI,C M V , DXG,GIL,HDC,HLG,KHA,PIT,

Sea-food 16 AAM,ABT,ACL,AGF,ANV,ATA,AVF,CM,FMC,

HVG,ICF,TS4,VHC,VNH,VTF Transportationand 22 DVP,GMD,GSP,GTT,HTV,MHL,PDN,PJT,PVT, warehousing SBC,SFI,STT,TCL,TCO,TMS,VIP,VNA,VNL,

VNS,VOS,VST,VTO Buildingandmaterials 13 ACC,B T 6 , CTI,CYC,D C T , DHA,DFC,D X V , HTI,

Construction 22 BCE,C47,CDC,CTI,CTD,FLC,HBC,HTI,HU1,

HU3,L 1 0 , LM8,MCG,MDG,NKG,PTC,PXL,P X S , PXT,TDC,THG,TV1,VNE

Otherindustry 43 AGM,C21,C32,CAV,CIG,CLL,CLW,COM,DHM,

The article lists a variety of stock symbols, including DXG, EMC, FCM, FCN, FDC, FLC, GTN, HAR, HAS, HAX, HHS, HDG, HTL, LGC, MWG, NHW, NLG, PNJ, PTB, PTK, QBS, RIC, SBA, SFC, SHP, SII, SKG, SPM, SRF, STG, TDW, TIC, TIE, TMT, TNT, TRA, TSC, TYA, VPH, VRC, VSC, and VSI, representing various companies and sectors in the market.

Thecolumn( 1 ) forrepresentsestimationusingt he year- fixedeffect,a n d column( 2 ) representsforestimationusingindustry- fixedeffect.Standarderrorsa r e inparentheses,a n d ( * * * ) ,

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