INTRODUCTION
Table 6.1: Sample sizes of alternative research models for Singapore 169 Table 6.2: Descriptive statistics 171
Table 6.3: Pair-wise correlation coefficients and variance inflation factor coefficients 174
Table 6.4: Overall, between and within standard deviations of the corporate governance variables for the Singaporean market 175 Table 6.5: Difference-in-Hansen tests of exogeneity of instrument subsets 180
Table 6.6: The relationship between corporate governance structures and performance of Singaporean listed companies: A System GMM estimation 184
Table 6.7 presents a robustness check examining how sensitive the results are to the reduction of instrumental variables, while Table 6.8 assesses the sensitivity of the results in relation to alternative corporate governance structure variables.
Table 6.9: Summary of empirical findings for the Singaporean market 191
LITERATURE REVIEW AND RESEARCH HYPOTHESES
Table 7.1: Shapiro-Wilk test for the normality of the numerical variables 197
Table 7.2: Levene's robust test for the equality of variances of the numerical variables 198
In the analysis presented, Table 7.3 showcases a two-sample t-test aimed at assessing the equality of population means under conditions of unequal variances Meanwhile, Table 7.4 details a two-sample z-test that evaluates the equality of population proportions Additionally, Table 7.5 provides a comprehensive summary of empirical estimations through a cross-country comparison, highlighting key insights from the data.
Table 7.6: Sample sizes of alternative research models using combined dataset of
Table 7.7: Descriptive statistics for the combined sample of Singapore and
Table 7.8: Pair-wise correlation coefficients and variance inflation factor coefficients for the combined sample of Singapore and Vietnam 219 Table 7.9: Difference-in-Hansen tests of exogeneity of instrument subsets 224
Table 7.10: The relationship between corporate governance structures and performance: Evidence from the combined sample of Singapore and Vietnam 226
Table 7.11: The relationship between corporate governance structures and performance: Does national governance quality matter? 231
Table 7.12: Robustness check of the sensitivity of the results to alternative national governance variables (NGindex(a)) 235
Table 7.13: Robustness check of the sensitivity of the results to alternative national governance variables (IPindex) 236Table 7.14: Summary of empirical findings from Chapter 7 237
INSTITUTIONAL BACKGROUND OF CORPORATE
Table 8.1: A summary of the empirical findings of the thesis 241 xxiv
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DATA AND METHOD
Figure 4.1: A conceptual framework for corporate governance–financial performance relationship 69
CORPORATE GOVERNANCE STRUCTURES AND FIRM
Figure 5.1: The average values of Tobin’s Q of Vietnamese companies with and without female directors 131 Figure 5.2: The median-spline plot and scatter-plot for Tobin’s Q against the Blau index 161 xxvi
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Appendix 1: Some illustrations of the differences in corporate governance regulations between the financial industry and other industries in the Vietnamese and Singaporean markets 251
Appendix 2: Changes in the Vietnamese stock index (%) vs Tobin’s Q 2008–
Appendix 3: Case-wise correlation matrix for the variables used for the
Appendix 4: Case-wise correlation matrix for the variables used for the
Appendix 5: The relationship between corporate governance structures and performance of Singaporean listed companies: Static models 255
Appendix 6: The relationship between corporate governance structures and performance of Singaporean listed companies: A dynamic OLS estimation 256
Appendix 7: The relationship between corporate governance structures and performance of Singaporean listed companies: A fixed-effects estimation 257 Appendix 8: Case-wise correlation matrix for the variables (combined dataset of
CORPORATE GOVERNANCE STRUCTURES AND FIRM
In recent decades, particularly following the 1997 Asian Financial Crisis, the relationship between corporate governance and financial performance has become a significant topic of interest and debate in corporate finance literature Ahrens, Filatotchev, and Thomsen (2011) reported over 7,776 peer-reviewed articles on corporate governance, with a substantial number (4,783) published since 2004 The Global Financial Crisis of 2007 intensified scrutiny of corporate governance practices among publicly listed companies and raised critical questions about whether enhanced corporate governance structures lead to improved financial performance.
Despite extensive research, prior empirical studies have yielded inconclusive and weak evidence regarding corporate governance Ahrens et al (2011) emphasize that we still have limited understanding of how specific ownership structures or board configurations impact economic performance.
Mixed findings in the relationship between corporate governance and firm performance may stem from two key factors: the institutional differences across countries and the limitations of estimation methods used in studies.
To address the abovementioned issues, this thesis – using a well-structured dynamic modelling approach – undertakes a cross-national comparative study on
This article explores the relationship between corporate governance and the financial performance of companies in Singapore and Vietnam, driven by three key questions: the rationale for employing a dynamic modeling approach, the importance of incorporating national governance quality, and the selection of Singapore and Vietnam as research platforms Subsequent subsections address these inquiries, while the significance of the study is highlighted in Section 1.2, and the thesis organization is outlined in Section 1.3.
1.1.1 Why should a dynamic modelling approach be used?
A significant challenge in corporate governance empirical studies is addressing the endogeneity of governance variables, which can stem from two primary sources: unobserved time-invariant characteristics across companies and simultaneity (Flannery & Hankins, 2013) Recent research highlights that the relationship between corporate governance and firm performance is dynamic, introducing another form of endogeneity known as dynamic endogeneity (Wintoki et al., 2012).
The relationship between corporate performance and board/ownership structures is dynamic, indicating that current performance is shaped by past financial outcomes (Wintoki et al., 2012; Yabei & Izumida, 2008) Failure to adequately address the issue of dynamic endogeneity may lead to incomplete insights into this interplay.
3 impossible to make causal interpretation from the econometric estimations (Wintoki et al., 2012)
Theoretical studies by Harris and Raviv (2008), Hermalin and Weisbach (1998), and Raheja (2005) suggest that the relationship between board structure and firm performance is dynamic An empirical analysis by Wintoki et al (2012) supports this notion, demonstrating that the interaction between current board structure and past firm performance exists in the US market However, Wintoki et al (2012) also highlight that when considering the dynamic endogeneity issue, board structure does not significantly influence firm performance, indicating that causal relationships identified in earlier studies using traditional ordinary least squares (OLS) or fixed-effects (FE) methods may be misleading.
The suggestion arises from an institutional context where the corporate control market functions effectively In scenarios where internal governance structures fail to influence firm performance, external mechanisms like takeover markets are expected to monitor managerial behavior and alleviate agency problems, potentially enhancing performance However, the applicability of Wintoki et al (2012) findings in Asia remains uncertain, as the corporate control market there is typically ineffective Thus, the key question is whether board structure impacts financial performance in Asian markets, characterized by their inadequate corporate control mechanisms, especially when considering dynamic endogeneity.
The traditional agency theory's prediction of a causal relationship between ownership structure and performance is increasingly questioned in corporate governance literature Research indicates that ownership concentration is dynamically linked to firm performance, suggesting that the causal relationship may also flow from past performance to current ownership structure.
Recent empirical studies examining the relationship between ownership concentration and performance in the Australasian region have yielded mixed results, highlighting the impact of dynamic endogeneity While some research indicates an insignificant relationship in the Australian market (Pham, Suchard, & Zein, 2011; Schultz, Tan, & Walsh, 2010), others find a significant correlation in the Japanese market (Yabei & Izumida, 2008) This suggests that the dynamic interplay between ownership concentration and firm performance in various Asian markets remains largely unexplored and inadequately understood.
This study investigates the causal relationship between corporate governance structures and firm performance in Asian markets, specifically Singapore and Vietnam, while addressing potential dynamic endogeneity It aims to determine whether the relationships proposed by agency theory and resource dependence theory hold true in these contexts Notably, this research fills a gap in existing literature, as no previous studies have analyzed the corporate governance-firm performance relationship in Singapore and Vietnam with this approach Furthermore, it responds to recent calls from scholars such as Flannery and Hankins (2013) and Wintoki et al (2012).
Zhou, Faff, and Alpert (2014) for using dynamic panel models in corporate finance and corporate governance research
1.1.2 Why should national governance quality be involved?
Most existing research on corporate governance has primarily concentrated on the US and UK markets, often overlooking the impact of national governance mechanisms (Filatotchev, Jackson, & Nakajima, 2013) This limited focus can lead to a narrow and less comprehensive understanding of how corporate governance strategies perform across various institutional contexts (Kumar & Zattoni, 2013).
Recent research in corporate governance has shifted focus from the traditional agency framework to explore contexts beyond Anglo-Saxon jurisdictions, particularly in Asia, where ownership is often highly concentrated Scholars have identified that national governance mechanisms—such as the legal system, rule of law, and investor protection—can significantly impact the effectiveness of corporate governance strategies.
(2013) and Filatotchev et al (2013), among others, have suggested investigating the interaction impact of country-level and firm-level variables in corporate governance research 3
The second research question: Based on the aforementioned arguments and motivated by the view of institutional theory, this study questions whether the
3 These points will be expanded in Chapter 2
The relationship between corporate governance and firm performance is influenced by the quality of national governance systems This study seeks to determine if national governance quality moderates the connection between corporate governance structures and firm performance, specifically in two typical Asian markets By exploring this interaction, the research adds to the growing body of knowledge on how corporate governance mechanisms relate to national institutions.
To effectively address the research questions, a robust and historical database is essential for deriving generalizable findings (Heugens, Van Essen, & Van Oosterhout, 2009) This database must be comprehensive, encompassing a wide range of firm-year observations from numerous countries.
CORPORATE GOVERNANCE STRUCTURES AND FIRM PERFORMANCE: A COMPARATIVE ANALYSIS BETWEEN AN
This chapter aims to develop theory-based hypotheses to address the research questions outlined in Chapter 1, Subsection 1.1, by reviewing the theoretical and empirical literature on the corporate governance–financial performance relationship Section 2.1 provides various definitions of corporate governance, while Section 2.2 presents an overview of three major theories that inform the study's hypotheses Section 2.3 examines the theoretical frameworks and empirical findings related to corporate governance and financial performance, with a focus on the Asian context Sections 2.4 and 2.5 introduce hypotheses concerning the impact of national governance quality on the corporate governance-performance relationship Finally, Section 2.6 offers a summary of the chapter.
Corporate governance can be defined in various ways, typically categorized as either 'narrow' or 'broad' (Claessens & Yurtoglu, 2013) The narrow definitions concentrate on internal governance mechanisms, including board characteristics and ownership structure, which are crucial for enhancing firm performance and maximizing shareholder benefits This focused approach is particularly relevant for empirical studies in the field.
18 on corporate governance within an individual country (Claessens & Yurtoglu,
The broad definitions of corporate governance encompass the external institutional environment affecting firms, making them ideal for cross-country comparative studies These definitions enable researchers to explore how country-specific characteristics influence the behavior of firms, shareholders, and stakeholders (Claessens & Yurtoglu, 2013) This study utilizes both narrow and broad definitions of corporate governance for comprehensive comparative analysis.
Corporate governance is commonly defined in finance literature as the methods by which financial suppliers ensure returns on their investments, as noted by Shleifer and Vishny (1997) Similarly, Denis and McConnell (2003) describe it as a set of mechanisms, both institutional and market-based, that encourage self-interested company controllers to make decisions that maximize shareholder value The Cadbury Committee (1992) also emphasizes the importance of these governance frameworks in guiding corporate decision-making.
Corporate governance refers to the framework through which companies are directed and controlled, emphasizing the role of shareholders in maximizing profits and safeguarding against potential exploitation by managers This foundational understanding informs the single-country analyses conducted in this study.
A broader definition of corporate governance is proposed by OECD (2004, p 11) as follows:
Corporate governance is a framework that defines the relationships among a company's management, board of directors, shareholders, and other stakeholders It establishes the structure for setting company objectives, determining the methods to achieve those goals, and monitoring overall performance.
Corporate governance encompasses not only internal structures and shareholder profits but also considers external mechanisms and stakeholder benefits This broader perspective integrates the external environment in which firms operate, making it effective for analyzing corporate governance across different countries.
Researchers have categorized corporate governance mechanisms into two main types: internal and external to firms (Gillan, 2006) However, this dual classification is considered limited, as it may fail to encompass the complex and multidimensional network of interrelationships that exist within corporate governance (Gillan).
This study adheres to Gillan (2006) and emphasizes that capital structure, ownership structure, and board structure—encompassing diversity, composition, leadership, and size—are the key internal corporate governance mechanisms.
2.2 THREE DOMINANT THEORIES IN CORPORATE GOVERNANCE RESEARCH: AN OVERVIEW
Agency theory is considered to be a predominant theoretical approach in corporate governance studies (Daily, Dalton, & Cannella, 2003; Shleifer & Vishny, 1997) Nevertheless, alternative approaches have been considered in prior research
Eisenhardt (1989) argues that agency theory only captures a fragment of the complex dynamics within organizations Additionally, Young et al highlight that agency theory fails to adequately represent corporate governance practices across various analytical contexts, largely due to the differing institutional frameworks found in different countries.
Resource dependence theory is particularly relevant for understanding board functions in East Asian companies, as highlighted by Young et al (2001) Additionally, scholars such as Hillman and Dalziel (2003) and Nicholson and Kiel (2007) argue that agency theory should be enhanced by incorporating resource dependence theory in corporate governance research.
Previous corporate governance research has predominantly concentrated on the US and UK markets, utilizing the principal-agent model, which overlooks the influence of national governance mechanisms This limitation hinders a comprehensive understanding of the effectiveness of corporate governance strategies across various institutional contexts.
Recent studies in corporate governance are shifting focus from the traditional agency framework to better understand governance in non-Anglo-Saxon contexts, particularly in Asia, where concentrated ownership is prevalent Emerging literature highlights the importance of national governance mechanisms—such as legal systems, the rule of law, and investor protection—in shaping the effectiveness of corporate governance strategies.
Zattoni (2013) and Filatotchev et al (2013), among others, have called for the consideration of the interactive impact of country-level and firm-level variables in corporate governance research
This study adopts a multi-theoretical approach, integrating agency theory, resource dependence theory, and institutional theory to underpin hypothesis development and discussion of results The subsequent subsections 2.2.1, 2.2.2, and 2.2.3 will provide a concise overview of these key theories.
An agency relationship involves a contract where principals engage an agent to perform services on their behalf, delegating decision-making authority to the agent This separation of control and ownership in public corporations can lead to conflicts of interest between agents and principals, known as the principal-agent problem.