Government in Business and on Board: The Good, the Bad or the Ugly?

AISDL

November 21, 2022

In the past, the Vietnamese corporate sector was painted by the dominance of wholly state-owned and collectively owned enterprises [1]. The reform of the economy commencing in the late 1980s has boosted the development of the corporate sector with the equitized firms, the creation of newly born private enterprises, and the participation of foreign firms. Thus, the picture of the corporate sector has been represented by numerous players with different characteristics.

Not only does the potential conflict exist between shareholders and managers (as described in the traditional agency problem common in Anglo-Saxon corporations), controlling shareholders and minority shareholders (as in most concentrated ownership structure systems such as Germany, Japan, and France), state shareholders and non-state shareholders (such as in China), local shareholders and foreign shareholders [2], but it also takes place between various state shareholders.



Figure: The Good, the Bad, and the Ugly [3]

Giang Hoang – a researcher from Monash Business School – attempted to explore the unique agency problems arising among multiple agents in Vietnamese enterprises. A panel data set of 3,333 firm-year observations covering 617 non-financial publicly listed companies of both the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange of Vietnam between 2006 and 2013 was employed for the analysis [4]. She found that a higher proportion of foreigners on supervisory boards, more multiple state representatives on the board of directors, longer chairman’s years employed by companies, better titles of chairpersons, and the greater largest shareholder ownership decreased agency cost levels. In contrast, the magnitude of the second largest shareholder ownership was identified to increase agency costs. The findings hold for both the entire sample and sub-samples of state-linked firms represented by the central governmental authorities, local authorities, State corporation/economic group, and the State Capital Investment Corporation of Vietnam (SCIC).

Notably, the author also found empirical evidence to support the effectiveness of the SCIC as a sovereign wealth fund when state ownership is not exceeding 50% in firms. These relationships imply that residual state ownership is not necessarily inefficient as commonly perceived. However, it should not go beyond a certain threshold as it will be detrimental to firm value.

The study’s author – Giang Hoang – is currently collaborating with the core team of the Mindsponge Portal in exploring agency problems and characterizing information asymmetry issues of Vietnamese firms employing the BMF method [5].

*Editorial note: This article is promoted by Minh-Hoang Nguyen.

References

[1] Chinh MP, Hoang VQ. (2009). Kinh te Viet Nam: Thang tram va dot pha. Nxb Chinh tri Quoc gia, Hanoi.

[2] Ross SA. (1973). The economic theory of agency: The principal’s problem. American Economic Review, 63(2), 134-139.

[3] Leone S. (1967). The Good, the Bad and the Ugly – 50th Anniversary Single Disc Edition. Kino Lorber Theatrical.

[4] Hoang THG. (2017). The analysis of board of directors and ownership as internal governance mechanisms: Empirical evidence from Vietnam. La Trobe University. Ph.D. Dissertation.

[5] Vuong QH, Nguyen MH, La VP. (2022). The mindsponge and BMF analytics for innovative thinking in social sciences and humanities. Berlin: De Gruyter.