Abstract
This study examines the impact of corporate governance, reflecting a wide spectrum of board characteristics and ownership structure on agency costs in 281 listed companies on Ho Chi Minh Stock Exchange (HOSE) in Vietnam in the period 2013–2018. For this purpose, three board characteristics were chosen: (1) the size of board of directors, (2) equilibrium between non-executive and executive members of the board of directors, (3) the CEO chair duality and three types of ownership structures were chosen: (1) management ownership, (2) government ownership, (3) foreign ownership. An inverse proxy of agency costs is used: asset utilization ratio (asset turnover), which reflects the managerial efficiency. The research methodology includes three statistical approaches: Ordinary least squares (OLS), fixed effects model (FEM) and random effects model (REM) are considered to employ to address econometric issues and to improve the accuracy of the regression coefficients. The results can create effective corporate governance mechanisms in controlling the managerial opportunistic behavior to lower agency conflicts, and hence lower agency costs.
Highlights
Agency cost is the internal expense resulting from conflicts of interest between principals and agents in an organization; it is hidden in any decision which is not aimed at maximizing company profit
The findings of this paper reveal that even though Vietnam experiences the same type of agency problem with market-based financial systems, the characteristics of corporate governance in Vietnam are the result of it being an emerging market, leading to some differences in the effects of agency costs, compared to other economies
This result is consistent with hypothesis Hypothesis 5 (H5) and studies of Vijayakumaran (2019), Tian and Estrin (2007), Wei et al (2005) about the fact that state ownership in Vietnamese listed companies leads to poorer corporate governance and operational inefficiency, which increases agency problems
Summary
Agency cost is the internal expense resulting from conflicts of interest between principals and agents in an organization; it is hidden in any decision which is not aimed at maximizing company profit. Good corporate governance refers to the well-structured system in management processes, policies, laws and customs that help companies to control their operations. It focusses on the right of shareholders and reduces the diversion of their interests (Monks and Minow 2004). Using a sample of 281 listed companies on Ho Chi Minh Stock Exchange in Vietnam in the period from 2013 to 2018, we applied corporate governance, including board size, the number of non-executive director, CEO/Chairman duality, management ownership, foreign ownership, government ownership, as tools for monitoring agency costs based on asset utilization. The findings of this paper reveal that even though Vietnam experiences the same type of agency problem with market-based financial systems, the characteristics of corporate governance in Vietnam are the result of it being an emerging market, leading to some differences in the effects of agency costs, compared to other economies
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