Does Internal Control Affect Bank Profitability in Vietnam? A Bayesian Approach

Abstract

AbstractThis article studies the impact of internal control on the profitability of Vietnamese commercial banks. The influence of internal control on the profitability of commercial banks has been carried out by some researchers around the world. However, the research on the relationship between internal control and profitability of Vietnamese commercial banks is still limited. The article mentions the basic contents of internal control according to the Committee of Sponsoring Organization (COSO 2013) and, at the same time, determines the impact of internal control on the profitability of Vietnamese commercial banks. The research sample includes 30 Vietnamese commercial banks in the period 2007–2018, data is collected from audited financial statements and annual reports of banks, and macro data is collected from the General Statistics Office. The study uses return on total assets (ROA) and return on equity (ROE) to represent the profitability of commercial banks. By using the Gibbs sampling within the Bayesian approach, the research results show that there are five components of the COSO framework (2013) that affect the profitability of Vietnamese commercial banks, including: control environment, risk assessment, control activities, information and communication, monitoring activities. In addition, the study also shows that factors belonging to banking characteristics and macroeconomic factors affect the profitability of Vietnamese commercial banks: bank size, number of years of operation, inflation, GDP growth. The results of the study are the basis for making some recommendations to strengthen the internal control system of Vietnamese commercial banks to achieve more sustainable profitability.KeywordsCOSOCommercial bankInternal controlProfitability