Independent directors and performance of companies listed on the Ho Chi Minh stock exchange

Abstract

This paper examines the impact of independent directors on firm performance by using a sample of companies listed in Ho Chi Minh stock exchange over the period from 2012 to 2018. The sample is an unbalanced data panel with 1693 observations. GMM estimation system is employed to control endogeneity as well as other problems in the model, and is suitable for the data with short time periods and a large number of companies. The results show that independent directors negatively affect firm performance. In addition, the study examines the impact of the number of independent directors on listed firm performance, which is also a new contribution of the study. In particular, public companies with one or two independent directors on board have a negative impact on their performance. However, it is unfounded that three or more independent directors cause a reduction in the performance of listed companies. Thus, independent directors have not supported improving firm performance partly due to information asymmetry among the insiders and outsiders as well as the independent director’s governance capacity. Furthermore, this study proposes policy implications aiming to promote the effective governance role of independent directors with the listed firm performance.