Independent directors, ownership concentration and firm performance in listed companies: Evidence from Vietnam

The purpose of this paper is to investigate the impact of independent directors on firm performance in Vietnam and identify how different types of ownership structure and the presence of controlling shareholders influence the relationship.

For a sample of 217 non-financial Vietnam-listed companies during the period from 2010 to 2014, this study uses the ordinary least squares regressions to estimate the relationship between independent directors and firm performance. Two econometric techniques – the fixed effects estimation and the difference in difference estimation – are used to control for endogeneity. The results are also robust to the lag variable of independent directors.

The results reveal that independent directors have an overall negative effect on firm operating performance. This finding may be because of information asymmetry, expertise disadvantage and the dominance of ownership concentration that prevent independent directors from fulfilling their monitoring function in governance. The negative relationship between independent directors and firm performance is stronger in firms where the State is a controlling shareholder.

Findings suggest that changes relating to independent directors, as a response to the new corporate governance code in 2012, do not have a positive effect on the relationship between corporate governance and firm performance. Further reform is required to improve internal control mechanisms and corporate governance systems in Vietnam.

This is the first study to provide a robust evidence on the relationship between independent directors and firm performance in Vietnam as well as to explore the impact of the type of controlling shareholders on the relationship.