Corporate governance and firm performance : Evidence from financial institutions in Vietnam

Abstract

This study is to analyze and evaluate the corporate governance practices in financial institutions (FI’s) in Vietnam, including 37 Commercial Joint Stock Banks, 16 Insurance Corporations and 7 Finance Joint Stock companies. Of the 60 financial institutions, 17 are listed. Using a similar approach with Garay and González (2008) with considering specific characteristics of Vietnam economy, we have established the Vietnam Corporate Governance Index (VCGI) for 60 financial institutions on the basic of publicly disclosed information. We use multiple regressions to test and investigate the association between corporate governance practices and performance of FI’s in Vietnam. The empirical results show that the VCGI is positively associated with ROE and ROA and the correlation is statistically significant at the 0.01 level. This suggests that in Vietnam, FI’s with higher corporate governance scores have higher performance in term of ROE and ROA. The results also indicate that the VCGI is positively related to dividend payout ratio (DPR) and its correlation coefficient is statistically significant at the 0.01 level. That is, financial institutions with better corporate governance practice tend to allocate more cash earnings to shareholders, reflected by a higher dividend payout ratio. Keywords: Financial institutions, corporate governance index, firm performance, the board of directors, the executive board, Vietnam.