Ownership structure, corporate diversification, and firm performance : a study of listed firms in Vietnam

Abstract

This thesis investigates the effect of ownership structure (both state and foreign) on firm performance and corporate diversification in the context of Vietnamese listed firms, and examines the effect of corporate diversification on firm performance. It explores the following research questions: What is the effect of ownership structure (state ownership and foreign ownership) on the performance of Vietnamese listed firms? What is the impact of ownership structure on corporate diversification? What is the influence of corporate diversification on firm performance? The thesis uses panel data of listed firms on Hochiminh Stock Exchange and Hanoi Stock Exchange over the period 2007 to 2012. Research in this thesis employs the system generalised method of moments estimation (system GMM) to examine the relationship between ownership structure and firm performance. This study finds that state ownership has a U-shaped relationship with firm performance; while foreign ownership has an inverted U-shaped relationship with firm performance. Empirical results reveal that firm performance decreases beyond a level of 28.67% of state ownership and firm performance increases beyond a level of 43% of foreign ownership. The results indicate that state ownership has entrenchment effect due to divergence of goals between state owners and other shareholder. However, this adverse effect is overwhelmed by benefits of political connections of high concentrated state ownership. Foreign ownership has positive effect on firm performance due to the fact that foreign shareholders act as monitors to reduce agency problems in firms and foreign shareholders may transfer advanced managerial skills or technologies to firms. Foreign ownership, however, may expropriate other shareholders for their own benefits when it is concentrated. The results imply that emerging markets like Vietnam should focus on corporate governance mechanisms in order to protect minority shareholders from the expropriation of state ownership or concentrated foreign ownership. This thesis employs a logistic model to investigate the impact of ownership structure on corporate diversification decisions. The results indicate that state ownership encourages corporate diversification, while foreign ownership inhibits it. This implies that Vietnamese firms with high levels of state ownership are likely to diversify their businesses, but firms with foreign ownership are not likely to adopt this strategy. Research in this study employs fixed effect, instrumental fixed effect, Heckman selection, and the system GMM estimations to investigate the impact of corporate diversification on firm performance in Vietnamese listed firms. Empirical results indicate that corporate diversification has a negative impact on performance, and suggest that corporate diversification is not beneficial in an emerging market like Vietnam.

Date of Award	2015
Original language	English