An examination of independent directors in Vietnam

Vietnam is a transition economy in the Southeast Asia and corporate governance in this country has been newly established after transition process in 1986. Similar to many other developing and emerging economies, Vietnam has weak external governance mechanisms, thus independent director becomes a critical element in corporate governance system as an internal governance mechanism. Further, Vietnam is also a transition economy which has a highly concentrated ownership structure with the dominance of the State as the largest controlling shareholder which may complicate the work of independent directors. Therefore, it is unclear how independent directors contributes to corporate governance and firm performance in a transition economy as Vietnam. Vietnam only releases a new Corporate Governance Code in 2012 which for the first time introduces the notion of independent directors in corporate governance with the requirement that listed companies need to maintain a certain level of independent directors on the board. There is lack of research to examine the function of independent directors in corporate governance in this country. Taking into account the importance as well as the recent adoption of independent director in corporate governance in Vietnam – a transition economy, the thesis examines this type of director from three aspects in three research papers. The first paper (chapter 2) examines the relationship between independent directors and firm performance using available archival data. Due to the nature of transition process, independent directors have been recently adopted in corporate governance system in Vietnam, thus contribution of independent directors to improving firm performance is still unclear. After using several methods to control for endogeneity - a common issue for research on corporate governance, we found that the relationship between independent directors and firm performance is negative. The findings also revealed that the negative relationship between independent directors and firm performance can be due to the dominance of firms with concentrated ownership structure. In addition, the negative relationship is even worse in firms where the State is a controlling shareholder than in firms with private controlling shareholders. Then, in the second paper (chapter 3), the thesis uses surveys to further investigate the perceptions of independent directors in listed companies in Vietnam on the roles, responsibilities and challenges for them when participating on the board of directors. The main purpose of this paper is to understand how independent directors recognize their roles in corporate governance in the absence of guidelines from corporate governance codes released in 2012 in Vietnam. The findings suggested that independent directors have preference on advisory role than monitoring role which is not suggested by prior literature. In addition, they also pointed out the challenges faced in the board including information asymmetries and influence of controlling shareholders. Finally, the third paper (chapter 4) investigated if there is any cultural difference between the north and the south of Vietnam and if this intra-cultural difference is associated with difference in creating accountability of independent directors. The results confirmed the persistence of intra-cultural difference in Vietnam between two regions in which independent directors in the south are more likely to be individualists whereas independent directors in the north are more likely to be collectivists. Additionally, independent directors in the south demonstrated a lower level of risk averse while independent directors in the north showed a higher level of risk averse. With regard to creating accountability of independent directors, the results demonstrated that independent directors in the south are more likely to be at higher level of creating accountability than directors in the north. Overall, the thesis points out some issues relating to independent directors in Vietnam and provide implications to policymakers for a further corporate governance reform relating to independent directors as well as to companies when establishing and maintaining their corporate governance systems.