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The impact of corporate governance disclosure on the financial performance of SSI30 companies


Vu Thi Thu Van


In Banking
Ology code: 60.31.12

Dr. Pham Huu Hong Thai


Ho Chi Minh City, 2011


Hereby, the writer would like to express her heartfelt thanks to Dr. Pham Huu
Hong Thai for his great instruction to complete this thesis, to the professors & the
teachers for building up her understanding & her good acting and to her loved
ones for their contribution to meaning of her life.



Experience in countries with large and active equity markets shows that disclosure
can also be a powerful tool for influencing the behavior of companies and for
protecting investors. A strong disclosure regime can help to attract capital and
maintain confidence in capital markets. Insufficient or unclear information may
hamper the ability of markets to function, may increase the cost of capital and result
in a poor allocation of resources. However, in Vietnam, Corporate governance is
still a new concept. And The World Bank asses that investor protection is
inadequate; related-party transactions are pervasive; compliance with accounting
standards is insufficient; and disclosure and transparency are limited. Therefore, this
paper is motivated to give in further detail at what level the quality of annual reports
in Vietnam is by using the Standard & Poor‟s scorecard to rate and to investigate
the impact of corporate governance disclosure on the financial performance in order
to illustrate why the pursuit of better corporate governance practices can be of
genuine and practical benefit to companies themselves. As a fact, the annual reports
viewed in this study are mainly with introduction, advertising, financial statement,
balance sheet …., not reporting about corporate during the year as it is. With
correlation, relationships between financial performance and corporate governance
disclosure expected are not seen from the samples.

Keywords: Corporate Governance, Corporate Governance disclosure score, annual
reports, financial performance.


Table of content

Chapter 1. Introduction ............................................................................................... 4

Chapter 2. Literature review on corporate governance in general and on disclosure
of corporate governance in particular .......................................................................... 8
2.1. Theoretical Literature Review ................................................................... 8
2.2. Empirical Literature Review ................................................................... 10

Chapter 3. Research methodology ............................................................................ 20
3.1. The sample ............................................................................................. 20
3.2. Research methodology ............................................................................ 20
Corporate Governance Disclosure Scorecard ............................................ 20
Financial Performance .............................................................................. 21
Correlation ............................................................................................... 22

Chapter 4. Findings & Discussion ............................................................................ 23
4.1. Corporate governance disclosure scores .................................................. 23
4.2. Financial performance ............................................................................. 31
4.3. Correlation .............................................................................................. 32

Chapter 5. Conclusion .............................................................................................. 36

References ................................................................................................................ 43
Appendix 1. CG Disclosure Scorecard (Standard & Poor's) ...................................... 48


Appendix 2. List of Tables ....................................................................................... 56
Appendix 3. List of Figures ...................................................................................... 57

Statement of problems
The corporate governance issue has beccome of great interest those days.
Both Asian countries and international organizations launched some initiatives to
enhance corporate governance. For example, the Organization of Economic
Cooperation and Development (OECD) issued a document entitled „Principles of
Corporate Governance‟ in 1998 and a revised version in 2004 (OECD, 2004)
according to which Corporate governance is a key element in improving economic
efficiency and growth as well as enhancing investor confidence. The presence of an
effective corporate governance (CG) system, within an individual company and
across an economy as a whole, helps to provide a degree of confidence that is
necessary for the proper functioning of a market economy. As a result, the cost of
capital is lower and firms are encouraged to use resources more efficiently, thereby
supporting growth. The Cadbury Committee (1992) advocated, first of all,
disclosure as “a mechanism for accountability, emphasizing the need to raise
reporting standards in order to ward-off the threat of regulation. Improved
disclosure results in improved transparency, which is one of the most essential
elements of healthy CG practices.” Communication via corporate disclosure is selfevidently a very important aspect of CG in the sense that meaningful and adequate
disclosure enhances good CG. For instance, Whittington (1993) states: “Published
annual reports are used as a medium for communicating both quantitative and
qualitative corporate information to shareholders, potential shareholders (investors)
and other users”. Although publication of an annual report is a statutory
requirement, companies normally voluntarily disclose information in excess of the
mandatory requirements. Company management recognizes that there are economic


benefits to be gained from a well-managed disclosure policy. However, in Vietnam,
Corporate governance is still a new concept. As per the recent International Finance
Corporation – Mekong Private Sector Development Facility survey in Vietnam,
only 23% of the companies surveyed understand the basic concept of Corporate








“management” between company directors. And The World Bank asses that
investor protection is inadequate; related-party transactions are pervasive;
compliance with accounting standards is insufficient; and disclosure and
transparency are limited (Report on the Observance of Standards and Codes 2006).
And relatively little research work has been done in the area of corporate
governance in Vietnam. If it is widely perceived that new laws and regulations to
promote better corporate governance practices just end up creating additional (and
unnecessary) burdens for companies, then their effectiveness will be limited.
Furthermore, it is important that any drive to improve corporate governance
practices seek to illustrate why the pursuit of better corporate governance practices
can be of genuine and practical benefit to companies themselves.( Freeman &
Nguyen 2006). As per the assessment of World Bank, Quality of disclosure in the
annual reports of Vietnamese listed companies is not adequate and is not in
compliance with OECD non-financial disclosure requirements. The quality of
disclosure is low while a strong disclosure regime is an important feature of marketbased monitoring of corporate conduct and is central to the ability of shareholders
to exercise their voting rights effectively. Experience in countries with large and
active equity markets shows that disclosure can also be a powerful tool for
influencing the behavior of companies and for protecting investors. A strong
disclosure regime can help to attract capital and maintain confidence in capital
markets. Shareholders and potential investors require access to regular, reliable and
comparable information in sufficient detail for them to assess the acting of
management and make informed decisions about the valuation, ownership and
voting of shares. Insufficient or unclear information may hamper the ability of


markets to function, may increase the cost of capital and result in poor allocation of
resources. Disclosure also helps improve public understanding of the structure and
activities of companies, their policies and performance with respect to
environmental and ethical standards and their relationships with the communities in
which they operate.

Research Objectives
Therefore, this thesis is motivated to give in further detail at what level the
quality of annual reports in Vietnam is by using the Standard & Poor‟s (S&P)
scorecard to rate and one more objective is to investigate the impact of corporate
governance disclosure on the financial performance, respectively as a support to
above suggestion by Freeman & Nguyen (2006) for the illustration why the
pursuit of better corporate governance practices can be of genuine and practical
benefit to companies themselves.

Significance of the thesis
This study gives a closer and more detailed fact of the Corporate Governance
in Vietnam instead of saying, describing it in general at starting. From the figure of
this research, in comparison with other countries and from the test, the readers
could imagine clearer and exactly at which level Vietnam is , how far Vietnam is
behind and how much work Vietnam should do. This helps enhance public
awareness and training on corporate governance. The findings suggest direction for
further research, as well as give suggestions for Companies & policymakers to

Hypothesis statement
And in this thesis, the following hypothesis suggested by Abdo &
Fisher, 2007: “Companies with high levels of corporate governance disclosure will


achieve higher firm valuations and more significant prospects for future growth
than companies with low levels of corporate governance.” is tested.

Data & Methodology
The publicly annual reports & financial ratios of some Vietnamese
companies belonging to the group of largest market capital with the 30 firms
updated by Saigon Securities Inc., (SSI30 Update) on 31 Dec. 2009 have been taken
under method of descriptive statistics to compute the linear correlation coefficient
between the corporate governance disclosure score and the market to book value
ratio, between the corporate governance disclosure score and the Price per Earnings
ratio as well. The study follows the ones done in some other Asian countries
applying S&P scorecard to make out the scores of sample then will evaluate the
financial performance with Market-to-book-value (MTBV) and Price/earnings (P/E)
ratio. Lastly, correlation with financial performance as dependent variable and
Corporate Governance Disclosure score as independent variable is computed.
The results of CG disclosure rating for the Vietnamese companies are low,
even lower than the figure of neighbor Asian countries in 2004. And the result of
test is not in line with the hypothesis.

Organization of thesis
The thesis includes five chapters. Its remainder is structured as follows: The
chapter two reviews the relevant literature on corporate governance in general and
disclosure of corporate governance in particular. The third chapter presents research
methodology. The results are reported and discussed in the chapter four. And the
last chapter concludes the thesis.










2.1. Theoretical literature review
Corporate governance has received an increasing amount of attention in
recent years. Corporate scandals have brought corporate governance weaknesses to
the attention of the general publics, especially in the United States. But corporate
governance is sometimes a problem in other countries as well (W. McGee, 2008).
At UNCTAD‟s 10th quadrennial conference, which was held in Bangkok in
February 2000, member States requested it to promote increased transparency and
improved corporate governance. In response, the Intergovernmental Working Group
of Experts on International Standards of Accounting and Reporting (ISAR) at
UNCTAD conducted a series of consultations and deliberations on corporate
governance disclosure during its annual sessions with a view to assisting developing
countries and countries with economies in transition in identifying and
implementing good corporate governance practices. This was undertaken as part of
the larger goal of achieving better corporate transparency and accountability in
order to facilitate investment flows and mobilize financial resources for economic
Corporate Governance Committee of Hong Kong Society of Accountants, in
March 2001, published the book “A guide to Current Requirements and
Recommendations for Enhancement on Corporate Governance Disclosure in
Annual Reports” which introduced that Hong Kong was able to weather the storm
better than many other Asian economies because the Special Administrative Region


has on of the highest standards of corporate governance in Asia. With a global
economy, corporate governance standards must also be global. Consequently, those
Hong Kong companies whose governance systems are not compatible with
international standards will lose out in terms of attracting international investment.
More than 70 per cent of the international capital market is made up of United
States and United Kingdom pensions, funds, and the other institutional investors.
These investors are keen on reducing risk. One of the principal ways in which they
can do this is by going to markets where governance practices are comparable to
those in their home markets. If Hong Kong is to maintain its status as a major
international finance centre and capital market, Hong Kong companies must play by
global rules, particularly those relating to full and timely disclosure. Corporate
governance is not an optional extra for Hong Kong companies. It is essential and
overriding element in attracting investment and stimulating economic growth.
In general, the United Nations Conference on Trade and Development‟s
“Guidance on Good Practices in Corporate Governance Disclosure (2006)”
describes: “The location of CG disclosures within the Annual Report of a
Corporation is not generally well-defined, and can vary substantially across-country
in practice. However, some degree of harmonization of the location of CG
disclosures would be desirable to make the relevant data more accessible, in the

Related study regarding developing a governance scorecard
As per Barrier (2003), there were seven primary characteristics of good
corporate governance identified by The King Committee: discipline, fairness and
social responsibility – and The Committee further developed and integrated these
fundamental principles into tangible guidelines for minimum standards of corporate


In 1997, Standard & Poor‟s developed a company Corporate Governance
Score (CGS) to assess a company‟s corporate governance practices and policies
with four key components: ownership structure and influence, shareholder rights &
stakeholder relations, financial transparency and information disclosure, and board
structure and process (Bradley, 2004).
Basing largely on King II principles and the Standard & Poors International
CGS index, A Abdo and G Fisher (2007) designed and developed a broad measure
of corporate governance disclosure, the G-Score, for research on South Africa. The
G-Score is a composite measure of 29 governance disclosure factors, encompassing
seven corporate governance categories: board effectiveness, remuneration, audit &
accounting, internal audit, risk management, sustainability and ethics. Scores were
done on publicly available information: annual report as the first source of data and
company website as a secondary source of information.
For South East Asia, Standard and Poor‟s and Corporate Governance and
Financial Reporting Centre – NUS Business School, National University of
Singapore joint-studied on Corporate Governance Disclosure in Singapore, in
Malaysia, in Thailand, in Indonesia and also one in Hong Kong. Those studies used
the corporate governance disclosure scorecard developed by Standard & Poor‟s and
focused only on annual report disclosure. This thesis will also use this scorecard to
make out the score on corporate governance disclosure of the sample companies.

2.2. Empirical literature review

The legal protection of investors is described as a potentially useful way of
thinking about corporate governance in the paper of La Porta, Silanes, Schleifer,
Vishny (2000). Empirically, strong investor protection is associated with effective
corporate governance, as reflected in valuable and broad financial markets,
dispersed ownership of shares, and efficient allocation of capital across firms.


In a further detail, board and audit committee members with corporate of
financial backgrounds are associated with firms that have smaller discretionary
current accruals. Board and audit committee meeting frequency is also associated
with reduced levels of discretionary current accruals with observations of 282 firms
from S&P 500 index (Xie, Davidson III, Dadalt 2002). In another side, AshbaughSkaife, Collins, LaFond (2006) document, after controlling for firm-specific risk
characteristics of 2000 US companies, that credit ratings are negatively associated
with the number of block holders and CEO power, and positively related to
takeover defenses, accrual quality, earnings timeless, board independence, board
stock ownership, and board expertise. They also provide evidence that CEOs of
firms with speculative-grade credit ratings are overcompensated to a greater degree
than their counterparts at firms with investment-grade ratings, thus providing one
explanation for why some firms operate with weak governance.
In transition economies, corporate governance has become an important
topic in recent years. Directors, owners and corporate managers have started to
realize that there are benefits that can accrue from having a good corporate
governance structure. Good corporate governance helps to increase share price and
makes it easier to obtain capital. International investors are hesitant to lend money
or buy shares in a corporation that does not subscribe to good corporate governance
principles. Transparency, independent directors and a separate audit committee are
especially important. Some international investors will no seriously consider
investing in a company that does not have these things (McGee, 2008).
Nevertheless, research to date on corporate governance has mainly dealt with the
efficacy of various mechanisms that can protect shareholders from self-interested
executives, and the focus has generally been on (Western) developed economies
(Daily, Dalton, & Cannella 2003). Thus, relatively little research effort has been
devoted to corporate governance issues in emerging economies & Asian countries.
Anderson, Campbell II (2002) investigating external and internal corporate
governance activity in Japanese banks find a significantly negative relation between


non-routine presidential turnover and bank performance measures such as stock
returns or profitability in the crisis years of 1991-1996. From other perspective on
the Japan‟s bank crisis, the government was unable to provide a credible penalty for
imprudent bank management under competition-restricting regulations. These
factors are responsible for the prolonged fragility of the Japanese banking sector
(Hanazaki, Horiuchi 2003).
Paper on transition in another country - the Former Soviet Union of Estrin
and Wright 1999 concludes that the problems of transition there concern delays
both in introducing corporate governance mechanisms and in introducing an
appropriate competitive market environment. Later, in 2003, Judge, Naoumova &
Koutzevol suggest that effective corporate governance may be essential to firm
performance in Russia from the findings of a negative relationship between
“informal” CEO duality and firm performance and findings that the more
vigorously the firm pursues a retrenchment strategy, the more negative the
relationship between proportion of inside directors and firm performance.
In the region Vietnam belongs to, family-controlled firms, majority of the
firms in East Asia face more severe internal financing constraints than non familycontrolled firms (Hanazaki & Liu 2006).
It should be recognized that the concept of corporate governance is a
relatively broad one, and that it often seems to mean different things to different
people. One of the most important factors of corporate governance to attract








announcements and reports (and its general meetings) are its primary channel of
communication with shareholders. It is the transparency achieved through open
disclosure by boards that is the most direct method of ensuring that companies are
accountable for their actions.

Collett and Hrasky (2005) analyzed the relationships between voluntary
disclosure of CG information by the companies and their intention to raise capital in


the financial market. The study found out that “only 29 Australian companies made
voluntary CG disclosure, and the degree of disclosures were varied from company
to company.” Similarly, Barako et al., (2006) examined the extent of voluntary
disclosure by the Kenyan companies over and above the mandatory requirements.
The results revealed that “the audit committee was a significant factor associated
with level of voluntary disclosure, while the proportion of non-executive directors
on the board was negatively associated.”
In South Africa, The relationship between governance disclosure and
corporate performance revealed a striking relationship (Abdo& Fisher 2007).
Corporate governance was positively correlated with share price returns during the
period under review. An investment strategy that purchased shares in the highest GScore companies (High portfolio) for each JSE sector outperformed the index for
the sector. Similarly an investment strategy that purchased shares in the lowest GScore companies (Low portfolio) underperformed the index in terms of annual
average return over the 3 year period. The analysis suggests that investors place a
premium on South African companies with good governance. These findings have
significant implications for companies neglecting corporate governance disclosure.
In an analysis on CG disclosure practice in India (Madan, 2008), CG
disclosure is stated to be a fundamental theme of the modern corporate regulatory
system, which encompasses providing information by a company to the public in a
variety of ways. This case study on a Group in India reveals that this company has
shown “very good” performance and it is apparent that there is still some scope for
improvement in the level of CG standards and quality of disclosures to be practiced
in the company. However, many of the areas where the Company needs to improve
its CG practice are common to most of the other Indian firms.

Review on Corporate Governance Disclosure in Vietnam
Nevertheless, for Vietnam, just counting the study on corporate governance
in general, it is not so much. As per discussion “Corporate governance in Vietnam –


The beginning of a long journey” – Oct. 2006 by Freeman & Nguyen , relatively
little research work has been done in the area of corporate governance in Vietnam.
As far they are aware, the only specific corporate governance project to have been
undertaken in Vietnam thus far is a project by Danida of Denmark, who seeks to
strengthen corporate governance practices in the local fisheries sector. However, as
of yet, there has apparently been no empirical study of general corporate
governance practices in Vietnam.
Report on the Observance of Standards and Codes (ROSC) by World Bank Corporate governance country assessment – Vietnam – June 2006 provides a
benchmark for Vietnam‟s observance of corporate governance practices against the
OECD Principles of Corporate Governance. It describes current practice and
provides policy recommendations in six areas: (i) corporate governance framework;
(ii) rights of shareholders; (iii) equitable treatment of shareholders: (iv) role of
stakeholders in corporate governance: (v) disclosure and transparency; and (vi)
responsibilities of the Board. The report shows that Vietnam has recently taken
important steps to establish its corporate governance framework.
A remarkable study of Vietnam corporate governance is done by McGee
(2008) in a comparison with Indonesia, Malaysia, Thailand. The paper begins with
an overview of some basic corporate governance principles as identified by the
OECD, Word Bank and IMF, then proceeds to examine how these principles are
being applied in Indonesia, Malaysia, Thailand and Vietnam. The result shows
Vietnam at the lowest overall score and has more work to do than others. The
author also concludes that the scores for each of these countries will likely improve
with time. The market provides incentives to improve and to compete in practically
every area of economic activity including the realm of corporate governance.

Reference of Corporate governance and shareholder returns
Due to wide difference in methodologies, in the measurement of
performance and in governance standards throughout the world, there is growing


diversity of result from the growing literature linking corporate governance to
company performance.
In reference to the effect of corporate governance on the expected rate of
return for shareholders, the expected rate of return should compensate investors for
expected monitoring, auditing, and other private costs associated with different
corporate governance systems. In their model, stronger corporate governance
mechanisms in firms reduce the expected return on equity via reducing the
shareholder‟s monitoring and auditing costs (Lombardo and Pagano, 2000).
To attract investors as well as influencing what will be paid for a stock, good
corporate governance can be a tool. As per Agrawal, Findley, Greene, Huang,
Jeddy, Lewis, and Petry (1996), investors in the US are willing to pay for good
governance between about 11% and 16% . It is also showed by Brown and Caylor
(2004) that in Europe, better corporate governance is related to better firm
performance. However, results of Cornett, McNutt, Tehranian (2009) from large
U.S. bank holding companies indicate that more independent boards appear to
constrain the earnings management that greater PPS (Pay-for-Performance
Sensitivity) compels while both PPS and board independence are associated with
higher earnings.
For Germany, it was also concluded by Drobetz et al. (2004) that a corporate
governance rating is positively correlated with firm value. They discovered that an
investment strategy buying companies with high corporate governance ratings and
selling short companies with a low rating, would have gained 12%annualised
abnormal returns for the same period.
In the case of developing markets, evidence for the relationship between
firm‟s performance and corporate governance was also found by Klapper and Love
(2003). They employed a corporate governance ranking (by Credit Lyonnais
Securities Asia), using a sample of companies form developing markets to find out
that a positive relationship existed between the corporate governance ranking and
financial ratios.


About the Asian financial crisis and with evidence from Korea, the paper of
Joh (2003) finds that firms with low ownership concentration show low firm
profitability, controlling for firm and industry characteristics. Firms with a high
disparity between control rights and ownership rights showed low profitability. A
more detailed research on Korean financial crisis conducted by Baek, Kang, Park
(2002) find that firms with higher ownership concentration by unaffiliated foreign
investors experienced a smaller reduction in their share value. Firms that had higher
disclosure quality and alternative sources of external financing also suffered less. In
contrast, chaebol firms with concentrated ownership by controlling family
shareholders experienced a larger drop in the value of their equity. Firms in which
the controlling shareholders‟ voting rights exceeded cash flow rights and those who
borrowed more from the main banks also had lower returns.
On the other hand, the empirical results of Patibandla (2005) studying India‟s
corporate sector show that increasing presence of foreign institutional investors has
a positive effect on corporate performance in terms of profitability. Firms that
depend on government financial institutions for external finance show decline in
performance. In the other hand, Liu & Lu (2007) document systematic differences
in earnings management across the universe of China‟s listed companies during
1999-2005 and empirically demonstrate that firms with higher corporate
governance levels have lower levels of earnings management. In general, in
emerging markets, firm – level corporate governance and country-level shareholder
protection seem to be substitutes for each other in reducing cost of equity (Chen,
Chang, & Wei 2009). Their results are consistent with findings from McKinsey‟s
surveys that institutional investors are willing to pay a higher premium for shares in
firms with good corporate governance, especially when the firms are in countries
where the legal protection of investors is weak.
And closest to Vietnam, Pathan, Skully, & Wickramanayake 2006 adds to
the proposition that improved bank governance is related to improved bank


performance as measured by their bank stock returns from analysis of Thailand‟s
bank governance reforms after the 1997 Asian financial crisis.

Reference of Corporate governance and firm value
There are some possible reasons why an increase in firm value could result
from good corporate governance. It is found by Fama and French (1992) that
increased levels of governance lead to increased investor confidence, as there is a
decreased risk of corporate mismanagement, fraud or negligence. This is also
supported by Black et al. (2003) that even moderate increases in the quality of firmspecific corporate governance causes substantial increases in the market-to-book
ratio. And better shareholder protection is documented by La Porta, Lopez-deSilanes, Shleifer and Vishny (2002) to be associated with higher valuation of firm
Yermack (1996) studied on the largest U.S. public firms raked in the annual
Forbes magazine to illustrate that firms are more valuable when the CEO and board
chair positions are separate.
Sharing the same direction has Andres, Vallelado (2008), who shows that
larger and not excessively independent boards might prove more efficient in
monitoring and advising functions, and create more value (obtaining information
from six OECD countries: Canada, the US, and the UK, Spain, France, and Italy).
By applying a corporate governance ranking of Deminor firm to various
firms in Europe, Immik (2000) discovered that this ranking was positively
correlated with ratios such as price-to-book value, return on assets, and return on
sales while a positive relationship between a measure of corporate governance and
valuation ratios are found in the case of Switzerland by Beiner et al. (2004).
Shleifer and Vishny (1997) document that effective corporate governance
reduces “control rights” shareholders and creditors confer on managers, increasing
the probability that managers invest in positive net present value projects, and
suggesting that better-governed firms will have a market premium.


Well-functioning corporate governance mechanisms in emerging economies
such as China and India are of crucial importance for both local firms and foreign
investors that are interested in pursuing the tremendous opportunities for investment
and growth that emerging economies provide. From the perspective of local firms,
there is evidence that firms in emerging economies (compared with their
counterparts in developed countries) are discounted in financial markets because of
their weak governance (LaPorta, Silanes, Shleifer, & Vishny 2000). As such,
improvements in corporate governance can enhance investor confidence in firms in
emerging economies and increase these firms‟ access to capital (Rajagopalan &
Yan Zhang 2008). Sharing this, Bai, Lieu, Lu, Song & Zhang (2003) find that both
high concentration of non-controlling shareholding and issuing shares to foreign
investors have positive effects on market valuation, while a large holding by the
largest shareholder, the CEO being the chairman or vice chairman of the board of
directors, and the largest shareholder being the government have negative effects.

In above, there are some of numerous studies examining the relation between
corporate governance practices and firm performance in overseas countries. This
leads to hypothesis that good corporate governance of firms will give higher
evaluation of firm performance, attracting the investors more. Also from some
other review related to corporate governance study in Vietnam, this thesis will
go deeper to test the hypothese drawn by Abdo& Fisher (2007) for South Africa:
Companies with high levels of corporate governance disclosure will achieve higher
firm valuations and more significant prospects for future growth than companies
with low levels of corporate governance. It follows the joint-study between
Standard and Poor‟s and Corporate Governance & Financial Reporting Centre –
NUS Business School, National University of Singapore which has done on the
Corporate Governance Disclosure in Singapore, in Malaysia, in Thailand, in
Indonesia and also one in Hong Kong. It uses the corporate governance disclosure
scorecard developed by Standard & Poor‟s, which was used in above joint-study to


rate Corporate Governance Disclosure of neighbor countries through the annual
reports, now to rate the corporate governance disclosure of Vietnamese listed
companies through the annual reports as well. Abdo & Fisher (2007) also measure
corporate governance disclosure, called G-score, but by assigning points to each
factors viewed from the publicly available information in South Africa. However,
this thesis chooses the scorecard done in Singapore, in Malaysia, in Thailand, in
Indonesia & Hongkong for a better view & comparison. Besides, those ones are
done only on the annual reports, regardless of others, which narrow down the area
for research and are more suitable for Vietnam. Using the same way as Abdo &
Fisher (2007), this thesis will also measure the financial performance with marketto-book-value (MTBV) ratio & price/earnings (P/E) ratio, then compute the
correlation with financial performance as dependent variable and Corporate
Governance Disclosure score (rated above) as independent variable to check the
relationship and to conclude if the above hypotheses is also supported by the
sampled Vietnamese listed companies.



3.1. The sample
The study covered the 30 companies of the Stock Exchange of Vietnam SSI30 Update published in SSI year-end newsletter 2009 (group of largest market
capital with the 30 firms updated by Saigon Securities Inc., on 31 Dec. 2009). Being
part of the SSI30 Update, the companies are likely to be of the greatest interest to
international investors. Furthermore, these companies are expected to practice
relatively higher standards of corporate governance compared to other listed Viet
companies. Due to missing data of 3 companies (further details in methodology),
there are only 27 companies in the list.

3.2 Research methodology
Corporate governance disclosure scorecard
Firstly, each sample‟s annual report will be studied for the answer to each
question of the S&P corporate governance disclosure scorecard. If the answer is
yes, the score is one and zero if the answer is no. There are some optional questions
with different scale for each option. Then, the scores are summed up to make out
the total score for that sample.
The corporate governance disclosure scorecard stated above consists of 136
items with a maximum possible score of 140 and was designed to ensure the
maximum objectivity in assessing the companies. The scorecard items reflect
principles and best practices embodied in corporate governance codes.


The analysis is based primarily on the disclosures made in the latest available
annual report (as of Jan. 17, 2010) for each company. Two of the 30 sample
companies are listed in 2009 while one other annual report is not found. Therefore,
the final sample consists of 27 companies.
A company will be deemed not to have followed the practice if the fact is not
explicitly stated in the annual report or can be clearly inferred from other
information provided in the annual report. In view of this study, as the annual report
is the primary medium of communication

between the company and its

stakeholders, all important matters on corporate governance should be fully
disclosed in it. In most countries, the annual report is the primary source of
information that investors use to assess the companies, and its corporate governance
practices. As corporate governance disclosures generally do not entail the disclosure
of commercially sensitive information, it is highly unlikely that a company will not
provide information about important corporate governance that they are in fact
Financial performance
After rating the corporate governance disclosure scores, the research
proceeds further with measuring financial performance. The first financial
performance measure related to firm value. Using the methodology applied by
Drobetz et al. (2004), the market-to-book value (MTBV) ratio was used as an
indicator of firm value. The MTBV ratio is derived by taking the market
capitalization of the company divided by the book value of equity (total assets
minus total liabilities) as per the balance sheet. A value of less than 1 could mean
that the firm has not been successful in creating value for shareholders, while higher
ratio would indicate the firm has created significant value (Firer, Ross, Westerfield
and Jordan, 2004).

This ratio is used as a concern from the approach of an

investors, who are studying the corporate governance of the firm and the value
creation of the firm to its shareholder, to decide if they will invest on that firm or


The second measure of variable considered is the price/earnings (P/E) ratio.
The P/E ratio is simply the share price divided by earnings per share (EPS). Since
the P/E ratio measures how much investors are willing to pay per rand of current
earnings, higher P/Es are often taken to mean the firm has significant prospects for
future growth. It is generally true that firms with high growth rates and lower
perceived risk levels trade at high P/E ratios (Firer et al., 2004). If the investors
could see how the firm has created value for shareholders with above ratio, this P/E
ratio would give them the idea about prospects for future growth of the firm.
To test the hypothesis, the linear correlation coefficient between the
corporate governance disclosure score as independent variable and the MTBV ratio
as dependent variable is computed, and it is also done for linear correlation
coefficient between the corporate governance disclosure score as independent
variable and the P/E ratio as dependent variable. The linear correlation coefficient is
sometimes referred to as the Pearson product moment correlation coefficient in
honor of its developer Karl Pearson, symbolized by the lower-case Roman letter r,
which ranges in value from r = +1.0 for a perfect positive correlation to r = -1.0 for
a perfect negative correlation. The midpoint of its range, r = 0.0, corresponds to a
complete absence of correlation. Values falling between r = 0.0 and r = +1.0
represent varying degrees of positive correlation, while those falling between r = 0.0
and r = -1.0 represent varying degrees of negative correlation. While the correlation
coefficient, r, can have either a positive or a negative sign and thus provide an
indication of the positive or negative direction of the correlation, the coefficient of
determination, r2, provides an equal interval and ratio scale measure of the strength
of the correlation. (Lowry, 1999-2010). Furthermore, a significance test is also



4.1 Corporate governance disclosure scores
It is found a considerable variation among the 27 companies. Summary
statistics on the corporate governance scores (CG scores) for the sample companies
are shown in Table 1. Figure 1 gives the distribution of scores obtained from the


Sample Size

27 Table 1: Summary Statistics of CG Scores for 27 of
SSI30 UPDATE companies

Maximum score
Minimum score






Standard Deviation


Table 2: CG Disclosure Scores of companies winning the Best Annual Report




















Most of the scores are clustered between 11 and 30, reflecting much room
for the Vietnamese companies to improve disclosure of their corporate governance
practices. This is reflected more in the scores of the companies winning the Best
Annual Report Award (table 2) and in the comparison with the other countries
(table 3).
From the Table 2 with scores of companies winning the Best Annual Report
Prize, it is realized that the standard for a good annual report in Vietnam is

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