Ownership concentration, state ownership and firm performance: empirical evidence from the Vietnamese stock market

Abstract

This study examines the effects of ownership structure on firm performance in the Vietnamese stock market using a sample of 76 manufacturing companies listed on the Ho Chi Minh Stock Exchange (HOSE) during 2007-2015. Firm performance is measured by Tobin’s Q, and ownership structure is investigated in three different aspects: managerial ownership, block ownership and state ownership. Descriptive statistics reveal a significantly concentrated ownership structure in the manufacturing companies listed on the HOSE. In each company, the largest owner on average owns 40% of its total shares, which is nearly three times higher than that of the second largest. Executive managers on average hold around 15% of firm shares, of which the majority belongs to the Board of Directors. State ownership is at a moderate level of 20% on average, but it varies significantly across companies as well as through time. Given multiple sources of the endogeneity of ownership structure, instead of traditional OLS and Fixed-Effects, the well-developed system-GMM estimator is employed to examine the effects of ownership structure on firm performance. Empirical results show a cubic relationship between managerial ownership and Tobin’s Q, i.e. positive at low and high levels of managerial ownership and negative at the middle level, while block ownership has no impact on firm performance. It implies that internal managerial incentives play a more important role than external monitoring from outside shareholders in improving corporate governance quality. It also indicates that to increase firm performance, shareholders in general and blockholders in particular, should monitor more closely and be involved more actively in the day-to-day operations of the firm, or even engage directly in corporate governance by undertaking positions in management teams. On the other hand, an inverted U-shaped relationship between state ownership and Tobin’s Q is discovered, indicating that partial privatization could be an efficient way to improve firms’ financial performance.