Purpose
This study aims to investigate the relationship between corporate governance (CG)
and financial performance in the case of publicly listed companies in Vietnam for
the period from 2019 to 2021. The topic is crucial in understanding how effective
governance practices can influence the financial outcomes of companies. The study
sheds light on the link between CG practice and firm financial performance. It also
provides insights for policymakers and practitioners to improve CG practices.
Design/methodology/approach
Due to the potential dynamic endogeneity in CG research, this study uses the generalized
system methods of moments to effectively address the endogeneity problem. Financial
performance is measured by Tobin’s Q, return on equity (ROE) and return on assets
(ROA). Based on organization for economic cooperation and development (OECD) standards,
these indices were calculated to assess the influence of CG practices on corporate
financial performance, namely, for accounting information (ROA and ROE) and market
performance (Tobin’s Q and service à resglement différé (SRD) – stock price volatility)
for the period 2019–2021. In addition, the study examines the relationship between
changes in the CG index and changes in financial performance.
Findings
The study’s main objective is to determine the relationship between CG performance
scores and financial performance. The study found a positive relationship between
transparency disclosure and financial performance and a positive correlation between
CG and company size. The COVID-19 pandemic caused a decrease in transparency and information
index scores in 2021 compared to 2019 and 2020 due to delayed General Meetings of
Shareholders. The study failed to find a relationship between shareholder rights index
(“cg_rosh”) and board responsibility (“cg_reob”) and financial performance, concerning
which the findings of this study differ from those of previous studies. Reasons are
put forward for these anomalies.
Originality/value
Policymakers need to develop a set of criteria for assessing CG practices. They also
need to promulgate specific regulations for mandatory and voluntary information disclosure
and designate a competent authority to certify the transparency of company information.
The study also suggests that companies should develop CG regulations and focus on
regulations relating to the business culture or ethics, as well as implementing a
system to ensure equal treatment among shareholders. The study found that good CG
practices can positively contribute to a company’s financial performance, which is
crucial for investors to evaluate the quality of CG practices for each listed company
so that investment risks can be limited.
