Politically connected boards and firm performance: The case of Vietnam
Date Published:
25/07/2024
Online Published:
25/07/2024
Section:
Research Articles
Main Article Content
Abstract
The paper examines the influence of Politically Connected Boards on Firm Performance in Vietnamese economy. Using the ordinary least square, fixed effect model, random effect model, and the comparison between the groups using sample T-test technique to examine the impact of political connections on the firm value. The findings reveal that firms with political ties exhibit reduced productivity, as evidenced by lower total factor productivity scores. Moreover, political connections hinder profitability, particularly for firms with modest earnings. Despite enjoying higher market value, politically connected firms suffer from decreased performance due to inefficiency and ineffectiveness. These results have important implications for investors, listed firms, and policymakers on the effects of political favoritism in transitional economies.
Keywords
Productivity; Firm profitability; Firm value; Political connections
Article Details
References
Agrawal, A., & Knoeber, C. R. (2001). Do some outside directors play a political role? The Journal of Law and Economics, 44(1), 179-198. https://doi.org/10.1086/320271
Aguilera, R., Duran, P., Heugens, P.P.M.A.R., Sauerwald, S., Turturea, R. and VanEssen, M. (2021). State ownership, political ideology, and firm performance around the world. Journal of World Business, 56(1). https://doi.org/10.1016/j.jwb.2020.101113
Ang, J. S., Ding, D. K., & Thong, T. Y. (2013). Political connection and firm value. Asian Development Review, 30(2), 131-166. https://doi.org/10.1162/ADEV_a_00018.
Chen, S., Yan, X., & Yang, B. (2020). Move to success? Headquarters relocation, political favoritism, and corporate performance. Journal of Corporate Finance, 64. https://doi.org/10.1016/j.jcorpfin.2020.101698
Binh, D. T. T. (2013). Political connection in corporate governance and bank performance in Vietnam. SSRN. https://dx.doi.org/10.2139/ssrn.2524221
Ding, I. (2016). Invisible sky, visible state: Environmental governance and political support in China (Doctoral dissertation, Harvard University, Graduate School of Arts & Sciences). Digital access to Scholarship at Harvard e-Repository. http://nrs.harvard.edu/urn-3:HUL.InstRepos:33840726
Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369-386. https://www.aeaweb.org/articles?id=10.1257/000282806776157704
Fan, J. P. H., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China's newly partially privatized firms. Journal of Financial Economics, 84(2), 330-357. https://doi.org/10.1016/j.jfineco.2006.03.008
Ferguson, T., & Voth, H.-J. (2008). Betting on Hitler—the value of political connections in Nazi Germany. The Quarterly Journal of Economics, 123(1), 101-137. https://doi.org/10.1162/qjec.2008.123.1.101
Fisman, R. (2001). Estimating the Value of Political Connections. American Economic Review, 91(4), 1092–1102. https://www.aeaweb.org/articles?id=10.1257/aer.91.4.1095
Fromlet, H. (2001). Behavioral finance-theory and practical application: Systematic analysis of departures from the homo oeconomicus paradigm are essential for realistic financial research and analysis. Business Economics, 36(3), 63-69. https://www.jstor.org/stable/23488166
Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? The review of Financial Studies, 22(6), 2331-2360. https://doi.org/10.1093/rfs/hhn088
Giannetti, M., Liao, G., & Yu, X. (2015). The brain gain of corporate boards: Evidence from China. The Journal of Finance, 70(4), 1629-1682. https://doi.org/10.1111/jofi.12198
Ha, N. T. L. & Minh, B. T. (2018). Determinants of firm value in Vietnam: A research framework. International Journal of Science and Research. DOI: 10.21275/ART20204002
Ha, P. V. and Frömmel, M. (2020). Political connection heterogeneity and firm value in Vietnam. Cogent Business & Management, 7(1). https://doi.org/10.1080/23311975.2020.1738202
Hejazi, R., Ghanbari, M., & Alipour, M. (2016). Intellectual, human and structural capital effects on firm performance as measured by Tobin's Q. Knowledge and Process Management, 23(4), 259-273. https://doi.org/10.1002/kpm.1529
Harvie, C. (2005). The politics of devolution. A Companion to Contemporary Britain 1939–2000, (pp. 431-447). Blackwell Publishers. https://doi.org/10.1111/b.9780631220404.2005.00025.x
Jain, R., & Chatterjee, T. (2024). The Politics of State-level COVID-19 Responses in India: Evidence from the First Wave in 2020. The Indian Economic Journal, 72(1). 243-258. https://doi.org/10.1177/00194662231212753
Jiang, F., & Kim, K. A. (2015). Corporate governance in China: A modern perspective. Journal of Corporate Finance, 32, 190-216. https://doi.org/10.1016/j.jcorpfin.2014.10.010
Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: evidence from Malaysia. Journal of financial economics, 67(2), 351-382. https://doi.org/10.1016/S0304-405X(02)00255-6
Khwaja, A. I., and Mian, A. (2004). Do Lenders Favor Politically Connected Firms? Rent Provision in and Emerging Financial Market. The Quarterly Journal of Economics, 120(4), 1371–1411. https://doi.org/10.1162/003355305775097524
Li, D., Moshirian, F., Nguyen, P., & Tan, L. W. (2007). Managerial ownership and firm performance: Evidence from China's privatizations. Research in International Business and Finance, 21(3), 396-413. https://doi.org/10.1016/j.ribaf.2007.02.001
Li, H., Meng, L., Wang, Q., & Zhou, L. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283-299. https://doi.org/10.1016/j.jdeveco.2007.03.001
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293-315. https://doi.org/10.1016/0304-405X(88)90048-7
Nguyen, T. N. L., & Nguyen, V. C. (2020). The determinants of profitability in listed enterprises: A study from Vietnamese stock exchange. Journal of Asian Finance, Economics and Business, 7(1), 47-58. http://dx.doi.org/10.13106/jafeb.2020.vol7.no1.47
Nguyen, T. M., Tran, T. Q., & Do, L. T. (2018). Government Support and Firm Profitability in Vietnam. Comparative Economic Research. Central and Eastern Europe, 21(4), 105-120. https://czasopisma.uni.lodz.pl/CER/article/view/3882
Shleifer, A., & Vishny, R. W. (1994). Politicians and firms. The quarterly journal of economics, 109(4), 995-1025. https://doi.org/10.2307/2118354
Schoar, A. (2002). Effects of corporate diversification on productivity. The Journal of Finance, 57(6), 2379-2403. https://doi.org/10.1111/1540-6261.00500
Scheinkman, J. A., & Xiong, W. (2003). Overconfidence and speculative bubbles. Journal of Political Economy, 111(6), 1183-1220. https://doi.org/10.1086/378531
Vu, T. H., Nguyen, V. D., Ho, M. T., & Vuong, Q. H. (2019). Determinants of Vietnamese Listed Firm Performance: Competition, Wage, CEO, Firm Size, Age, and International Trade. Journal of Risk and Financial Management, 12(2), 62. https://doi.org/10.3390/jrfm12020062
Wong S. H-W. (2010). Political Connections and Firm Performance: The Case of Hong Kong. Journal of East Asian Studies, 10(2), 275-314. https://doi.org/10.1017/S1598240800003465
Aguilera, R., Duran, P., Heugens, P.P.M.A.R., Sauerwald, S., Turturea, R. and VanEssen, M. (2021). State ownership, political ideology, and firm performance around the world. Journal of World Business, 56(1). https://doi.org/10.1016/j.jwb.2020.101113
Ang, J. S., Ding, D. K., & Thong, T. Y. (2013). Political connection and firm value. Asian Development Review, 30(2), 131-166. https://doi.org/10.1162/ADEV_a_00018.
Chen, S., Yan, X., & Yang, B. (2020). Move to success? Headquarters relocation, political favoritism, and corporate performance. Journal of Corporate Finance, 64. https://doi.org/10.1016/j.jcorpfin.2020.101698
Binh, D. T. T. (2013). Political connection in corporate governance and bank performance in Vietnam. SSRN. https://dx.doi.org/10.2139/ssrn.2524221
Ding, I. (2016). Invisible sky, visible state: Environmental governance and political support in China (Doctoral dissertation, Harvard University, Graduate School of Arts & Sciences). Digital access to Scholarship at Harvard e-Repository. http://nrs.harvard.edu/urn-3:HUL.InstRepos:33840726
Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369-386. https://www.aeaweb.org/articles?id=10.1257/000282806776157704
Fan, J. P. H., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China's newly partially privatized firms. Journal of Financial Economics, 84(2), 330-357. https://doi.org/10.1016/j.jfineco.2006.03.008
Ferguson, T., & Voth, H.-J. (2008). Betting on Hitler—the value of political connections in Nazi Germany. The Quarterly Journal of Economics, 123(1), 101-137. https://doi.org/10.1162/qjec.2008.123.1.101
Fisman, R. (2001). Estimating the Value of Political Connections. American Economic Review, 91(4), 1092–1102. https://www.aeaweb.org/articles?id=10.1257/aer.91.4.1095
Fromlet, H. (2001). Behavioral finance-theory and practical application: Systematic analysis of departures from the homo oeconomicus paradigm are essential for realistic financial research and analysis. Business Economics, 36(3), 63-69. https://www.jstor.org/stable/23488166
Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? The review of Financial Studies, 22(6), 2331-2360. https://doi.org/10.1093/rfs/hhn088
Giannetti, M., Liao, G., & Yu, X. (2015). The brain gain of corporate boards: Evidence from China. The Journal of Finance, 70(4), 1629-1682. https://doi.org/10.1111/jofi.12198
Ha, N. T. L. & Minh, B. T. (2018). Determinants of firm value in Vietnam: A research framework. International Journal of Science and Research. DOI: 10.21275/ART20204002
Ha, P. V. and Frömmel, M. (2020). Political connection heterogeneity and firm value in Vietnam. Cogent Business & Management, 7(1). https://doi.org/10.1080/23311975.2020.1738202
Hejazi, R., Ghanbari, M., & Alipour, M. (2016). Intellectual, human and structural capital effects on firm performance as measured by Tobin's Q. Knowledge and Process Management, 23(4), 259-273. https://doi.org/10.1002/kpm.1529
Harvie, C. (2005). The politics of devolution. A Companion to Contemporary Britain 1939–2000, (pp. 431-447). Blackwell Publishers. https://doi.org/10.1111/b.9780631220404.2005.00025.x
Jain, R., & Chatterjee, T. (2024). The Politics of State-level COVID-19 Responses in India: Evidence from the First Wave in 2020. The Indian Economic Journal, 72(1). 243-258. https://doi.org/10.1177/00194662231212753
Jiang, F., & Kim, K. A. (2015). Corporate governance in China: A modern perspective. Journal of Corporate Finance, 32, 190-216. https://doi.org/10.1016/j.jcorpfin.2014.10.010
Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: evidence from Malaysia. Journal of financial economics, 67(2), 351-382. https://doi.org/10.1016/S0304-405X(02)00255-6
Khwaja, A. I., and Mian, A. (2004). Do Lenders Favor Politically Connected Firms? Rent Provision in and Emerging Financial Market. The Quarterly Journal of Economics, 120(4), 1371–1411. https://doi.org/10.1162/003355305775097524
Li, D., Moshirian, F., Nguyen, P., & Tan, L. W. (2007). Managerial ownership and firm performance: Evidence from China's privatizations. Research in International Business and Finance, 21(3), 396-413. https://doi.org/10.1016/j.ribaf.2007.02.001
Li, H., Meng, L., Wang, Q., & Zhou, L. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283-299. https://doi.org/10.1016/j.jdeveco.2007.03.001
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293-315. https://doi.org/10.1016/0304-405X(88)90048-7
Nguyen, T. N. L., & Nguyen, V. C. (2020). The determinants of profitability in listed enterprises: A study from Vietnamese stock exchange. Journal of Asian Finance, Economics and Business, 7(1), 47-58. http://dx.doi.org/10.13106/jafeb.2020.vol7.no1.47
Nguyen, T. M., Tran, T. Q., & Do, L. T. (2018). Government Support and Firm Profitability in Vietnam. Comparative Economic Research. Central and Eastern Europe, 21(4), 105-120. https://czasopisma.uni.lodz.pl/CER/article/view/3882
Shleifer, A., & Vishny, R. W. (1994). Politicians and firms. The quarterly journal of economics, 109(4), 995-1025. https://doi.org/10.2307/2118354
Schoar, A. (2002). Effects of corporate diversification on productivity. The Journal of Finance, 57(6), 2379-2403. https://doi.org/10.1111/1540-6261.00500
Scheinkman, J. A., & Xiong, W. (2003). Overconfidence and speculative bubbles. Journal of Political Economy, 111(6), 1183-1220. https://doi.org/10.1086/378531
Vu, T. H., Nguyen, V. D., Ho, M. T., & Vuong, Q. H. (2019). Determinants of Vietnamese Listed Firm Performance: Competition, Wage, CEO, Firm Size, Age, and International Trade. Journal of Risk and Financial Management, 12(2), 62. https://doi.org/10.3390/jrfm12020062
Wong S. H-W. (2010). Political Connections and Firm Performance: The Case of Hong Kong. Journal of East Asian Studies, 10(2), 275-314. https://doi.org/10.1017/S1598240800003465
How to Cite
Do, T. T. N., Vo, T. S., & Nguyen, T. T. H. (2024). Politically connected boards and firm performance: The case of Vietnam. Journal of Finance - Marketing Research, 15(5), 46-59. https://doi.org/10.52932/jfm.v15i5.501