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The relationship between corporate governance and risk level: The empirical evidences from Vietnam

By Nguyen Pham Hoang My (VNP 24)

Supervisor: Dr. Vu Viet Quang

Abstract:

The effective corporate governance improves corporate image through the mitigation and avoidance of corporate scandals, fraud risks, and dishonest and unethical dealings. If external risks could not be controlled by management, internal ones could be managed by firms themselves, especially risks due to non-compliance or information breaches. The key purpose of risk management is to maximize values of firms for well-being of shareholders and top executives through shares, stock options. The interaction between firm risk and corporate governance could be described as the curbing mechanism of corporate governance over threats and acceptance bounds of risks. Risk is the mediator in the measurement of impacts by corporate governance. Corporate governance is the powerful controller of the nature and intensity of internal risks. With the support of efficient corporate governance, companies could cumulate their internal efforts into a unified and complied mechanisms of operations to achieve growth and profitability within their accepted and appropriate risk boundaries.

This study aims to examine the relationship between firm risk and board characteristics (which is one of indicator of corporate governance) with the control of firm performance using the dataset of 423 non – financial firms in Vietnam for the period of nine years from 2010 to 2018. In detail, dependent variable is firm risk, which is measured by market risk BETA, the board characteristics are independent variables, which are examined in this study are the number of board of management, the independency of the board, the duality of CEO, the number of Woman in board and the ownership structure of firms (including State ownership and foreign ownership). Firm performance, regarding return on assets ratio (ROA), firm size in term of total assets, capital structure ratio, and percentage of sale growth are considered as control variables. Findings show the significantly positive relationship among the State ownership, and firm size in term of total assets with firm risk in term of market risk, while the independency of the board, number of female directors, foreign ownership, ROA, and capital structure ratio have negative relationship with firm risk measured by market risk.

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