UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY VIETNAM THE HAGUE THE NETHERLANDS VIETNAM –NETHERLAND PROGRAMME FOR MA IN DEVELOPMENT ECONOMICS THE ROLE OF FAMILY INVOLVEMENT IN A FIRM’S PERFORMANCE Academic Supervisor: DR. LE VAN CHON Student: NGUYEN QUOC KHANH HO CHI MINH CITY, OCTOBER 2013 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEGDEMENTS During doing research, I have received the supports, helps and guidance from my supervisor, committee members, friends and family. First of all, I really appreciate and thank to the enthusiastic help of my supervisor - Dr. Le Van Chon.
I always get clearly instructions, heartfelt encouragements and enthusiastic assistances from him during my thesis. I also would like to thank Dr. Pham Khanh Nam to suggest me the ideas for my thesis and supply the data source for the analysis in my research. I would like to express my great appreciation to Associate Prof.
Nguyen Trong Hoai – Vice Principal of the University of Economics & Director of Vietnam – Netherlands Programme for MA in Development Economic who oriented and facilitated me during two years learning this master course. Finally, I would like to express my heartfelt gratitude to my family, my friends and my colleagues who supports, and encourage me to finish this research. Ho Chi Minh City, October 2013 ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT This paper investigates the difference in performance between family businesses and non family businesses of small and medium enterprises (SMEs) in Vietnam. It focuses on the differences in how the use of capital and labor and in total factor productivity (TFP) between the two types of firms.
The study used statistics on small and medium enterprises in Vietnam over the years 2005, 2007 and 2009.This paper also gives a number of policy implications for small and medium businesses to improve their performance and for the policy-maker to support the Vietnam small and medium enterprises. Based on the Cobb-Douglas production function, we apply the methods OLS, GLS and panel model to estimate. It finds that there are significant differences in the contribution of the two inputs that are labor and capital to output – the value added- between family businesses and non family businesses in Vietnam. On labor, its contribution to output in the family businesses was significantly higher than non-family businesses.
In terms of capital, the contribution of this factor in the family business is low compared to their counterparts. Moreover, there are no bases to conclude which kind of firm is more productivity. iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS ACKNOWLEDGEMENTS………………………………………………………………………ii ABSTRACT…………………………………………………………………………………….iii TABLE OF CONTENTS……………………………………………………………………….iv LIST OF TABLES……………………………………………………………………………….vi LIST OF FIGURES…………………………………………………………………………….vii CHAPTER I INTRODUCTION 1.4 Scope of study and data………………………………………………………………………2 1.2 CHAPTER II LITERATURE REVIEW 2.1 What is family business? .2 Differences between family and non-family businesses ……………………….3 The performance of family and non-family firms……………………………………………7 2.4 The importance of the family firm………………………………………………………….5 The other determinants of firm's performance………………………………………………14 2.6 Conceptual framework………………………………………………………………………15 CHAPTER III RESEARCH METHODOLOGY 3.1 The development of Domestic Private sector and Small and Medium Enterprises in Vietnam………………………………………………….2 The recent performance of Small and Medium Enterprises in Vietnam………….3 Sources of data………………………………………………………………….22 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER IV EMPIRICAL RESULTS 4.41 REFERENCES APPENDIX v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 2.1: Summary of Empirical Review on the performance difference between family firms and their counterparts……………………………………………………………….1: Number and ownership structure of Vietnamese enterprises 2000-2008…………….2: Vietnamese SMEs’ share in different ownership type ………………….3: The number and ownership structure of Vietnamese Small and Medium Enterprises period 2000-2008……………………………………………………………………………….4: Variables used in the Production Function……………………………………….1: Summary Statistic for SMEs sample (2005-2009)………………………………….3: The firm production function by OLS and GLS method with homogenous input.4: The firm production function by OLS and GLS method with heterogeneous input…………………………………………………………35 Table 4.5: The firm production function estimation in pool data……………………………….6: The firm production function estimation in panel fixed-effects…………………….7: The firm production function estimation in panel random-effects………………….8: Hausman Test for Fixed or Random Effects……………………………………….39 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2.1: The long-term view of family-business performance……………………………….1: The probability density function histogram of variables through years Log Value Add………………………………………………………………………………….2: The scatter-plot of log value add on variables of family and non-family firms through years…………………………………………………………………28 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER I INTRODUCTION 1.1 Problem statement The impact of the family involvement on the firm performance has been debated in many researches for a long time. Many scholars have concerned the difference between family and non-family business performance.
However, the results of researches are not congruent due to the difference of the family firm definition, performance measurement or the samples. So the issues about the “family effect” or “family involvement” impact on the productivity and firm performance are continued. The role of the small and medium-sized enterprises (SMEs) is crucial in the developing economy for the goal of economic growth and integration like Vietnam. The issues concerning to SMEs have received increased attention of several economists.
For example, CIEM (2010) investigates the characteristics of the SMEs, the government policies and the business environment in Vietnam. The significance of innovation for exporting of SMEs has been studied by Nguyen Ngoc Anh et al (2008). In addition, Le Van Khoa (2006) considers the environment pollution problems caused by the SMEs in the Ho Chi Minh city. In 2009, the firm recognized as family firm in the total number of the SMEs in Vietnam is large that more than 60 percent (CIEM, 2010).
However, there is lack of studies investigating the differences of family and non-family firms. More specifically, no research on the impact of the family ownership on the firm productivity for the case of Vietnam has been established. In this paper, we consider how the family ownership impacts to the firm productivity in Vietnam, making it different to the non-family ones. The Cobb Douglas is usually utilized to evaluate the firm output between family and non- family counterpart such as work by Bosworth and Londes (2002), Barth et al (2005), Martikainen (2009) that indicate ambiguous relationship.
To interpret to the difference, F. Moores (2011) argued that assuming the homogeneity of factor elasticity lead to different result, then two main factors in the production function-labor and capital- contribute to the output differently 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Research objectives The objective of this study aims to find out how the difference, between family and non- family firms, in using labor and capital affects the SMEs’ output and the difference in the total factor productivity (TFP) between two types of firms. In addition to this, the paper also examines the other determinants that influence to the SMEs’ output and suggests some recommendations for firms to improve their performance.3 Research question This study tries to answer whether the family involvement has any impacts on the performance of the small and medium sized enterprises for the case of Vietnam.4 Scope of study and data Based on the production function Cobb-Douglas, this study applies the OLS and panel data to examine the factors affecting the firms’ output. The panel data is utilized to solve the heterogeneity problem and to control the omitted variables of each individual.
It uses the data of small and medium enterprise surveys for the year 2005, 2007 and 2009 by the World Institute for Development Economics Research, the University of Copenhagen and some government agencies and bodies of Vietnam. It contains the information of more than 2000 SMEs concerning the characteristic of the Vietnam business environment and of the firms. Thesis structure Following the introduction chapter, the paper is organized as followed. Chapter Two gives some literature reviews and empirical studies that provide the rational for the firm performance difference between family and non-family firms.
Chapter Three presents the research methodology. Chapter Four provides the descriptive statistics and the result. The last discuss the conclusion and some recommendations. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER II LITERATURE REVIEW This chapter by reviewing previous studies firstly provides the most frequently used definition of the family business.
Then it indicates the difference between family and non-family firm in using resources. Next it points out the differences in performance between the two types of firms and the importance of family businesses in the economy. In addition to using the resources and family involvement that impact to the firm performance, a number of other factors are also considered to build the conceptual framework for the next chapter. What is family business? Recent researchers have paid much attention on the difference in performance between family and non-family firm such as Gallo, (1995); McConaughy et al., (1999); Westhead et al., (1998) and Anderson et al.
However, what is the family business? It has been the controversy issue for many authors to find out the clarity definition, although they have agreed on the view that the family business involvement is the factor make the firm different from others (Miller & Rice, 1967). Westhead et al., (1998), reviewing and investigating previous researches on the family firms, found that there are differences in the family definition used in studies. According to Chrisman et al., (2003b), the work for family definition is continued. Diversified definitions are given basing on different methods.
Shanker et al., (1996) gave two definitions for family-firm, the narrow one concerning to the daily business and the broad one regarding to strategic decision. Astrachan et al., (2002) used factors regarding to experience, power and culture to measure the influence level of family on the firm. Some authors based on the essence of the a family firm such as Davis et al. , (1989); Shanker et al., (1996) to investigate the impact of family on making decision.
The concept “familiness” was first introduced by Habbershon et al., (1997) concerning to the resources of a family firm that originated in the systems of business, of family or individuals in family. Habbershon et al., (2003) state that “familiness” can bring competitive advantage to the family firm. 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com According to Chrisman et al., (1999) and Chrisman et al., (2003b) , the most used definition for family business empirical studies is based on two significant components that are ownership, management or business succession. For example, the families firms are the ones that the ownership is concentrated by single family and/or have the influence on management process (Gallo & Svenn 1991,; Holland & Oliver 1992).
So many previous have not find the convergence on the business family definition since the difference of the type of management, control and ownership lead to several definitions. In addition to this, according to Chua, Chrisman & Sharma (1999), the definition based on ownership and management does not reflect the essence of family business that are the firm’s vision and the intention to shape and pursue that vision of the family, small group of family or across the generation of the family Since disadvantage of the definition regarding to the ownership and management, the other dimension is added based on the behavior perspective (Litz 1997; Daily and Dolliger 1993). According to Chua, Chrisman & Sharma (1999) confirms that the behavior dimension is more useful, give more clearly definition and better than ownership and management basement. So Chua et al.
(1999) give the definition that: “A family business is a business governed and managed with the intention to shape and pursue the vision of the business held by the dominant coalition controlled by members of the same family in the manner that is potentially sustainable across generations.” Based on this approach, the significant difference between family and non-family firm is the behavior. According to the Martikainen et al. (2009) and Moore (2011), the difference in the behavior leads to the difference of utilizing the inputs such as labor and capital between family and non-family firm. Steers (1982) stated that the firm performance is determined by the efficiency of using the resources.