Factors in Corporate Governance Affect to Default Risk of Companies Listed on Vietnam Stock Market Mai KyQuoc Mbus 2.com University of Economics HCM City International School of Business Master Thesis Supervisor Dinh Cong Khai January 2014 i ACKNOWLEDGEMENT First of all, I would like to thank Dr. Khai who has supervised with strength, knowledge and vitality that has supported me to finish this research. Secondly, I would like to appreciate to my family for moral and financial support, encouragement and motivation. Thirdly, I own particular thanks to professors, ISB community and all my classmates who have gone with me so far and helped me to achieve the knowledge.
Finally, I would like to thank my friends who have helped me in several ways to accomplish this research and authors of previous researches which provided me theoretical framework to support for my findings in researching. ii ABSTRACT Corporate governance plays important role in developing of company. Good corporate governance ensures strong management performance, efficient capital structure, and constant investment strategy. Besides that, default risk is the uncertainty surrounding a firm's ability to service its debts and obligations.
Corporate governance is regarded as the most important key, affect to defaults risk. Using secondary data from 70 companies which represent for all industries, listed on Vietnam Stock market, this research empirically identify the relationship of factors in corporate governance such as the power of CEO, proportion of government ownership, and salaries & remuneration of board of directors to default risk. Key words: corporate governance, default risk, EDF score, KMV model. iii TABLE OF CONTENT ACKNOWLEDGEMENT.
ii TABLE OF CONTENT. iii LIST OF FIGURES. v LIST OF TABLES. vi LIST OF ABBREVIATIONS.
vii CHAPTER 1 INTRODUCTION .2 Statement of Problem .3 Research Objective and Research Question .4 Scope of the Research. 5 CHAPTER 2 LITERATURE REVIEW .1 Overview Corporate Governance .2 Corporate Governance in Vietnam .3 Factors Affect to Default Risk and Hypothesis Development .4 Payment of Board.5 Other Factors Affect to Default Risk. 18 CHAPTER 3 RESEARCH METHODOLOGY .3 Target Population and Sample .2 Multiple Regression Strategy .2 Estimation of Regression Models and Hypothesis Testing .1 Estimating the Model .2 Inspection of Multicollinearity .3 Check the Autocorrelation .4 Test of the Heteroscedasticity .5 Testing the Assumption of Normal Distribution of the Error Term .6 Ramsey Test for Omitted Variables .3 Summurize the Result. 45 CHATER 5 CONCLUSION AND IMPLICATIONS .3 Limitations and Future Research.
58 v LIST OF FIGURES Figure 2.1 The conceptual framework. 20 vi LIST OF TABLES Table 3.2 The relationship between dependent variable and independent variables .3 The source of independent variables .4 Descriptive statistic variables .1 The result from the first regression .2 Wald test redundant variables.3 The result from the second regression .4 Coefficients between pairs of variables .5 Value of the Variance- Inflation factor .6 The result after adjusting endpoints .7 The result from Ramsey Reset Test. 45 vii LIST OF ABBREVIATIONS CEO Chief Executive Officer CO Coefficient EDF Expected Probability of Default HET Heteroscedasticity OLS Ordinary Least Square VAR Variable VARS Variables VIF Variance Inflation Factor 1 CHAPTER 1 INTRODUCTION 1.1 Research Background Throughout many centuries lenders have been concerned whether loans would be paid or not. Many strategies are applied to build several models to count and forecast default risk.
Much effort is applied to identify factors that affect these risks. The problem is a still acute, especially in the light of the recent financial, and more researches are done in this discipline. On contrast, corporate governance is put under scrutiny for the last three decades. The young research discipline deserves attention of theories and practitioners.
The issues of financial statement, ownership and controlling, compensation and incentives are typically and widely argued in professional society, business circles, and regulatory basic of corporate governance in protecting shareholders’ interests has become more important than ever. Following that, effective corporate governance ensures strong management performance, efficient allocation of resource and sound investment strategy. Altogether these factors improve companies` financial health, reduce information asymmetry between the firm and outside investors, reduce default risk and ultimately benefit the securities holders (Chiang, Yeh and Chen, 2009).