Do OECD‐type governance principles have economic value for Vietnamese firms at IPO?

Abstract

Research Question: Using agency and resource dependency insights this paper examines first which type of firm‐level antecedents trigger the adoption of OECD‐type governance principles by Vietnamese listed firms at IPO. Subsequently this paper investigates whether the adoption of these governance principles leads to higher firm values at IPO and whether stricter governance is related to transparency after IPO. Research Findings: With respect to the antecedents of OECD‐type governance in Vietnam this study finds that firms with foreign shareholders and younger firms adopt these governance principles. The adoption of stricter governance principles, especially in terms of strict supervisory board independence, as well as the appointment of directors with multiple director seats are beneficial for firm value at IPO. Governance transparency after IPO is unrelated to a firm's governance characteristics but positively associated with increasing firm size. Theoretical/Academic Implications: The results show that agency insights are applicable in a context of concentrated ownership, low investor protection and weak enforcement, since stricter board independence leads to higher firm value. In addition resource dependence theory explains the choice of directors and provides evidence that boards with better network potential lead to higher firm value in this relationship‐based emerging market. Practitioner/Policy Implications: Vietnamese firms benefit from higher value at IPO when they adopt stricter internal governance mechanisms and appoint directors holding multiple board seats. However, to ensure compliance with governance and transparency principles, formal institutional changes related to stricter enforcement of the regulation are of utmost importance.