corporate social responsibility in Vietnam: determinants and effects
This thesis investigates the determinants and the effects of corporate social responsibility activities in Vietnam. It focuses on three research projects, namely: the determinants of CSR, the effect of CSR on financial performance and the effect on the cost of equity capital. This section briefly discusses the motivation, theoretical approach, methodology and main findings.
In the first project, the research question is which firm and managerial specific factors determine CSR. Prior research mainly focuses on institutional or firm specific factors; there is a lack of studies on the influence of managerial characteristics. This project contributes to the research gap by considering CEO characteristics among CSR determinants. Prior research also tends to concentrate on explaining either institutional, firm or individual determinants of CSR. Studies rarely integrate the joint effects of two or more levels, which might better explain the phenomena. The firm specific factors included in this study are international involvement of the firm, and corporate governance features like ownership and board characteristics. As for CEO specific factors, I include education of CEOs. When studying two levels of determinants of CSR in an emerging country, I also focus on the interaction between foreign ownership and internationalization, board and CEO characteristics. The role of foreign ownership in emerging setting is important not only for financial resources but also for CSR pressure from developed countries. However, no investigation has been done on whether foreign ownership contributes to or impedes CSR when interacting with other determinants.
Multiple theories are used to explain the determinants of CSR. Institutional theory and legitimacy theory are used to explain the role of internationalization and foreign ownership. The role of state ownership can be explained by agency theory and legitimacy theory. The role of board of directors is also important to CSR activities, according to resource dependence theory. CEOs’ characteristics can affect CSR through CEOs’ motivation and competency. The data shows that CSR is increasing over time in Vietnam, in conformity with the global CSRtrend. The research uses multivariate regression analysis that controls for profitability, leverage, firm age, industry and year. I also conduct robustness tests with alternative model specifications and variable measurement. The main regression used is OLS regression.
For panel estimation, I use the Hausman test to decide between fixed or random effects regression and the Breusch–Pagan test to decide between random effects or OLS regression. However, due to un- balanced and short panel data (the average firm in the sample has less than three annual observations), the results of panel estimations are presented for robustness check. OLS results show that export-oriented firms engage in more CSR activities. Vietnam’s economy depends on export activities and is influenced by foreign customers who require higher CSR. Improvement in export activities helps firms not only in economic activities but also in CSR activities.
As for corporate governance factors, I observe that foreign ownership and board diversity positively influence CSR. Foreign ownership plays an important role in increasing CSR in an emerging country like Vietnam. They have more demand for CSR because they mostly come from developed countries where the CSR standards are higher. With their capital, technology and expertise, they can positively affect CSR activities. Gender composition of a board has a positive impact on CSR. The finding has implication for a positive contribution of women and the gender equality improvement in Vietnam. It is known that the country has been strongly influenced by Confucianism in which women are not as equal as men. However, women's rights and gender equality are gradually promoted. With more female directors on board, the board can take into better account the interest of multiple stakeholders which
increases CSR. Furthermore, boards with gender diversity can align their interest with other stakeholders and higher demands for CSR from foreign shareholders. Among the managerial characteristics, I find that CEOs’ education has a positive impact on CSR. In an emerging country with a lack of capital and technology resources, human capital is critical to development, which highlights the role of CEOs in firms’ strategy and CSR practices. The interaction coefficients of foreign ownership with firm’s export-orientation, board diversity and CEOs’ education are significantly positive. The findings imply that international impacts through exporting activities and foreign investors are very important for CSR in an emerging country like Vietnam. The results of the study help us understand key drivers of observed CSR practices in an emerging economy.
The second research project asks two questions: whether CSR affects firm performance and whether the corporate governance shapes the relationship between CSR and firm performance. I observe that the theoretical and empirical relationships between CSR and corporate financial performance are not without controversy. Yet, CSR activities are increasingly undertaken by a large number of firms, not only in developed countries but also in emerging countries. Previous studies mostly investigate the direct effect of CSR on financial performance. A few studies examine the moderating effect of corporate governance features like ownership concentration and board gender diversity. As an emerging country, Vietnam has some specific characteristics on corporate governance. This project contributes by investigating the moderating effects of a few major aspects of corporate governance, which are foreign and state ownership, board size and board independence.
I analyze the impact of CSR on both accounting-based and market-based firm performance mostly based on the stakeholder theory. The moderating roles of corporate governance are explained using the agency theory. OLS is used as the main regression. For robustness test, panel estimation (fixed / random effects regressions), 2-stage least square regressions are also used. Due to unbalanced and short panel with average number of observations per firm being less than three, the results of panel estimations are presented only for the robustness check. Ordinary least squares regression results show that CSR activities affect the financial performance positively. Furthermore, corporate governance features like foreign ownership, board size and board independence strengthen the positive relationship between CSR
and financial performance. However, there exists no such impact by state ownership. The results are robust with alternative measures of CSR, corporate governance, financial performance and control variables. The findings imply that investing in CSR benefits firms by increasing their financial performance. The findings on the moderating roles of corporate governance emphasize once again the importance of foreign ownership, not only in CSR but also in the relationship between CSR and firm performance.
The third research project questions if CSR affects the cost of equity capital and whether corporate governance moderates this relationship. Once again, I observe that the empirical relationship between CSR disclosure and the cost of equity is conflicting. Different corporate governance mechanisms may moderate this relationship. However, these moderating effects are hardly examined in the literature. My research tries to fill in this gap by studying the moderating effects of state and foreign ownerships that are considered to be two key corporate governance mechanisms in many emerging countries. Theoretical explanation for the impact of CSR disclosure on the cost of equity capital is based on the reduction of information asymmetry. Higher CSR disclosures will affect cost of equity capital through increase of investor base, decrease in perceived risk and systematic risk. The moderating roles of foreign ownership and state ownership are expressed through their impacts on information asymmetry and monitoring roles. Similar to previous projects, OLS is used as the main regression, and for robustness test, panel estimation (fixed / random effects regression) is undertaken. Due to the data availability related to the assumption of ex-ante cost of equity capital, I have only about 800 firm-year observations over a period of 2008–2013. I use several approaches to estimate the ex-ante cost of equity and CSR. Pooled OLS regression results indicate that CSR disclosure does not affect the cost of equity. Vietnam is an emerging country with a legal regime that provides less investor protection in comparison with many developed countries. The equity market is also in the initial stage of development that may not make investors particularly concerned with non-financial information such as CSR. The impact of CSR on cost of equity capital can be significant when investor protection and equity market development are important. I find that foreign ownership moderates the relationship between CSR and the cost of equity capital while state ownership does not. The fact that foreign shareholders strengthen the negative impact of CSR on the cost equity implies that foreign ownership is important in Vietnam. Consistent with the results of the second project, the moderating effects of other corporate governance mechanisms like state ownership, board independence, board size and board gender diversity are found to be not statistically significant.
