Interaction Among Corporate Governance, Innovation, and Performance in Vietnam’s Banking Sector

Abstract

Background/Objectives: The current research tries to investigate effects of the three elements of corporate governance (chief executive officer duality, board independence and size) on banking performance and then analyze the mediating role of innovation on these effects, which are overlooked at Vietnamese banks.

Methods/Statistical analysis: The research sample for this research encompassed 78 usable firm-year observations of 25 publicly listed organizations in the banking sector on Vietnam’s three main Stock Exchanges during a 4-year period from 2015 to 2018. To test out the causal hypotheses, the multiple linear regressions were carried out; while to statistically explore the mediating hypotheses, the approaches for testing the statistical significance of mediating effects, proposed by Aroian (1947) were applied.

Findings: The empirical findings disclose that good mechanisms of corporate governance in banking can lead to superior banking performance. The empirical results also discover that innovative activities in banking statistically interferes in the causal linkage between corporate governance and banking performance; where innovation fully interferes between the duality of management and banking performance, but it partially interferes in the relations of board independence and board size with banking performance.

Improvements/Applications: This research indicates that the banks, in which the positions of the director and chairperson are held by one separate person, may suffer agency costs, so achieve poorer banking performance. Therefore, the banks in Vietnam should assign the positions of the chief executive officer and chairperson to two separate individuals. The banks should hire more independent executives in the managerial board in order to lessen agency costs, so can get better banking performance. Moreover, the banks with larger managerial boards can improve banking performance since they possess better business experience, expertise, skill and other relations that can create substantial resources, so enhance banking success. It also shows that when included into the research model of corporate governance and banking performance, innovativeness in banking should be carefully considered, because it could interfere into this research model.