viii

TABLE OF CONTENTS

ACKNOWLEDGMENT i
ABSTRACT ii
TÓM TẮT v
TABLE OF CONTENTS viii
LIST OF FIGURES xii
LIST OF ACRONYMS xiii
INTRODUCTION 1
CHAPTER 1: LITERATURE REVIEW 6
1.1 An overview of institutional investors 6
1.1.1 The impact of having institutional investors involved in a company‟s
ownership 6
1.1.2 What influences the investment decision of institutional investors
(Determinants of institutional ownership) 13
1.2 An overview of leadership and corporate governance 21
1.2.1 Leadership 21
1.2.2 Corporate Governance 24
1.3 Why good leadership and corporate governance practices can help
companies in general and Vietnamese listed companies in particular to
improve institutional investment 31
1.3.1 They become “an increasingly important factor for investment decisions” 31
1.3.2 Mitigate agency problems 31
1.3.3 Create greater value for companies 32
ix

1.3.4 Institutional investors would pay a good premium for well led and governed
companies 33
Chapter summary: 33

3.2.1 Targeting institutional investors with long investment horizons 80
3.2.2 Institutional shareholders with positive attitude toward mutual benefits 80
3.2.3 Institutional shareholders who have responsibility for their votes 81
3.3 Recommendation on how to improve institutional investment to
Vietnamese listed companies through good leadership and corporate
governance practices 81
3.3.1 Quality of leadership 81
3.3.2 Quality of corporate governance 87
3.4 Action plan 101
3.4.1 Build the Board of Directors of high quality and professionalism 101
3.4.2 Build attractive but reasonable vision, objectives and annual business plan for
the company 102
3.4.3 Make reliable financial statements 102
3.4.4 Improve the role of Internal control 102
3.4.5 Improve the abilities of risk forecast and management 103
3.4.6 Disclosure policy 103
Chapter summary: 105
xi

CONCLUSION 107
REFERENCES 108
APPENDIX 112
Appendix1. Interviewees list 112
Appendix 2. Questionnaire to Buy-side and Securities Corporations 115
Appendix 3. Questionnaire to Sell-side 116
Appendix4. List of fund management companies in Vietnam 118
Appendix 5. The birth and growth of institutional investors 121
Appendix 6. Definition and classification of institutional investors 122
GDP Gross Domestic Product
HASTC Hanoi Stock Trading Center
HNX Hanoi Stock Exchange
HSX Hochiminh Stock Exchange
IR Investor Relation
OECD Organization for Economic Cooperation and Development
POEs Private-owned enterprises
ROA Return on Asset
ROE Return on Equity
SME Small and Medium Enterprises
SSC State Securities Commission
SOEs State-owned enterprises
1

INTRODUCTION
Background of the study
“A key element in modern capital markets is the interplay between firms that
increasingly raise capital internationally, and institutional investors that manage
growing pools of assets”.
1

Capital is an essential input for any business. The bigger the business expansion is,
the more importance of additional capital. Funding plan always plays an utmost
crucial role throughout the companies‟ growth path. Long time ago, companies
mostly relied on state or individual/internal capital when they need a fund raise. In
modern economy, they have a new and more efficient capital pipeline channel to
facilitate this demand which is the stock market.
This special market has their own main players, including Sell-side and Buy-side.
Sell-side basically consists of investment banks and listed companies, who create
stocks and bonds, and sell these securities to investors. Meanwhile, Buy-side

market capitalization to 65%-70% of its GDP in 2015 and to 90%-100% of the GDP
in 2020.
The number of companies listed on the Vietnam stockmarket has been increasing
rapidly, even in the worst time. It went from the first 2 companies in July2000 to
more than 600 ones at the end of 2010. Shares issuance activity to raise capital via
the stock market started to take off since 2006 when 44 listed companies
successfully made new issuance of more than 203 million shares. In 2007, it
reached the extremely high level where 192 companies and four banks made 200
issuances with total capital up to nearly VND 40,000 billion.
The number of investors participating in the stock market increasedstrongly, too,
regarding all individual investors and domestic and foreign institutions. In 2000,
there are approximately 3,000 trading accounts. Steadily, this number increased to
12,000.Of which, there are 1,300 institutional accounts. The number of fund
management companies grew from a few in the 1990s to 47 in 2010, accordingly.
Foreign investors quickly showed their major role, especially in creating market
liquidity.
That is to say, together with foreign direct investment (FDI), foreign indirect
investment (FII) has become an important source of foreign funds to support
Vietnam‟s growing economy. Likewise, the successful economic reform also made
3

Vietnam an attractive frontier - emerging market for many foreign institutional
investors.
During the past decade, business cycles has been going on from the stability,
recessions and boomsand profound inflation.“Many new industries that have
revolutionized society, such as technology, biotechnology, and communications, etc.
And through it all, the need for capital has relentlessly grown, and the role of
investment attraction has grown, which has led to competition for capital”
2
. And

and corporate governance practices in Vietnamese listed companies. This study
therefore investigates the impact of good leadership and corporate governance
practices on investor decision-making and the extent to which they are leading
indicators of future financial performance. It also aims to serve as a guide for those
who wish to strengthen leadership and corporate governance practices in their
organizations.
This aim drives into two objectives. The first objective is to show why good
leadership and corporate governance practices are important in terms of a means to
achieve better corporate performance to help Vietnamese companies attract
institutional investment. The second objective is to provide guidance on how to
perform this function efficiently and effectively to add value to companies,
including but not limited to two parts: The first is Quality of leadership and the
second is the Quality of corporate governance.
Quality of leadership was represented in four main factors: 1). Quality of
companies‟ vision; 2). Quality of company‟s strategy; 3). Execution of company‟s
strategy and 4). Quality of leaders.
Quality of corporate governance is built from 5 aspects: 1). Constituting an
independent and objective board; 2). Compensation/Remuneration issue; 3).
Improve transparency; 4). Improve communication quality and 5). Improve risk
management. 5

Methodology
At this time, little is known about the processes that Vietnamese listed companies‟
leaders use in order to lead their companies to success. Therefore, a variety of data
collection methods, interviews, observations and case study method were used. This
technique provided a comprehensive illustration of the effectiveness and necessity
of good leadership and corporate governance practices in association with

is considerable controversy regarding their effect on firm performance. Researchers
in this area have presented various mutually exclusive viewpoints which can be
synthetized into into 2 sides: the pros (benefits) and cons (the negative affects) of
the institutional investors‟ involvement.
1.1.1.1. The pros (benefits)
Once having institutional investors as strategic shareholders, companies can get
benefits both fundamentally and technically.
 Fundamentally
- Increase companies‟ performance
This is especially true to “dedicated” institutional investors.
The above-mentioned word - “performance” - can be translated in two different
referential points: 1) A company gets good earnings growth (internally) or 2) Better
business results than its peers (externally).
Regarding internal earnings growth, if after a certain fiscal period, a company posts
a growth rate in its earnings, such rate is easily considered as a benchmark for the
company to maintain its growth in accordance with the values of investor
capitalism.
7

Regarding externally peer comparisons, that means company‟s performance can
also be measured by benchmarking the organization to comparative companies. If
an organization‟s stock returns have previously outperformed the returns of their
comparative peers, then there is a pressure to manage earnings to maintain the
appearance of success.
“Dedicated” institutions usually look for long-term gains from their investments.
That is to say, institutions are able to seek out and invest in companies that are
inherently more effective than their peers. After purchasing stake in such
companies, frequently large ownership, they are able to use the right of big
shareholders to involve into the investee companies‟ corporate governance. The
large holdings of these investors provide them with an incentive to monitor investee

company values.
According to Berle and Means (1933)
3
, as a company‟s ownership structure
becomes more diffuse, shareholders‟ ability to control management diminishes. The
resulting shift in power allows managers to act in their own self interest, potentially
destroying shareholder value in the process. This reminds of the classic principal-
agent problem.
 Technically:
- Positive effect on the stock prices
Stock prices are partially impacted by their liquidity on market trading. Liquidity is
understood as the ease with which an asset can be converted into cash. “If a stock is
not regularly traded (in the limit not traded), uncertainty about its underlying value 3
Berle, Adolf A. and Means, Gardiner, C. (1933), The Modern Corporation and Private Property, New York,
Macmillan
9

increases”
4
. A typical characteristic of stock market is that, as investors assemble
information and act upon it, the information becomes reflected into the stock price.
Hence the less trading, the less opportunity for information to be timely
incorporated into the price, and the more uncertainty about the stock‟s underlying
value. Furthermore, as liquidity decreases, fewer investors are interested in the
stock, so that overall information collection tends to decline. Since it is more
difficult to find interested buyers, an illiquid stock is more costly to turn into cash.
As a consequence, the seller of an illiquid stock will have to accept a discount on

much on institutional investors. These institutions directly impact the behavior of
other investors. In the plus side, when institutions buy, the others tend to imitate.
Hence, trading volume and stock price are prone to rise. This facilitate the
additional issuance of companies in the future.
1.1.1.2. The cons (negative affects)
 The “myopia” affects
There are some institutional investors look mainly for short-term gains from their
equity investments, called “myopia investment behavior” (or "managerial myopia")
6
.
Rather than looking for long-term value creation from their investments, these
institutions may prefer to profit from portfolio shuffling when there are increases or
decreases in stock prices, even if those changes are temporary. The resulting
“myopia” has often been blamed for being one of the primary causes of the decline in
the competitiveness of listed companies (Graves, 1988; Graves and Waddock, 1990;
Hill, Hitt and Hoskisson, 1988; Porter, 1992)
7
. The reasons are, the frequent trading
and short-term focus of institutional investors encourages companies‟ managers to
engage in myopic investment behaviors, such as to reduce investment intangible
projects such as research and development (R&D), advertising, and employee
training for the purposes of meeting short-term earnings goals. 5
Chakravarty, Stealth-trading: Which traders' trades move stock prices? Journal of Financial Economics
6
Brian J. Bushee, “The Influence of Institutional Investors on Myopic R&D Investment Behavior”, 1998.
7
Rahul Kochhar, Parthiban David, “Strategic Management Journal”, Volum 17, Issue 1 (Jan, 1996), 73-84.


8
Rahul Kochhar and Parthiban David, “Institutional Investors and Firm Innovation: A Test of Competing
Hypotheses”, 1996. Strategic Management Journal.
9
Adam Harmes,“Institutional Investors and Polanyi's Double Movement: A Model of Contemporary
Currency”, 2001.
12

fundamental information. As a result, observing the choices of others is often a
cheap and helpful alternative to analysing economic fundamentals. Accordingly,
fund managers may buy and sell securities on the basis of price movements without
assessing whether or not they are in response to underlying fundamentals.
Therefore, in the event that an investor is just accidentally successful but all others
follow his decisions, then the whole market imitates decisions that are not based on
fundamentally relevant information. In addition, herding may characterise a
situation in which all investors similarly react on a non-informative signal, possibly
due to psychological forces. The result is that institutional investors do not rely on
their own fundamental information and do not exploit all available information, but,
be more dependent on the less informed judgment and evaluate stocks only by their
short-term and medium-term performance.
 The take-over risk
Another negative disadvantage of institutional ownership is the risk of being
acquired. This is also an unintended consequence of “myopia” and “herd” affects. If
institutions dispose of their large holdings in a poorly performing firm, the stock
price is likely to decline further, making the company an attractive takeover target
for potential acquirers
10
. Moreover, institutions may sell their holdings in case of a
takeover offer with a premium, even though the firm may be performing well.

Zahra (1996)
13
classified mutual, pension, and retirement funds as long duration
institutional owners while investment banks and private funds as short-term
investors. Based on such characteristics, each segment pursues different kind of
stocks. A hedge fund usually invests aggressively and looks for companies of
market‟s favor and prices rise rapidly. Banks, whose portfolios are often so large,
tend to prefer the liquid stocks. Growth fund looks for substantial growth with long-
term. Meanwhile, pension fund looks for companies that will not only grow steadily 11
Hayes, R. H and W. J. Abernathy (1980), “Managing our way to economic decline”, Harvard Business
Review, pp 67-77.
12
Bushee, B.J.(1998). The influence of institutional investors on myopic R&D investment behavior.
TheAccounting Review 73, 305-333.
13
Zahra, S. A. 1996. Governance, ownership, and corporate entrepreneurship: The moderatingimpact of
industry technological opportunities. Academy of Management Journal, 39
14

and appreciate over the longer period of time, but have a measure of safety within
the fund‟s definition of needed return.
Essentially, the institutional investors are convinced by the success and potential of
a company. These are factors that attempt to demonstrate to the investors the ability
of a company to succeed in the future, say, to increase the value of its equity and to
use its capital effectively. These factors can be synthezied into four basic points,
some of which are measurable while others are judgmental. They are: Industry
prospect, Financial data, Management and Plans.

seafood, rubber, garment and textile, etc. has experienced high growth which
generates steady cash flow and fosters stable operation of companies in the sectors.
Those companies accordingly are considered safe and sound investment shelters.
1.1.2.2 Financial data
Overall, investors looks at companies‟ financial data to measure their financial
health. Basic financial data is embodied in the company‟s audited and non-audited
financial statements, its governance filings, including its board of management
meeting minutes, annual general meeting‟s resolution, decision, annual and interim
reports and others. They are released over the internet, on web sites of companies,
state securities commission and financial media. From financial statements,
institutional investors will translate them into popular criteria or ratio to find
whether they meet their requirements, including but not limited to:
 Growth
Certainly, investor of all types are interested in investing in growing companies. A
company with high potential to grow always grasp investors‟ attention as it can
promise them a good return. Furthermore, when a company is in growing phase,
expansion is nearly a must and therefore it needs to source for additional capital.
This opens the investment opportunities for institutional investors who are ample of
cash. Therefore, institutional investors are attracted by companies with stronger
investment opportunities and in need for external financing.
16

A common criteria used to measure growth of a company is the compound annual
sales growth rate (CAGR).
 Good returns
Institutional investors like outperforming stocks. In the same industry, or in the
same conditions of economy, of industry‟s climate, the companies which have
outstanding performance, showed by criteria such as better growth rate in earnings
per share (EPS) but lower price to EPS (P/E) and/or lower price to book value
(P/B). That means, investors find a better but cheaper stock which are potential for

 Risks
Certainly, institutional investors are subject to “risk adverse”. With the same level
of returns, they choose to invest in lower risk stocks. One of a common factor to
weigh riskof the company is its “Leverage”. Institutions invest in companies with
less debt. Most of the cases there are quite rare institutional ownership in companies
that have high levels of debt, and where managers actions are strictly monitored by
major debt-holders. Especially, in the event that bank interest rate rises, companies
with high debt/equity ratio are in worse trouble and their bottom line are hard
injured. The other internal risks may be related to the management quality.
External risks vary from the macro changes, natural environment issues,
demographic changes, etc. which are hard to predict but have big impacts on
companies operation.
In short, regarding financial data, institutional investors would like to know all basic
financial factors such as revenue, profit, profit margin, various kind of ratios, cost of
capital and the likes to understand the past performance and the future prospect of a
company.
1.1.2.3 Management 14
Jeff Neal, “Back to Basics: The Importance of Liquidity”, November 14, 2005,

18

Many great companies of today started as small companies. But not all small
companies can grow to large ones. Many of them even go bankrupt within the first
five years. The difference between two companies that started small, and of which
only one thrived, partly, thanks to capitalization. The other and major part is
management, in other words, is leadership and corporate governance, which, to be
more exact, is the management‟s role in raising capital and utilize successfully that

which leadership and corporate governance are created in a public company.
In exchange, good leadership and good corporate governance result in better
performing stocks. Investors seek outperforming stock to earn the highest return
possible. Then, they seek the companies whose Board of Directors are capable of
making the companies be outperform. When institutional investors have large
portion of a company‟s ownership, they may choose to participate into the BoD to
become responsible owners of the businesses which they are invested in. Because,
intelligent investors are responsible owners. It is in their interest to ensure the long-
term performance of the company. Investors who make the effort to improve
governance in the companies they invest will eventually make them be good over
the long-term.
That is to say, the relationship between the institutional investors and corporate
governance is mutual. Institutional investors are attracted by good governed
companies where they are quite sure their capital is seeded in the right land for
growth and mutually, when they invest and engage in corporate governance,they
have the right and duty to have a voice in the companies‟ operation. Institutional
investors are crucial to the encouragement of good governance. They help ensure
management accountability for financial and ethical actions. This point shapes a
significant part in this study and therefore is discussed deeper in next parts.
1.1.2.4 Plans
As mentioned earlier, investors invest in a company with expectation to collect
good profit in the future. They always look at a certain company to see its prospect
and potential. Money has its own time value. Investors choose to invest in where
they believe to generate the biggest profit. Companies‟ plans are a vital channel for
them to derive their assumption, valuation and decision. The future of a company is,
after all, what investors are concerned with.