CHAPTER 1
RESEARCH INTRODUCTION
1.1.

Reasons for choosing the topic

In the world, the family business is the type of business that exists for a long time
and accounts for the largest number. The proportion of family businesses in many
countries accounts for more than 70% of the total number of businesses and plays
an important role in promoting economic growth and creating jobs for workers
(IFC, 2008). Family businesses include all types of companies from small to
medium-sized companies to economic groups operating in different industries and
in many different countries. On average, in developed countries, there are 40% 60% of companies exist as family businesses.
In Vietnam, the family business is a part of the private economy, an important
driving force of the economy”. According to the General Statistics Office (2017),
the private economy contributed 42.9% of the country's GDP, an increase of 4%
compared to 2016, contributing to 6.81% GDP growth compared to 2016.
According to statistics of Forbes Vietnam, the 50 best listed companies in 2018
accounted for 70.8% of the market capitalization with a total profit of VND
106,949 billion, an increase of 34% compared to 2017, including the names of
family businesses in the private economic sector such as Vingroup, Hoa Phat, Kinh
Do ...
In the Corporate Governance system, the Board of Directors (BOD) is one of the
most important internal control factors. Research on the BOD in joint stock
companies often focuses on the relationship between the BOD’s characteristics and
the company's Financial Results which is an important issue in the well-studied
Corporate Governance in the world.

journals such as Family Business Review or issue evaluation reports on family
businesses in different countries, regions and countries such as in the US, Europe,
Asia ... However, in Vietnam, the number of research projects on family businesses

(McConaughy, 2000; Anderson and Reeb, 2003, Villalonga and Amit, 2006) ...

The objective of the research is family businesses and the characteristics of the
Board of Directors affect the company's Financial Results. The research studies the
basic theories about family businesses, the Board of Directors in family businesses
and especially the approaches to defining family businesses in accordance with the
practical oriented research in the context of family planning stock market
landscape and real conditions in Vietnam. Accordingly, family business is defined
based on two criteria: (i) Relationship between BOD’s members and related
persons; (ii) Ownership ratio of the BOD’s members and related persons.

In the world, the topic of family business is a topic that academic researchers as
well as practical researchers spend great interest to form separate family business

Besides, the thesis also delves into the factors that belong to the characteristics of
the Board of Directors that affecting the business results of special companies, the


thesis adds two specific factors of the family business: the number of family
members in the Board of Directors and Family ownership ratio means family
members of the Board of Directors and related persons. For the company's
Financial Results, the thesis uses two groups of indicators reflecting accounting
values (ROA, ROE) and indicators reflecting market value (TOBIN’Q) to measure
and evaluate the Financial Results.
1.3.2. Scope of research
- Scope of space: family-owned business have all conditions to list on the
stock exchange according to the provisions of Circular No. 29/2017/TTBTC. At the same time, the disclosed information of these listed companies
must ensure transparency and publicity on the financial statements, annual
reports and the Corporate Governance reports.
- Scope of time: the thesis selects to study the characteristics of the Board of

percentage of for family firms, higher than that of listed businesses in the whole
market;
Thirdly, the higher the percentage of ownership of family members on the
board and related persons is, the better the financial results are. This shows the
difference compared to non-family companies, in family-owned businesses
focusing on business ownership, focus on decision-making, positively affecting the
company's financial results.
The research results are also the basis for the thesis in order to make
recommendations and measures to improve the operational efficiency of family
businesses in Vietnam.
1.5.

Research structure

In addition to the introduction, conclusion, references and appendix, the structure
of the research consists of 5 chapters:
Chapter 1: Introduction of research topics
Chapter 2: Theoretical basis and overview of BOD’s characteristics that affect the
Financial Results of family businesses.
Chapter 3: Hypotheses and research methods
Chapter 4: Research results
Chapter 5: Discussion of research results and recommendations

CHAPTER 2: THEORETICAL BASIS AND OVERVIEW
2.1. Definition and approaches of family business
Based on the overview of the definition of family business in the world and the
summary of researchers' approaches, it is necessary to establish a family business
definition that appropriate to the practical conditions in Vietnam in practical



In contrast, when the family ownership ratio is large, the dominant nature still
ensures even when the number of family members is less and does not hold

important positions in the Board of Directors. Family ownership ratio refers to the
ownership ratio of a family member who is on the BOD or the executive board and
related persons (parents, spouses, children and siblings).
Therefore, summarizing the research results, a listed company is considered a
family business when it satisfies one of the following characteristics:
- A family member is the CEO or Chairman of the BOD and the family ownership
rate accounts for at least 5%. (Marleen Dieleman et al., 2013).
- At least 2 members participate in the BOD or the executive board (this family is
the largest shareholder in the company) and the family ownership rate is at least
5%. (Marleen Dieleman et al, 2013)
- More than ½ positions in the BOD are held by family members (Shyu, 2011).
- At least 1 family member is involved in the BOD and the total ownership of the
family (parents, spouses, children, siblings) exceeds 10% (Shyu, 2011)
- Family members hold at least 20% of the company's shares or more. This number
includes shares of family members and subsidiaries / affiliates. (La Porta et al.,
1999).
In order to clarify the characteristics of family businesses furtherly, the author also
synthesized research to compare the differences between family businesses and
non-family businesses in the following table.
Table 2.2: Differences between family business and non-family business
Criteria

Family business
1.
- In the long term
Orientation
- Interested in the long term profit


Criteria

Family business
family, having respect for the
original mission and values
created by the founders
4. Longevity - Long time
5.
- Appreciate the succession of
Development generations in the family
perspective

Non-family business
and depending on the views of
the owner and the executive
board.
- Short time
- Interested in raising stock
prices, profits for investors, and
maximizing profits in the short
term.
6. Trust
- Sustainable and deep trust - Less sustainable than family
among family members of the business
same bloodline
7. Altruist
- Emphasizing altruist, long-term - Clear relationship at work for
collective goals can be more the purpose of maximizing profit
valuable than profits.

of the BOD because they are "stewarship" and willing to work to increase results
and efficiency for the company.

family businesses have the capabilities, resources, and relationships that nonfamily businesses do not have and cannot grow.

The stewarship theory also said that the family company can achieve development
goals should bring experts with profound knowledge into the BOD. The members
of the Board of Directors or outside managers are selected to support the missing
competencies and skills of family members. All studies show that decision-making
will be greatly improved if family businesses have a BOD with capacity,
experience, qualifications and dynamism and creativity.

Five sources of capital the family company has helped explain the positive effects
from the resource dependence theory: human capital, social capital, stability,
viability and governance structures. Thus, the family businesses' advantage stems
from the interaction of the family and the business in the unique way that they
manage, evaluate, acquire, eliminate and utilize the necessary resources.

The companies based on stewarship theory in which the Chairman of the BOD and
the general manager may be the same person - the duality; the ownership structure
of these companies is the concentrated ownership - the company is owned by a few
large and controlling shareholders, and the BOD of these companies will represent
the centralized ownership structure and control as mentioned above, limiting the
presence of those who are not has great ownership, or independent BOD members.
2.2.3. Stakeholder theory
This theory emphasizes the role and interests of all parties involved in the
operation of a company; Customers, employees, communities, trade associations,
suppliers, governments, investors or institutions must all benefit and have a role for
the company. For the family business, the stakeholder theory is not supported as
much as the agency theory or the stewarship theory.

For family businesses, in addition to some similar research results of joint stock
companies, the directions showing the differences in the research on the BOD's
characteristics of the family business are:
Fifthly, primarily researching on analyzing the relationship between family
ownership and the efficiency of family businesses.
Sixthly, researching on the relationship between the structure of the B Directors
and the performance of family businesses in Vietnam.


Seventhly, researching on the processes or intergenerational transfers in
Vietnamese family businesses.
2.3.3. Research Gaps
Firstly, there are many theoretical and practical research methods for family
business research objects in the world. However, the biggest argument in the
family business field is how to define a family business to compare with a nonefamily business. Each definition has different criterions will affect to research
results. Therefore, thesis will provide general definition which is suitable with
practical Vietnamese situation and experimental research methods for Financial
Results in family business. If one definition of family research is not clear and lack
of essential conditions in variable number research, all hypotheses will not have
science meanings.
Secondly, most research about Corporate Governance and BOD
characteristics in Vietnam focus on listed joint stock company. BOD
characteristics research in family business is the foundation of finding basic
specipalities, differences between BOD characteristics in Vietnamese family
business and non-family business.
Thirdly, most family business in Vietnam is SMEs or unlisted company.
Therefore, listed family company research is essential for effective Corporate
Governance and orientation for other company and management agency to support
and promote family business development in Vietnam. Experimental research
results about the effects of BOD characteristics to Financial Resutlts will not be the

size and Financial Results of the company. The bigger size of BOD, the better
Financial Results (Pfeffer, 1972; Klein, 1998; Coles and partners, 2008). Big size
of BOD will create the better support and advisory for the Board of Managers
(Klein, 1998). Moreover, an BOD with a big size will collect information easier to
make a decision, which will affect positively to Financial results (Dalton and
partners, 1999).
Some researches about family business show the big size of BOD combines
with family control will increase efficiency because they have experiences,
expertise knowledge and social relationship will empower for family business
(Astranchan, 2002; Setia-Atmajia, 2009). In the first stage of building a company,
all decisions mostly are made by the founders and family members so a small size
BOD will be more effective. However, in other next stages, when the size of the
company is bigger and the performance is more complex, a bigger size of BOD
will adapt more easily for business fluctuations.
Therefore, it will be a difference between most of research in Vietnam about
BOD size with the object is all listed joint stock company. Thesis supports the
opinion of the positive effect of BOD size to Financial Results of family company


based on the family business features, benefits of directors and dedication abilities
to company power. The hypothesis is set:
H1: BOD size has the same dimensional relationship with Financial Results
of family business.
3.1.2. Leadership duality
Leadership duality and concurrent position of BOD and Directors researches
show different results even contradictory results. According to Dahya and partners
(2009), shareholders and investors think that Chairman of BOD should not
concurrently hold the position of General Director or Management Director
because this concurrent position will lead to personal assets appropriation affecting
shareholders’ benefits. Therefore, the separation of BOD Chairman and CEO of

financial results of family business. The hypothesis will be:
H2: There is a reverse relationship between the concurrent position of BOD
Chairman and CEO and Financial Results of family business.
3.1.3. The proportion of independent BOD members
In family business, members of BOD actually are family members. The
independent members take an important role when the company develop to a
complex size. According to a research in US, there are more than 80 companies
having up to 3rd generation family ownership, the appearance of one BOD member
without family controls will be important element to the existence of these
companies (Fred and Alden, 1998).
In Corporate Governance point of view, the representative theory and other
theories show the role of independent BOD members. These members will contain
the family control in development orientation of the company. These members will
not only utilize the knowledge, skills, experiences and professional abilities which
family members are lack of but also increase the discipline of BOD meetings,
focus on the business strategies without problems of family. The independent
members also take the medium role when family members have opposite opinion
in business matters.
Some experimental researches about the relationship between the proportion
of independent BOD members and financial results have different conclusions.
According to Anderson and Reeb (2004), Daily and partners (2003), the
independent members have positive affect to financial results of family business,
their appearance in BOD can reduce arguments of management shareholders and
minority shareholders, they can prevent family members from dispossessing assets
through excessive compensation, special dividends or unwarranted perks.
However, other researches show that the independence in BOD will affect
negatively to company performance (Setia-Atmaja and partners, 2009;
Mohammad Mittakin and partners, 2010). Research of Chen and partners (2005),
Ibrahim and partners (2011) have opposite opinion, there isn’t any effect to
financial results from the proportion of independent members in BOD. They argue

companies: (i) Firstly, creativity and different perspectives create a larger number
of opinion and solutions for any problems (Watson, Kumar and Michaelse, 1993).
This diversity will also limit the ability of the group thinking phenomenon,
members can contribute information from a variety of sources. (ii) Secondly,
accessing to resources and connections. By selecting members of BOD with
different characteristics, the company can easily access to different resources due
to the support from a diverse range of industries, experience, and qualifications.
(iii) Thirdly, public relations and investor’s relations. Some family businesses may
benefit more from complying with social expectations than non-family businesses

do. In the world, many countries' legal documents require an BOD of joint stock
companies to have a diverse structure, gender, age and ethnic group with the
purpose of creating a diverse voice, diverse experience, capable of bringing
resources and relationships that can benefit the company.
However, there are also potential costs surrounding the diversity of the
BOD. According to some research documents on social psychology, they show that
different demographic limits communication between small groups, creates
conflicts and reduces attractiveness among individuals. Therefore, the diversity in
BOD can lead to conflicts and lack of cooperation among members of BOD.
Some conclusions from the research results about the diversity in the
composition of the Administration affect financial results:
H4a: The proportion of women in the Board of Directors has a positive
impact on business results of family companies.
H4b: Educational level is positively correlated with business results of
family companies.
H4c: The age of the Board members has the same dimensional relationship
with the family business results
H4d: There is a negative correlation between the proportion of foreign
members in BOD and the business results of family companies.
3.1.5. Ownership rate of family members on BOD

the requirement to disclose information on the stock market is one of the important
contents to comply with the Securities Law and Circular No. 155/2015 TT-BTC
dated 06 October 10, 2015 by Ministry of Finance. The research sample of the
thesis is family businesses satisfied the identification criteria and having sufficient
information for research in the overall listed companies on both HNX and HOSE.
The total number of listed companies as announced by the SSC accounted
for to December 2017 was 728 companies, of which HNX had 384 companies and
HOSE had 344 listed companies. Regarding to the enterprise structure, according
to the report of the Steering committee for enterprise Innovation and Development
under the Ministry of Finance evaluating the situation of restructuring,
equitization, divestment, restructuring of state-owned enterprises (SOEs) and
enterprise development in the first 6 months of 2018, only 150 out of about 700
SOEs enquitized listing. Thus, out of the 728 listed companies, the remaining 578
are privately owned.
Regarding to the number of family businesses, the thesis has filtered out 57
companies meeting the family identification criteria according to the thesis's
research. Thus, 57 family companies in the sample show that family companies
account for 9.87% in the private business sector. This is a relatively small

percentage but suitable for studies in China - a country that has many similarities
with Vietnam in culture, tradition, financial system and ownership structure. In
Chinese stock market, the total number of listed companies at the end of 2017 was
3485, of which private ownership accounted for 65% that means 2265 businesses
in which family companies accounted for 10% of the total private companies
(DRC/ERI-OECD, 2005)
On the other hand, in terms of the capitalization ratio of family businesses to
the total market capitalization from 2012 - 2017, it ranges from 18-22%. Thus,
with only 9.87% of the number of family businesses but accounted for 22% of the
total market capitalization. This is the foundation to ensure the representation in
the sample research.

report, the market capitalization size reached more than 3.9 million billion VND,
increased 12.7% compared to 2017, equivalent to 79% of GDP in 2017 and 71.6%
of GDP in 2018, exceeding the target of 70% of GDP set out in the Vietnam stock
market development strategy for the period of 2011-2020.
4.1.2. Management of Vietnamese listed companies’ evaluation
Evaluating the corporate governance of Vietnamese listed companies from
2012 - 2015
According to the report "ASEAN Regional CG Scorecard: Reports and
evaluation of each country", the overall evaluation results show that the CG
situation in 4 years from 2012 to 2015 show that all areas recorded improvement.
In recent years, the situation of CG management of listed companies in Vietnam
are not as good as other countries in the region.
Corporate governance of Vietnam listed companies in 2018 evaluation
2018 is the first year Vietnam has launched a set of CG criteria applied to all
Vietnamese listed enterprises (VCGS). The CG evaluation sample in 2018
included 485 companies listed in the VNX Allshare index in April 2018 with a
total market capitalization of April 23, 2018 is 2,895,009 billion VND, accounting
for 91% of the total capitalization of the market. These enterprises are categorized
into 3 groups: large-scale listed enterprises (including 50 enterprises), mediumsized listed enterprises (including 150 enterprises) and small size listed enterprises
(including 285 enterprises). Summary of some results of the CG review in 2018 of
Vietnamese listed companies are as follows:
Regarding to the distribution of CG scores, it was found that the majority of
businesses scored between 50 and 70 points with 335 businesses accounting for
70% of the total enterprises. Among them, there are 17 enterprises with scores
above 70 (accounting for nearly 4% of the total enterprises); 97 enterprises had a
score of 60 - 70 points; 238 companies had scores of 50-60 (accounting for nearly
4% of the total number of enterprises); 133 enterprises had scores lower than the
average of 50 points (accounting for 25% of the total number of enterprises were
evaluated.) This result shows that the situation of implementing CG followed
Vietnam's CG score form (VCSG) is still not really good because the number of

9,8%
Source: Evaluation of CG of Vietnamese listed company in 2018 report
4.1.3. Family business management in Vietnam
Since “Revolution” in 1986 and especially in recent years, Vietnamese
family businesses have affirmed their position with business success and great
contribution to social and economic benefits. In Vietnam's stock market, when
listing the list of 50 - 100 richest people every year, the names of these businesses
are also associated with family companies.
For companies listed on the stock market, family businesses are primarily
private companies that participate in Vietnam's stock market in the form of group
joint stock companies. In the ownership structure of enterprises listed on the stock
market in our country, the State ownership accounted for 24%; foreign ownership
is 18% and the rest is 58% other ownership, most of which is private ownership.
The analysis results show three important issues in Corporate Governance of
family in Vietnam:
Firstly, there is a lack of professionalism in doing business of family
businesses.
Secondly, the composition and structure of BOD in family businesses in
Vietnam are not effective.


Thirdly, the issue of succession or transfer planning between generations in
the family businesses.
4.2. Descriptive statistics of the research sample
From the observed results, the thesis compares to other studies in Vietnam
on the characteristics of BOD in the general listed enterprises in the whole market.
Especially, comparing with the CG score and BOD characteristics in the "CG
Report of Vietnamese listed companies 2018" to clarify the characteristics of BOD
in family businesses with listed join stock companies on the market.
Compared to listed companies on the market in 2018 in the “Evaluation

3. The proportion of independent
member in BOD
4. The proportion of woman in BOD
5. The education level of BOD
6. Average age of BOD
7. The proportion of foreign
members in BOD
8. The family ownership ratio in
BOD
9. The proportion of family
members in BOD
Control Variable
10. The size of the company
11. Operating year(s)
12. Listed in the stock market
year(s)
13. Growth rate
14. Financial Leverage

(+)
(-)
(+)

(+)
(-)
(+)

(+)
(+)
(+)

(-)
(+)
(-)

(+)
(+)
(+)
(+)
Source: Data processing results of the author
Note: The research results in Table 4.2 were performed with statistical
significance at 1% and 5%.

4.3. Main research results of the thesis
Table 4.2: Research Results of the Thesis Summary
Estimated coefficient of
Hypothesis
Elements
financial results
(correlation/sign)

(+)
(-)

CHAPTER 5


RESULTS DISCUSSIONS AND SOME
RECOMMENDATIONS
5.1. The research results discussion
In order to unify the results of the research thesis and explain the

results

There are 3 independent variables that have a negative impact on the
business results of family-owned listed companies in Vietnam: The leadership
duality (DUALITY), average age of BOD members (AGE), percentage of
members foreign Board of Directors (FOREIGN). This result is found in both
cases of FEM estimation model when the dependent variable is ROA, ROE.
Among these three variables, the biggest influence is the AGE variable, if the
average age of the board member increases by 1%, the average value of the ROE
decreases by 274.63% and if the average age of the board member increases by
1%, the average value of the ROA decreases by 112.13%.
The next level of influence is DUALITY variable, if the CEO concurrently
hold the chairman of the BOD position, the average ROA value will be decreased
by 4.76% and the average value of ROE will be decreased by 10.27%. Finally, the
positive effect of the FOREIGN variable, if the percentage of foreigners in the
Board of Directors increased by 1% if the percentage of foreigners in the Board of
Directors increased by 1%, the average value of the ROA decreased by 0.39%,
then the value The average of ROE decreased by 0.82%. For the DUALITY
variable, the thesis compares the average ROA of the two groups of companies
with a high 6.2% concurrent experience (5.1%). Similarly, the results showed that
the group of companies with the leadership duality was lower than the group of
companies that did not have this phenomenon.
Thirdly, the influence of control variables on the financial results
For control variables, both FEM estimation models when the results are
measured by ROA and ROE indicators have similar results on the influence of
factors. The two control variables having the same directional impact on the
financial results are the number of operating years and the growth rate, the two
variables having the opposite effect on the financial results are the number of years
of listing in stock market and firm size.
In addition, there are some variables in the model that have no impact on

accepted in the business results model as measured by ROA.
5.2. Recommendations
5.2.1. Recommended for family-owned listed businesses
Firstly, it is necessary to professionalize the board of directors in family
companies: (i) build an effective and reasonable BOD scale; (ii) the positions of
the Chairman of the Board of Directors and the CEO need to be separated; (iii) it is
necessary to ensure the proportion of independent Board members in family
businesses; (iv) ensure a BOD structure with appropriate female membership in
family businesses; (v) Family businesses in Vietnam should rejuvenate the BOD
members.
Secondly, build an effective family businesses governance mechanism
The mechanism and regulations of the family business must be
institutionalized by specific activities such as: Defining the values, the mission
statement and business orientation of the family, separating the 2 issues on the
family and business; Develop a list of action rules in the family; clearly define

powers, responsibilities and relationships between family members, the Board of
Directors and the Board of Managers; Adding independent members outside Board
members who are not under family control to neutralize conflicts, family conflicts
and enhance discipline in the company; Constantly innovating in thinking, in
governance to improve the ability to approach the industrial revolution 4.0.
5.2.2. Recommendations to regulatory agencies
Firstly, the group of control measures to improve the financial results and
performance of family businesses: strict regulations and controls to ensure
transparency, especially for the disclosure of information in annual reports and CG
reports for family businesses; sanctions should be strictly imposed on businesses
that violate the transparency and quality of information disclosure; set up a
separate set of corporate governance rules for listed family business.
Secondly, the group of support measures to support the development of
family businesses: Expanding and developing separate training and coaching

of Directors in family companies: (i) The financial results of family companies are
better than those listed on the market but still belong to the group having a CG
score needs to improve operational efficiency; (ii) The leadership duality of family
companies is higher than other listed companies in the whole market; (iii)
Ownership of family members in the Board of Directors and related persons is a
characteristic that expresses family characteristics and dominance of the family
company; (iv) Financial results of family companies are better than other listed
companies in the whole market.
From the results of the thesis research, it is recommended that some
effective CG policies for family-owned listed companies with 2 groups for family
companies and management agencies.
However, the thesis also has some limitations that need to be completed,
such as the number of research samples due to the transparency of information
disclosure in the market. Moreover, the thesis has not compared the characteristics
of the Board of Directors that are different in how the two groups of family
businesses and non-family businesses. Therefore, the next research direction of the
thesis may refer to the study of the characteristics of the Board of Directors in
relation to the financial results based on the comparison of two groups of family
and non-family businesses. In order to see the impact on which group's business
results would be better or consider other aspects of family businesses, especially
who is the founder to confirm the existence of that business until the time of the
research or adding a number of other characteristics of the Board of Directors
affecting the business results such as the capacity, skills, experience, professional
qualifications of the Board of Directors.