Impact of corporate governance and financial leverage on the valuation of Vietnamese listed companies

Abstract

This study investigates the effects of corporate governance (CG) and financial leverage (FL) on the valuation of firms listed in Vietnam. An analysis was conducted on a sample set containing 325 companies from the Ha Noi Stock Exchange over a three-year period (2018-2020), employing a correlational and non-experimental research design. It was found that an increase in board size negatively influences the value of these companies. In contrast, the phenomena of CEO duality, the presence of audit committees, larger firm size, greater FL, higher insider holdings, and improved return on assets were observed to positively affect firm valuation. Notably, the study delineates sector-specific impacts of CG and firm leverage, identifying divergent effects in the service and manufacturing sectors. For manufacturing firms, a larger board size adversely impacts value, whereas CEO duality, FL, the existence of audit committees, insider holdings, and firm size contribute positively. Within the service sector, a similar negative correlation was noted with board size, but FL and return on assets positively influenced firm value. The findings of this research provide valuable insights into the dynamics of firm valuation, offering guidance to investors, financial managers, and consultants. This investigation enriches the existing literature by highlighting the complex interplay between CG, FL, and firm valuation in the Vietnamese context. The discovery of the negative impact of larger board sizes on firm value challenges established beliefs and underscores the criticality of board composition for optimal firm performance.