Does the human capital of board directors add value to firms? Evidence from an Asian market

Abstract

This paper investigates the effect of the human capital of directors on the financial performance of Vietnamese-listed companies. The dynamic system generalised method of moments (system GMM) estimator is used to examine a panel data-set consisting of 315 firm-year observations over a four-year period from 2008 to 2011. In line with resource dependence theory, we report that the human capital of directors appears to have a positive influence upon a firm’s financial performance. To the best of our knowledge, this study is the first work on the topic of human capital of directors and firm performance for publicly listed companies in Vietnam. This study, by applying a dynamic longitudinal modelling approach, extends the nascent literature on board human capital as well as more generally to the corporate governance literature by providing robust empirical evidence showing that the general human capital of board directors may add value to firms. Our finding, therefore, supports the efforts made by Vietnamese policy-makers in setting up qualification standards as well as skills diversity for the boards.

Keywords:

• corporate governance
• human capital
• financial performance
• system GMM
• Vietnam

JEL classifications:

• G21
• G30
• G32
• G34

Public Interest Statement

This study is the first to explore the topic of board human capital and financial performance for publicly listed companies in Vietnam. Our study significantly contributes to the extant non-US literature on the human capital-performance nexus by providing robust empirical evidence from a transition market in the Asian region. Our finding suggests that companies may benefit greatly by implementing an appointment policy in which the human capital of potential board members is carefully examined. Also, given a positive outcome of having a board with high levels of human capital, it is necessary for companies to facilitate the continuing education process of board members. This leads to the improvement of the human capital of the boards that may ultimately increase the board effectiveness and firm performance. The empirical evidence obtained from this study supports the efforts of Vietnamese policy-makers in setting up qualification standards as well as skill diversity for the boards..

Acknowledgements

We would especially like to thank StoxPlus Corporation (www.stoxplus.com) for providing the list of publicly listed companies in Vietnam, classified according to the Industry Classification Benchmark. We thank Nguyen Truong Quynh Nhue for her assistance in collecting data.

Notes

1. The test results are not reported because of space limitations, but available from the authors on request.

2. Based on small-sample corrections, we report t-test instead of z-test statistics for the estimated coefficients, and an F test instead of a Wald Chi-squared test for overall fit of the system GMM model.

Additional information

Notes on contributors

Tuan Nguyen

Tuan Nguyen is the chairperson of the Department of Business Administration, the Faculty of Economics and Business Administration, Dalat University, Vietnam. He received his doctorate degree in Finance at the University of Waikato, Hamilton, New Zealand. His research areas of interest include corporate governance and corporate finance. He has published research in journals, such as Economics Modelling; International Review of Economics and Finance; International Review of Financial Analysis; Journal of Business Ethics; and Organizations and Markets in Emerging Economies.

An Nguyen

An Nguyen is a lecturer at the Faculty of Economics and Business Administration, Dalat University, Vietnam. His research areas of interest include corporate governance and corporate finance.

Stuart Locke

Stuart Locke is the former chairperson of the Department of Finance, Waikato Management School, the University of Waikato, New Zealand. His current research interests are in corporate governance, capital market movements, agribusiness finance, small business finance and personal financial planning.

Krishna Reddy

Krishna Reddy researches in the areas of corporate governance, corporate finance, personal finance, market efficiency and mutual fund performance.