The impact of the state on M&A performance: an empirical study on Vietnam

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the Department of Finance, School of Business, Faculty of Business, Economics and Law, La Trobe University, Bundoora.

This thesis addresses the call for fundamental research that examines the impacts of typical institutional features of emerging markets on mergers and acquisitions (M and A). Path dependence theory says that the corporate structures of an economy partly stem from the structures with which its economy started. Rooted from a centrally planned economy, the Vietnamese market is characterised by the heavy presence of the State via business ownership and regulatory control, which impact firms’ M and A decisions. The institutional influence also pervades the corporate governance structure of a Vietnamese firm. Vietnam’s former economic model and its current ideology of centralized power under a single ruling party contribute to the popularity of CEO duality structure, where the CEO is also the Chairman of the Board. This research, therefore, investigates the impacts of the institutionally shaped corporate ownership and governance structures on a firm’s M and A performance. Regarding the impact of state ownership, in light of agency theory and political theory on state firms, this thesis hypothesises and finds evidence to support the view that state-owned firms are less efficient than non-state owned firms in M and As, both in terms of shareholder wealth (measured by cumulative abnormal returns upon M and A announcement) and operating performance. This could be attributed to the potential agency costs and principal costs due to the principal – principal conflict between the state and other shareholders. This thesis also identifies some types of behaviour of the state shareholder that may contribute to principal costs. In addition, the results indicate that the State indirectly affects M and A via the level of industry regulatory control. The evidence suggests that Vietnamese listed firms in regulated industries underperform at M and A compared to those in unregulated industries. However, regulated firms that have the State as the largest shareholder bear less of such impact. In terms of corporate governance structure, CEO duality is positively related to acquirer returns, especially for firms with state capital. This finding indicates that CEO duality in firms with state capital could be effective given the institutionally constrained context of Vietnam as it potentially mitigates principal costs of the state shareholder and helps firms to leverage on leadership resources. The findings from Vietnam support the inclusion of institutional factors when investigating M and A in emerging markets.